Economic Analysis of Manufacturing Industry in India
There are many types of economic analysis, which can be done to look at the trends of the manufacturing industry in India. There are some that focus on the technological, political and social aspects of the industry. For example, the article focuses on the impact of COVID-19 on the manufacturing industry in India.
Political
The manufacturing industry in India has many opportunities for growth and employment. Moreover, India’s competitiveness is not only driven by the sector itself but by the other sectors that are interlinked with it. Taking advantage of this situation can help the country to enhance its export market.
To make the most of this opportunity, the Indian government has made several initiatives to attract manufacturing investments. However, the success of these policies will depend on the willingness of the Indian corporates to invest more in inhouse manufacturing. This article discusses the political and economic factors that influence the environment for this sector.
The political factors include the role of politicians in the economy and their inclination to certain policy interventions. Additionally, India has a federal system of governance. In addition, a large number of legal changes have been implemented in recent years.
A system dynamic based framework can be used to visualize the implications of different policy scenarios. Moreover, the Indian service sector should also collaborate with the manufacturing sector to improve the overall competitiveness of the country.
The industrial clusters of India have helped to reduce regional disparities and promote an entrepreneurial mindset. Therefore, it is essential for the Indian industry to imbibe the labor model of Chinese manufacturing firms.
The health care sector is also an important driver for the manufacturing sector. The ageing population will result in increased employment of older workers. Health care requires close interaction between various disciplines.
Using the manufacturing sector as an anchor, the government can also explore opportunities for growth in the service sector. By creating a healthy working environment, the service sector can provide a platform for Indian corporates to develop as a manufacturing hub.
Economic
Manufacturing in India is a very large sector, with an employment of nearly 2.5 crore. However, in recent years, the manufacturing sector has lost momentum, and millions of jobs have been lost. In response to this, the government launched a campaign called “Make in India”. Its goal was to increase the share of the manufacturing sector in the economy to 25%.
The first step towards making Indian manufacturers more competitive is to improve their productivity. This requires firms to make the most of their resources by offering quality products in different price points. They should also look to expand into new sectors, such as consumer durables, automotive, renewables, and food processing.
Manufacturers in the country need to focus on capital efficiency, securing the right partnerships, and developing the right execution chops. As well as strengthening their capability to produce export-ready goods, they should focus on developing more value-added goods to attract global buyers.
A key challenge for Indian manufacturers is high operating expenses. These include high prices for power and credit, as well as high inventory costs. Furthermore, Indian manufacturers operate at lower capacity, which makes them inefficient. To remedy this, they must invest in R&D and ensure they have access to reliable components.
Recent developments in the manufacturing industry in India have been driven by increased capex, PE/VC-led investment, and government policy support. But to sustain its growth, the sector needs to improve its productivity.
While a few companies have delivered strong returns on invested capital, most have failed to do so. The problem is that small, fragmented companies don’t innovate fast enough to stay competitive. Alternatively, they can work on securing superior know-how by focusing on a specialization approach.
Social
The manufacturing industry in India is one of the main pillars of economic growth. It offers employment opportunities and also helps in eradicating poverty. It also plays a key role in bringing down regional disparities.
Manufacturing in India includes different sectors such as automotive, electronics, pharmaceuticals, food processing, and machine tools. Moreover, the manufacturing sector contributes to exports. In addition, it enables eradication of unemployment, which is an important factor for economic development.
India has a highly skilled labor force and a pool of English speaking engineers. However, there are still persisting socioeconomic inequalities that reduce the chance of employment for weaker sections.
The Indian government has offered various initiatives to attract manufacturing investments. For instance, the National Policy on Skill Development and Entrepreneurship was implemented in 2015. Similarly, the government has targeted skilling 500 million people by 2022. This will help the industry to develop as a competitive hub.
Besides, the manufacturing sector also plays an important role in reducing the heavy dependence on agricultural income. Moreover, it is expected to scale up its manufacturing exports to $1 trillion by FY28.
According to the World Trade Organization, global trade will likely to drop between thirteen and thirty two percent by 2020. In this context, disruptions due to COVID-19 are likely to offer new working models and opportunities for exploration of international markets.
