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INDIAN MANUFACTURING India’s opportunity to become a global manufacturing hub

Aug 10, 2021

A new study by the World Economic Forum presents five ways India can realise its manufacturing potential and build a thriving manufacturing sector. According to the report, India can play a significant role in reshaping supply chains and could contribute more than $500 billion in annual economic impact to the global economy by 2030. India’s domestic demand, demographics and government programmes encouraging manufacturing put it in a unique position.

The World Economic Forum recently produced a white paper entitled ‘Shifting Global Value Chains: The India Opportunity’, in collaboration with Kearney. The paper found India’s role in reshaping the Global Value Chains (GVCs) and its potential to contribute more than $500 billion in annual economic impact to the global economy by 2030. The white paper presents five possible paths forward for India to realise its manufacturing potential.

Beyond the unprecedented health impact, the COVID 19 pandemic has been disastrous for the global economy & businesses and is disrupting manufacturing & GVCs. Also, disturbing different stages of the production in different locations around the world. Furthermore, the pandemic has accelerated the already ongoing fundamental shifts in GVCs, driven by the aggregation of three megatrends: emerging technologies; the environmental sustainability imperative; and the reconfiguration of globalisation.

In this fast-evolving context, as global companies adapt their manufacturing and supply chain strategies to build resilience, India has a unique opportunity to become a global manufacturing hub. It has three primary assets to capitalise on this unique opportunity. The potential for significant domestic demand, the Indian Government’s drive to encourage manufacturing and with a distinct demographic edge, including considerable proportion of young workforce.

At the same time, the country is under pressure to catalyse its manufacturing sector to create jobs for a rapidly growing working-age population, distribute economic growth more equitably and contain a burgeoning trade deficit. In this context, increasing the share of global manufacturing could be a key foundation for socioeconomic success in the coming decade. This paper, which reflects the views of leaders in the region, presents five possible transformation pathways to achieve this objective:

  1. From the national scale to the global scale: Committing to coordinated action by the private sector and Government of India to help build domestic manufacturing companies that can compete globally.

  2. From cost arbitrage to capability advantage: Looking beyond cost to build competitive muscle through workforce skilling, innovation, quality and sustainability.

  3. From measured to accelerated integration in global value chains: Increasing the pace of integration by reducing trade barriers and enabling competitive global market access for Indian manufacturers.

  4. From financial incentives to agile execution on the ground: Building on the emerging success of the Production Linked Incentive (PLI) scheme to focus on reducing the cost of compliance and establishing manufacturing capacities faster.

  5. From infrastructure inputs to infrastructure outcomes: Focusing infrastructure development on cost savings, speed and flexibility.

These pathways offer an initial framework to help inform discussions on the role India can play in reshaping GVCs, and can contribute more than $500 billion in annual economic impact by 2030, according to Kearney calculations and estimates in line with market assessments.

These factors will position India well for a larger role in GVCs. A thriving manufacturing sector will also generate additional benefits and help India deliver on the imperatives to create economic opportunities for nearly 100 million people likely to enter its workforce in the coming decade, to distribute wealth more equitably and to contain its burgeoning trade deficit.

Comprehending the insights, Francisco Beti, Head of Shaping the Future of Advanced Manufacturing and Production, world Economic Forum, conferred, “For India to become a global manufacturing hub, business and government leaders need to work together to understand ongoing disruptions and opportunities, and develop new strategies & approaches aimed at generating greater economic and social value.”

Adding to it, Viswanathan Rajendran, Partner, Kearney, stated, “A thriving manufacturing sector could potentially be the most critical building block for India’s economic growth and prosperity in the coming decade. The ongoing post-COVID rebalancing of Global Value Chains offers India’s government and business leaders a unique opportunity to transform and accelerate the trajectory of manufacturing sector.”

This white paper aims to serve as an initial framework for deliberation and action in the manufacturing ecosystem. The World Economic Forum, in collaboration with Kearney, will continue to develop this agenda by working closely with the manufacturing community in India to generate new insights, help inform discussions and strategy decisions, facilitate new partnerships and provide a platform for exchanges with the global community.

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