PROJECT REPORT

(Submitted for the degree of B.Com Honours in Accounting & Finance under the university
of Calcutta)

on
INDIAN MANUFACTURING: HOPE OF REVIVAL

Submitted by
Mayank Agarwal
UID : 1301015954
REGISTRATION NO. : 017-1121-2723-13
CALCUTTA UNIVERSITY ROLL NO. : 1017-61-0639

Supervised by:
Prof. Swarita De
THE BHAWANIPUR EDUCATION SOCIETY COLLEGE
FEBRUARY,2016

SUPERVISOR'S CERTIFICATE

That is to certify that Mr. Mayank Agarwal of B.Com. Honours in Accounting &Finance of
The Bhawanipur Education Society College under the University of Calcutta has Worked under
my supervision and guidance for his/her Project Work and prepared a Project Report with title
" Indian Manufacturing: Hope of Revival " which he is submitting is his genuine and original
work to the best of my knowledge.

Signature:
Place:
Date:
Name:
Designation:
Name of the College:

STUDENT'S DECLARATION

I hereby declare that the project work with the title Indian Manufacturing: Hope Of Revival
submitted by me for the partial fulfilment of the degree of B.com. Honours in Accounting &
Finance under the university of Calcutta is my original work and has not been submitted earlier
to any other university /Institution for the fulfilment of the requirement for any course of study.

I also declare that no chapter of this manuscript in whole or in part has been incorporated in
this report from any earlier work done by others or by me. However, extracts of any literature
which has been used for this report has been duly acknowledged providing details of such
literature in the references.

Signature:
Name: MAYANK AGARWAL
Address: 53/7/3 Bon Behari Bose Road, Howrah-711101
Registration No.: 017-1121-2723-13
Place:
Date:

ACKNOWLEDGEMENT
The writing of this project has been one of the significant academic challenges I have faced
and without the support, patience and guidance of the people involved, this task would not
have been completed. I am very grateful for guidance and assistance from many people in
preparing this report. Firstly, I would like to acknowledge my immense gratitude to my
supervisor Prof Swarita De who has given me this opportunity to work on this project and at
the same time help me extensively in guiding this project. I also like to thank my seniors who
had helped me by giving valuable inputs in related areas of my study to prepare this project.
It gives me immense pleasure in presenting this report on "Indian Manufacturing: Hope of
Revival" It has been a privilege to have a project mentor who has been assisted me from the
commencement of the project. The success of this project is a result of sheer hard work and
determination put in by me with the help of my project mentor. I hereby take the opportunity
to add a special note of thanks to my mentor, Swarita De. Her wisdom, knowledge, and
commitment to the highest standards inspired and motivated me.
Lastly, I am extremely thankful to my Institute "The Bhawanipur Education Society College,
Kolkata" for providing me with the knowledge and necessary resources for the successful
completion of my project.

