India’s manufacturing sector greatly impacts fields like logistics and maintenance, making this thematic fund a strong addition to your investment portfolio.
Manufacturing is a significant component of an economy’s growth engine, alongside services and agriculture. For India, the services sector currently dominates, contributing 56% to the GDP, followed by manufacturing at 27%, and agriculture and allied sectors at 17%. Despite this progress, there is considerable room for growth in the manufacturing sector, which can play a critical role in the country’s economic development.
The Crucial Role of Manufacturing
Manufacturing is essential for several reasons. Firstly, it plays a crucial role in import substitution by reducing the need to import goods, decreasing dependency on foreign products, and strengthening the domestic economy. Producing more goods locally helps conserve foreign exchange reserves and enhances self-reliance, which is vital during global trade disruptions.
Secondly, a robust manufacturing sector significantly boosts export growth. By developing manufacturing capabilities, a country can produce goods for both domestic and international markets, improving the trade balance, increasing foreign exchange earnings, and positioning itself as a competitive global player.
Manufacturing is also a major driver of job creation. This helps reduce unemployment and underemployment, contributing to social stability and economic growth.
Moreover, manufacturing stimulates growth in related sectors such as logistics, information technology, and maintenance services, enhancing the overall service sector.
Finally, manufacturing boosts overall productivity by utilizing resources more efficiently and scaling up production, crucial for sustainable economic growth and improving living standards.
Boosting Manufacturing
The Indian government has taken several strategic steps to bolster the domestic manufacturing sector. One such initiative is the “Vocal for Local” campaign, which aims to promote Indian manufacturing by encouraging the production and consumption of locally made goods. This initiative not only seeks to reduce reliance on imported products but also aims to strengthen domestic industries and create more job opportunities within the country.
Another significant measure is the Production Linked Incentive (PLI) scheme. Currently, the Government has recognised 14 sectors where the scheme is applicable. This scheme offers financial incentives to select sectors, boosting production and exports. It enhances manufacturing capabilities, attracts investments, and positions India as a global manufacturing hub.
In addition to these initiatives, the Indian Government has introduced the National Logistics Policy. The policy focuses on reducing logistics costs, which in turn improves overall cost efficiency, better supply chain management, timely delivery of goods and profitability for businesses. This comprehensive approach not only benefits the manufacturing sector but also strengthens the entire economic framework by improving infrastructure and connectivity.
India’s Advantage for Manufacturing
Globally, countries are increasingly aware of the environmental hazards posed by industrialization, leading to reduced investments in energy-intensive sectors. This global decarbonization trend may benefit India by attracting more manufacturing opportunities.
India’s low labour costs make it an attractive manufacturing destination. Post-pandemic, global companies are diversifying supply chains outside China, presenting significant opportunities for India.
India’s younger workforce and increasing consumption potential, favour the manufacturing theme. The strong domestic capital expenditure cycle, debt reduction, and high-profit margins indicate that manufacturing could perform well in the coming years.
Disclaimer: The Views are Personal and not a part of the Outlook Money Editorial Feature