Achieving a USD 1 Trillion Manufacturing Economy

Achieving a USD 1 Trillion Manufacturing Economy

Recently, CII partnered with the Government to work on the target of creating a USD 1 trillion manufacturing economy by 2025-26. We brought out a report ‘The Lion Conquers the Forest, India: A USD 1 Trillion Manufacturing Economy’ which looked at how India could become a leading global destination for cost-effective high value-added manufacturing.

Achieving a USD 1 trillion manufacturing industry (in gross value added terms) by 2025-26 would necessitate industry, government and academia to work together to propel the sector towards a 12.3% CAGR.

The Interventions Escalator, comprising horizontal and vertical interventions, summarises the required areas.

Horizontal Interventions Escalator

Enhancing infrastructure, streamlining regulatory processes, easing global trade restrictions, and ensuring access to financing and branding ‘India’ are the primary elements of creating a conducive eco-system. Greater adoption of Industry 4.0 technologies will require skilling up all levels of employees as well as developing new business models.

Under the horizontal interventions, set out below are a few priority actions based on their impact and relative ease of implementation.

  • Logistics costs will need to be reduced.
  • Industry will need to work with state governments to ensure uninterrupted and consistent quality supply of utilities.
  • Digital infrastructure will improve the ease of doing business.
  • Labour reforms will need to move quickly.
  • A land bank database needs to be created, including surplus lands of PSUs, railways and defense, and a map for industrial use.
  • Credit registry for MSMEs will overcome the issue of non-availability of historical data and behavior of MSMEs.
  • Awareness needs to be created, along with the development of model plans for shared infrastructure.
  • Coastal economic zones need to be developed with a more conducive eco-system.

Skilling up the future workforce of the manufacturing industry is of utmost importance and updates in the curriculum will need to ensure personnel are future-ready, aligned with Industry 4.0 needs. Tie-ups between educational institutes and skilling centers, and between academia/research institutions and industry will assist in answering real industry problems.

Investments towards research and development need to be encouraged, particularly in higher education institutions and by setting up incubation centers for innovation and start-ups in Tier 2 and 3 cities.

Vertical Interventions Escalator

We have identified 11 existing sectors with a high growth potential.

  • Defence manufacturing
  • Aeronautical products
  • Chemicals
  • Electronics
  • Auto and auto-components
  • Pharmaceuticals
  • Space manufacturing
  • Ayurvedic products
  • Ready-made apparel
  • Food processing
  • Jewellery

The Department of Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, has also identified 8 nascent sectors, with potential for exponential growth. These sectors include: biotechnology and genomics; electric mobility and storage; unmanned aerial vehicles; active pharmaceutical ingredients; medical devices; robotics and automation equipment; advanced materials; and chemical feedstock.

Specific focus on these sectors will set the stage for the future manufacturing industry; contributing in excess of USD 170 billion to the manufacturing GVA by 2025-26.

There are three possible growth scenarios which can occur over the next decade: business-as-usual; moderate implementation of the interventions’ escalator; or full implementation of the interventions across all dimensions.

Scenario 1: The Lion Meows

In this scenario, we can expect incremental steps from the government and industry, with India’s GDP growing at a CAGR of 6%. With the manufacturing sector growing at a CAGR of 6.6%, it would reach USD 650 billion and India would remain on the sidelines of integration into global manufacturing value chains.

Scenario 2: The Lion Roars

If most of the growth enablers are put in place, India’s GDP could touch USD 4.5 trillion by 2025-26 and the manufacturing sector, compromising 20% of the total GVA, will grow to USD 800 billion in the same period.

Scenario 3: The Lion Conquers the Forest

Achieving a USD 1 trillion GVA by 2025-26 will require all growth enablers to be in place. Vertical interventions for all identified sectors, including the nascent sectors, would be implemented to the fullest. Leading global players must be invited to invest in India, with a prime focus on the 8 identified nascent sectors. This will allow for India to be fully integrated into the global manufacturing value chains; with a manufacturing sector GVA target of USD 1 trillion and an overall GDP target of USD 5 trillion by 2025-26.

We must target the last scenario where we are able to achieve our full manufacturing potential and take the lead in emerging sectors. This ambitious target of a USD 1 trillion manufacturing industry requires a detailed action plan for all dimensions, highlighting allocation of specific responsibilities, along with quarterly and annual targets. DPIIT has set up task forces to identify solutions and CII is privileged to work on this initiative.

The next decade will witness rapid changes in technology, market and global dynamics. Together, government and industry can ensure that India is able to strategize for meeting our aspiration of a USD 1 trillion manufacturing industry.