Currently, the manufacturing industry in India is experiencing increased capex and M&A activity. Furthermore, the COVID-19 pandemic has affected many manufacturing companies and the entire economy.
Nonetheless, the manufacturing sector in India has made good progress on the ease of doing business. Nevertheless, there is a need to examine social impacts of the manufacturing industry.
Technological
India has traditionally focused on manufacturing for domestic consumption. However, it now has an opportunity to become an engine for economic growth and jobs. To achieve this goal, India’s manufacturers need to adopt more technology in their processes.
One of the biggest challenges faced by manufacturers in India is the lack of productivity. This is due to outdated manufacturing processes. Companies also face high costs of key inputs and infrastructure. They carry excess inventory to compensate for supply chain inefficiencies.
To improve performance, companies need to achieve economies of scale and sustain R&D investments. They need to acquire new technology through acquisitions and alliances. A specialization approach will raise productivity.
Indian manufacturers are lagging behind global counterparts. Their manufacturing value chains are not technologically advanced enough to compete in international markets. In addition, they often operate below their maximum capacity.
The government of India has taken several initiatives to develop the manufacturing sector. It has set up a program called SAMARTH Udyog Bharat 4.0, which aims to strengthen the competitiveness of the capital goods industry. Additionally, a Production-linked incentive (PLI) scheme will be implemented from 2022. These initiatives are expected to increase demand for machinery and equipment.
Another key aspect to improve manufacturing in India is the supply chain. Manufacturers need to improve their supply chain networks by implementing business intelligence tools to reduce inventory and safety stock requirements. Increased automation also maximizes productivity.
In the past, manufacturers in India relied on labor-intensive processes. However, India is now shifting towards more automated processes. Using the “Industry 4.0” model, companies can accelerate productivity gains.
Moreover, by focusing on providing quality products at varying price points, they can tap into healthy consumer markets. Some sectors that are well-established are auto components, textiles, and farm equipment. Developing new industries and diversifying existing ones are important to boost the Indian manufacturing sector.
Environmental
Environmental factors are an important aspect to consider when conducting a pestel analysis of the manufacturing industry in India. These factors relate to the physical and natural environment in which manufacturing takes place, and can have an impact on the feasibility and sustainability of manufacturing operations.
One key environmental factor to consider is the availability of natural resources. The manufacturing industry in India relies on a range of natural resources, including water, energy, and raw materials. Ensuring the sustainable use of these resources is important for the long-term viability of the manufacturing industry in India.
Another environmental factor to consider is the impact of manufacturing operations on air and water quality. The manufacturing process can generate a range of pollutants, including greenhouse gases, particulate matter, and chemical waste. It is important for manufacturing organizations to minimize the environmental impact of their operations, for example by implementing pollution prevention measures and adopting cleaner production technologies.
In addition to these factors, it is also important to consider the potential impacts of climate change on the manufacturing industry in India. For example, rising temperatures and changing rainfall patterns could affect the availability of natural resources and the feasibility of manufacturing operations in certain areas. It is important for manufacturing organizations to consider the potential impacts of climate change and to take steps to mitigate any negative effects.
Legal
Legal factors are an important aspect to consider when conducting a pestel analysis of the manufacturing industry in India. These factors relate to the laws and regulations that govern the manufacturing industry, and can have an impact on the feasibility and sustainability of manufacturing operations.
One key legal factor to consider is the availability of intellectual property protection for innovations and inventions in the manufacturing industry. This includes patents, copyrights, and trademarks, which can provide important legal protection for the creators and owners of manufacturing-related technology.
Another legal factor to consider is the potential for liability in the event that manufacturing operations cause harm or damage. For example, if a manufacturing facility releases pollutants into the environment, there may be legal consequences for the company and its employees. It is important for manufacturing organizations to understand the potential legal risks associated with their operations and to take steps to mitigate those risks.
In addition to these factors, it is also important to consider the relevant laws and regulations governing the manufacturing industry in India. This includes laws related to health and safety, labor standards, and environmental protection, as well as other areas that may be relevant to manufacturing operations. Understanding and complying with these laws and regulations is essential for the successful operation of manufacturing businesses in India.
Also Read: Pestle Analysis of it Industry in India
