Current setbacks temporary, Indian manufacturing set for success in long-term: ETILC Members

If one analyzes India’s Manufacturing PMI from 2012 till 2021, the obvious year that stands out is 2020. And it’s not just for its record low of 27.4 points in April 2020, it’s also for the all-time high of 58.9 points in October 2020. While the general perception is that the year was bad for most sectors, manufacturing experts and industry insiders say that except for SMEs, most companies had a good year. For some like Beumer India, a manufacturer of intralogistics systems, CY2020 was in fact one of the best years in a long time.


Most companies expected that the good run that they had towards the end of calendar year 2020 would continue in 2021. Due to the second wave of the pandemic in India and localized lockdowns, that hope has been called to question. As per IHS Markit India, the Manufacturing PMI stood at a ten-month low of 50.8 in May. But despite the Covid-19 crisis, in the long-run, industry experts are not expecting a big impact on the manufacturing sector. As supply chains are continuously reviewed and aligned and processes are streamlined, large players are certain they will remain unaffected as long as sea freight remains normal.


MTC, which operates in base metals, ferro alloys, metal manufacturing and is a large demolisher of industrial scale projects says the impact of localized lockdowns has been minimal this year. Even though there were labour shortages as migrant labourers went back home anticipating complete lockdowns, essential industries were able to operate. This kind of impact is starkly different from what happened in 2020, where SMEs especially were cash-strapped.


As per McKinsey, so far India’s manufacturing sector has generated low return on capital and attracted little investment. But all that can change. There is a huge opportunity for India if it focuses on 11 manufacturing sectors. There is a potential of generating $300 billion in GDP. The 11 sectors to focus on are: Vehicles and components, capital goods and machine tools, pharmaceuticals, chemicals and allied products, agriculture and food, metals and basic materials, apparel and textiles, furniture, leather and rubber, electronics and semiconductors, aerospace and defense and renewable energy.


One other big area of change that is required is in the area of digitization. Experts believe that India’s low digitization can be attributed to the high initial investment. That is what serves as a big impediment. As per industry estimates only 3-5% of the industry has gone digital at scale while 30-40% are beginning their journey. Also, labour costs in India are lower and thus there is less incentive to invest in more automation, mechanization and digitization. This is a vicious cycle that feeds itself but this pattern is changing because of the pandemic.


Other issues of low productivity, talent and skill shortage, inefficient supply chains and low competence of suppliers remain - but they too can be remedied gradually. The overall outlook for the sector in the long term is positive due to a large domestic market and rising middle class.

However, despite the above positive aspects, India has never been a preferred destination for multinational firms for greenfield projects because of the challenges involved in getting multiple clearances and getting projects running. With central, state and local governments involved - all with varied views on some subjects, the final burden of resolving issues falls on the firm or entrepreneur. This comes at a huge cost of losing both time and competitiveness.


The industry believes that the government needs to facilitate access to low-cost funds from international markets so that Indian manufacturing can expand. Other demands for subsidies in electricity have remained strong for a long time now. In the development of road infrastructure, many industry leaders are cognizant of the significant steps the government is making and hope that the country will be at par with its global counterparts in the next few years.

While implementation issues remain, at the policy-level, the government is making all the right moves. With $362.32 million allocated for Promotion of Electronics and IT Hardware Manufacturing and $104.25 million for faster adoption and manufacturing of hybrid and electric vehicles in India in the 2021 Budget, the industry is assured of future growth.