India has successfully included the developing industrial economies in the world agenda while positioning itself as an attractive manufacturing hub
India's G20 presidency presents an opportunity to strengthen the country's collaboration and economy. With the world's most powerful countries represented, the G20 forum provides a premier platform for international economic cooperation, accounting for 85% of global GDP and 75% of trade. The timing of the Presidency is ideal for India to exercise greater influence on global policies and the economic sector.
The Business 20 (B20) is a G20 dialogue forum that has conducted a year-long series of summits, which saw the participation of Indian and global industry leaders. One of the significant outcomes of the G20 is the ‘India-Middle East-Europe Economic Corridor’, A cost-effective cross-border ship-to-rail transit network that will connect India to the Arabian Gulf countries, the European Union and the USA, expected to translate into trade and investment opportunities for Indian businesses, supporting global expansion to counter China’s Belt and Road Initiative(BRI).
India is making strides towards becoming a leading global manufacturing hub, but there is still room for improvement. Outsourcing has increased due to China's diversion of manufacturing and production to new locations. This has resulted in India becoming a preferred choice for companies seeking alternative manufacturing or sourcing bases. With Indo-US deals taking centre stage and other global corporations following suit, India's manufacturing sector has the potential to reach US$1 trillion by 2030, making it the fourth largest in the world. Currently, it is the fifth largest.
The manufacturing sector in India has made significant progress since the economy liberalised in the early 1990s. Initially, India was caught between capital-intensive countries like the US, Japan, and Europe, and labour-intensive countries like China. However, India has found its place through low-cost automation, which has enabled world-class quality and scale in some sectors such as automobiles and auto components. This was accomplished under the umbrella of Total Quality Management (TQM), which focused on quality, cost, delivery, safety, morale, and the environment.
India's economic growth relies heavily on industries such as automotive, engineering, chemicals, pharmaceuticals, renewable energy, and consumer durables, making manufacturing a crucial component of the country's progress. Not only does the manufacturing sector have the potential to boost economic growth, but it also can provide employment opportunities for a vast number of the country's young workforce. However, despite its potential, the manufacturing sector has only been contributing 13-17% of GDP over the past four decades. To achieve India's national target of increasing manufacturing's contribution to 25% of GDP by 2025, the sector must export goods worth US$ 1 trillion by 2030, which will help India become the third-largest economy.
Unfortunately, India's manufacturing sector has struggled to increase its share of global export of merchandise to 2%. Its share has remained below 2% since 1948, hovering between 1.5% and 1.8% between 2010 and 2022. China, on the other hand, has maintained a significant lead over India with a share of 10.3% to 13.8% in global export of merchandise since 2010. China's advantage in labour-intensive manufacturing at scale, backed by low labour costs and investment in trade-related infrastructure, has enabled it to move towards cutting-edge sectors like robotics and aerospace through the 'Made in China 2025' campaign.
China's export-oriented approach focused on industries with higher export potential and invested in skilling its labour force, allowing for easier technology absorption and movement up the global value chain. In contrast, India struggled to achieve the desired level of skilling, leading to export inefficiency. India's weak infrastructure, which only uses 3% of its GDP for infrastructure construction each year, is a significant flaw for the manufacturing sector. India's surface transportation systems cannot meet the expectations of modern high-speed logistics, which is crucial for efficient manufacturing.
The fusion of intelligent digital technologies into manufacturing and industrial processes, known as Industry 4.0, presents an exciting opportunity for a new industrial revolution. This includes industrial IoT networks, AI, Big Data, robotics and automation, additive manufacturing, simulation, system integration, cloud computing, and cyber-security. The objective is to enable autonomous decision-making in real-time, with the involvement of all stakeholders from the beginning.
The manufacturing industry is poised for growth, especially with the Make in India initiative at an inflexion point. To build a successful "Brand - Made in India," several things need to happen. The government should continue to build physical infrastructure and promote ease of doing business while also funding Industry 4.0 through start-ups. They should implement the NRF to attain leadership in technologies of national importance and build a future-ready workforce. The manufacturing sector needs an inspirational leader to drive Industry 4.0 as a movement until India becomes the third-largest manufacturing economy.
Manufacturing sector leaders should think globally and focus on all aspects of Total Quality Management, including quality, cost, delivery, safety, morale, and the environment. They should invest in R&D and innovation and build partnerships to de-risk. Creating and owning designs and intellectual property will be critical, as will investing deeply in Industry 4.0. Driving cultural change to embed it and build a sustainable footprint will be essential, as learning is a lifelong process and diversity enhances it.
The Way Forward: India's G20 presidency would position its manufacturing sector globally. With a government target of $500 billion in merchandise (Goods) exports for FY 2023-2024, the manufacturing sector must focus on the untapped export potential in existing tariff lines and support manufacturers
to fulfil the dream of India becoming the world's third-largest economy with 'Make in India' global reach.
As Prime Minister Narender Modi hands over the G20 presidency baton to Brazilian President Luiz Inacio Lula da Silva, it leaves behind a legacy of ‘Vasudhaiva Kutumbakam’- the world is one family, with fruitful dialogue, innovative solutions, and a strengthened commitment to shaping a prosperous and sustainable future.
(The Author is Vice-Chairman Sonalika Group, Vice-Chairman of the Punjab Economic Policy and Planning Board and Chairman of ASSOCHAM Northern Region Development Council. Views are personal)
