Rising Phoenix: India Emerges as Global Manufacturing Powerhouse Amid Shifting Tides

  • Measures such as the reduction of corporate tax rates, the enhancement of ease of doing business, and progressive reforms in the Foreign Direct Investment (FDI) policy have further bolstered India’s appeal as an investment destination. Initiatives like ‘Skill India’ have focused on harnessing the potential of the country’s young population, with nearly 65% of Indians under the age of 35
  • Boeing’s February deal with Air India is the biggest in civil aviation history but also comes as India is seeking to bolster its profile as a defense manufacturer.
  • Labor in China is now expensive. So if you want to lower your cost of production, you have to move to other countries like India,” said Nitin Soni, senior director of Fitch Ratings

In the wake of the COVID-19 pandemic and amidst escalating geopolitical conflicts, India’s trajectory as a global manufacturing hub has gained substantial momentum. Fueled by strategic government initiatives and a host of conducive factors, India is positioning itself as a formidable alternative to its eastern neighbor, China.

The Indian government has long been committed to fostering an environment for sustainable economic growth and attracting foreign investments. Recent years have seen intensified efforts to improve the ease of doing business in the country.

One of the most compelling indicators of India’s potential lies in its robust economic resilience. In the post-pandemic era, India has consistently achieved over 7% annual growth in the last two financial years, 2021-22 and 2022-23, with high expectations for the current financial year. India’s ambitious target of becoming the third-largest economy by 2027-28 has garnered widespread attention, with experts increasingly optimistic about its feasibility.

In October 2023, according to S&P Global, India is poised to become the world’s third-largest economy by 2030, outstripping economic powerhouses such as Germany and Japan. Projections indicate that India’s nominal GDP, currently at USD 3.5 trillion, will soar to USD 7.3 trillion by 2030, surpassing even the Japanese economy, and solidifying India’s position as the second-largest economy in the Asia-Pacific region.

According to a recent IMF report, India’s GDP growth rate is projected to outpace China’s in the coming years. A convergence of various factors has facilitated India’s emergence as a dominant manufacturing force, presenting an enticing opportunity for international investors and businesses to explore new horizons.

Foremost among these factors is India’s burgeoning consumer base, which ranks as the world’s largest. The rapid expansion of the middle class has transformed the nation into a thriving market for goods and services. India has become the second-largest mobile phone manufacturing country, with cumulative shipments of locally produced handsets crossing two billion during the 2014-2022 period. In the Financial Year 2022-23, the exports of the Indian defense industry reached an all-time high at around Rs 16,000 crore, marking a substantial increase since 2016-17.

Google’s decision to manufacture its flagship phones in India, following the similar move by another multinational technology firm Apple, gives clear indication that India is emerging as a new global technology and innovation hub. On the same note, India has begun its journey to become the major global semiconductor producer and electronics repair hub. India is using its gargantuan local market, cheap labour, innovative ecosystem and geopolitical equations to its advantage.

The ties between American companies and India as a manufacturing and supply chain partner are growing stronger, marking a significant shift in the global manufacturing landscape. Boeing’s recent groundbreaking deal with Air India stands as a prime example, highlighting India’s emergence as an attractive alternative to China for manufacturing and supply chain needs.

The Indian government’s proactive policy adjustments have served to unlock key sectors for investment, stimulate job creation, and revitalize the nation’s infrastructure. Initiatives like ‘Skill India’ aim to equip India’s young population with the requisite skills, ensuring a workforce that is both skilled and cost-effective, with labor costs significantly lower than those in China.

Measures such as the reduction of corporate tax rates, the enhancement of ease of doing business, and progressive reforms in the Foreign Direct Investment (FDI) policy have further bolstered India’s appeal as an investment destination. India has witnessed a substantial influx of foreign direct investment, receiving a record $230 billion over the past three financial years, with anticipations that the country will be a USD 100 billion FDI destination in the next 2-3 years.

On the exports front, there was a 15% increase in India’s exports to a record $770 billion during FY2022-23, with a goal to achieve exports of USD 1 trillion each in goods and services by 2030. India’s focus on developing waterways and port projects is set to significantly reduce logistical costs, making Indian manufacturing more cost-effective.

To maintain this growth trend, India is actively targeting crucial markets for mutually beneficial trade relationships. The nation aims to consolidate its presence in sectors such as digital services, IT and ITES, consumer goods, food processing, and lifestyle products, leveraging its rich cultural heritage and skilled workforce.

Embracing this unprecedented wave of transformation, India is poised to redefine its economic landscape, charting a path toward prosperity and sustainable growth. As the nation treads uncharted territories, it remains resolute in its pursuit of a future marked by progress, prosperity, and resilience. India’s journey towards becoming a global manufacturing hub continues to gain momentum, reshaping the world’s economic landscape.

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