The sectors that would play a role in India’s race for manufacturing power

Buoyed by global sentiment, government programs, cheap labor and a skilled workforce, India’s exports of manufactured goods rose 40% year-on-year in FY22 to hit a record $418 billion. India is expected to grow its manufacturing exports to $1 trillion by FY28 and analysts have said much of that growth will come from a select few sectors.

According to a report by global consulting firm Bain & Company, chemical industry exports are estimated to grow at a CAGR of 19% to 23% or around US$110 to US$130 billion by FY28 due to low manufacturing costs and rising investments.

India’s drug and pharmaceutical exports are expected to grow at a CAGR of 16% to 18% or US$45 to US$50 billion through FY28.

“India’s strength in pharmaceuticals – coupled with recent factors such as stimulus under PLI programs, strong Capex and PE/VC investments with 100% FDI and rising labor costs in competing countries like China – will drive export growth,” it said .

Other sectors that will lead this growth include industrial machinery ($70 billion to $75 billion), electrical engineering and electronics ($120 billion to $145 billion), automotive ($45 billion to $55 billion), and textiles and apparel ($95 to $110 billion).

But if the country is to expand its manufacturing exports, Indian companies should focus on a clear export strategy, the right execution methods, the right partnerships to enable exports and optimal investment efficiencies to build manufacturing capacity, the report says.

Export Growth Dynamics

India’s merchandise exports increased to US$418 billion in FY22 from US$292 billion in FY21. It also surpassed the peak of $328 billion set in the year before the pandemic in fiscal 2019. That momentum has continued lately, with exports up 24.22% yoy to $38.19 billion in April and 15.46% yoy to $37.3 billion in May.

India is the sixth largest manufacturing economy in the world, contributing 3.1% to global GDP. Despite this, India’s share of exports in world trade is only 1.6%.

“Due to the competitive advantage of a skilled workforce and lower labor costs, the manufacturing sector is also experiencing an increased inflow of capital spending and increased M&A activity, leading to an increase in manufacturing output and a consequent higher contribution to exports,” said Sushil Pasricha, Partner at Bain & Company.

Trends that have accelerated India’s export growth over the past two years include supply chain diversification, India’s sectoral advantages in key manufacturing sectors (chemicals, pharmaceuticals, automotive, electronics, industrial machinery and textiles) and government-led initiatives.

Analysts say the centre’s PLI program, which has a budget of 47.8 billion. India has also signed key free trade agreements (FTAs), including the India-UAE Comprehensive Partnership Agreement (CEPA) and the Economic Cooperation Agreement and India-Australia Trade (IndAus ECTA), which will boost bilateral trade and create an environment for export growth, Pasricha said.

India’s acceleration of the investment cycle will help meet increased demand, analysts said. The Indian government has budgeted a 35% year-on-year increase in investment for FY23 to around $100 billion.

Mergers and acquisitions and PE/VC-led investments have also gained momentum in recent years. The data shows that manufacturing accounted for up to 18% of total PE/VC investment in 2021, with most of this going to the pharmaceutical and chemical subsectors.


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