TABLE OF CONTENTS
Sl. No.
Chapter 1:
Introduction

Chapter 2:
Conceptual
Framework,
National &
International
Scenario

Chapter 3:
Findings, Analysis
and Interpretation
of Data

Chapter 4:
Conclusion and
Recommendation

TOPIC

Page
1

1.1

Background of the Study

1.2
1.3
1.4
1.5

Rationale of the Study

Literature Review
Objectives of the study
Methodology

1.6
1.7
2.1

Limitations of the Study

Chapter Planning
Conceptual Framework

2
2
4
4
4
5
6

2.2
2.3
3.1

National Scenario
International Scenario
Need for Development of Manufacturing

6
8
10

3.2

Promising Areas for Manufacturing

3.3
4.1

Make in India
Conclusion

13
22
26

4.2

Recommendation
Reference

27
28

Chapter 1- INTRODUCTION
1.1

BACKGROUND OF THE STUDY

India's industrial policy framework began to be liberalized from the late 1970s, and this process
accelerated with the major economic reforms initiated in the year 1991.Industrial deregulation
and liberalization have opened up opportunities for growth, but at the same time have raised
many apprehensions. The measures to liberalize Indias industrial policy framework from the
late 1970s included deregulation and de-licensing in certain industries, according a greater role
to the private sector, and a gradual shift from direct physical controls to indirect controls. This
process of liberalization greatly accelerated after 1991. The changes that the reforms after 1991
brought in were fundamental in nature compared to the marginal changes only 2 in the
previous decade. Import licensing was done away with for most goods except consumer goods;
import-weighted tariff declined to 27 per cent from the pre-1991 level of 87 per cent; and
exchange rates were devalued by 20 per cent.
Indias recent manufacturing growth performance is respectable compared to the performance
of other regions in the world. According to the UNIDO study, India's manufacturing value
added grew at the rate of 7.4 per cent in each of the two periods 1980-90 and 1990-98. These
growth rates were higher than the corresponding growth rates in developing countries, newly
industrializing countries (NIC's), and second generation NIC's, and only slightly lower than
growth rates in ASEAN countries. In the 1990s, India's manufacturing growth was higher than
Korea's. However, in the 1980s and 1990s, India's manufacturing growth rates were lower than
the growth rates in China and the average growth rates in South and East Asia.
India's GDP has been growing at an average rate of average 8% a year since 2005.
Manufacturing sector accounts for an average contribution of over 15% in the national GDP.
According to the Index of Industrial Production DIP), the manufacturing industry index has
been growing at an average rate of 9% per year since 2006. Besides its contribution to the
national GDP, in the year 2010 the manufacturing industry provided employment to more than
62 million individuals in the country including highly educated professionals as well as the
lesser educated individuals.
From the manufacturing of luxury motor vehicles to the manufacturing of organic foods, the
Indian industry has seen a diverse blend of emerging factors contributing to its development.
The booming Indian market is leading companies and industry bodies to invest in this sector to
cater to the increasing demand. According to a recent Confederation of Indian Industry ASCON survey, 34% of the total sectors in the manufacturing industry are estimated to grow
at 20% or more in 2010-11 as against 28% sectors that had reported such growth during 200910; the top performers being air conditioners, tractors, fertilisers, construction equipment, tyres,
et al. Manufacturing companies are continuing to explore ample opportunities both in the
global and domestic markets. Strategic alliances between domestic and international
organisations leveraging one's technological advantage with the other's strong foothold in the
local market are increasingly being witnessed in the industry. Companies are not only
introducing new products in the market but also are reinventing their existing product portfolio
to expand the market.

1.2

RATIONALE OF THE STUDY

The influence of manufacturing goes far beyond the direct contribution to national product and
employment. Manufacturing is a global business underpinning all economic activity.
Manufacturing Sector a large scope improvement, innovation and expansion in this industry.
This industry is yet to gain its importance as it has a lot more to offer.
The main focus of this study is to illustrate how manufacturing has provided jobs to those who
did not have the benefit of more advanced education, and in emerging economies, this is still
true. As more advance economies have outsourced or off-shored assembly types of
manufacturing, the skill levels needed in manufacturing have risen as well. For a country at the
development stage of India, manufacturing offers an important avenue to betterment for
millions of less skilled workers. It is an important step in the development and upgrading of
many economies.

1.3 LITERATURE REVIEW

Dangayach and Deshmukh, (2001) reviewed the status of literature in manufacturing
strategy. They have categorized the methodology used in the literature into conceptual,
descriptive, empirical, exploratory crosssectional and exploratory longitudinal approaches.
Based on this, some possible research issues are also identified, viz., resourcebased operations
strategy, sector specific manufacturing strategy, relevance of manufacturing strategy to small
and medium enterprises, manufacturing strategy in the context of green manufacturing, effect
of organizational culture on formulation of manufacturing strategy, and performance
measurement.
Goldar (1986) analyzed the productivity trends in the Indian manufacturing during 1951-78.
The estimates of productivity for two periods showed that the total factor productivity in the
Indian manufacturing sector was rather sluggish and relative contribution of TFP growth was
quiet small. The average annual growth rate of TFP growth to output was about one quarter for
the first period and one-sixth for the second period.
Green (2014) in his paper helps answer the question by describing the job growth potential of
the Indian economy. Formal-sector manufacturing demonstrates the most potential for job
growth under a more supportive policy regime. The paper models future employment paths for
India for the next 20 years. Assuming sufficient reforms to generate East Asia-style
manufacturing growth, the impact on employment and output is substantial, even if the
campaign target of 100 million new manufacturing jobs remains difficult to achieve. The paper
then describes a set of reforms sufficient to unleash such a manufacturing growth boom.
Mohommad (2010) in his paper has examine sources of growth in the formal manufacturing
sector in India, from 1970 to 2003. His work contributes to an on-going debate on the response
of manufacturing sector TFP to the implementation of economic reforms in India, in the 1980s
and 1990s. At the regional level, the paper addresses not only the literature on the causes behind
rising income inequality across states, but also on the role of infrastructure on regional growth,
restricting attention to the manufacturing sector. The results of the dissertation show that at the

all-India level and at the state level, manufacturing sector TFP growth accelerated in India
during periods of economic reform.
Sharma (2014) in his paper has presented the industrial development of India in pre reform
and post reform period, and investigated the impact of globalization on industrial sector in
India. He writes about how industrial sector plays a vital role in the development of Indian
economy because they can solve the problems of general poverty, unemployment,
backwardness, low production, low productivity and how the Indian Government had
undertaken policy reforms since 1980. These reforms mainly aimed at enhancing the efficiency
and international competitiveness in Indian industry. After nearly more than two decades of
reforms, a question that has engaged the attention of the economists in recent times is what has
been the effect of these economic reforms measures on the performance of industrial sector in
the post-reform period in India.
Chand and Sen (2002) found that post-reform trade liberalization in Indian manufacturing
raised total factor productivity growth. Their results also support a key postulate of the new
growth theories, that liberalization of the intermediate-good sectors has a larger favorable
impact on total factor productivity growth than that of the final good sectors.
Kalirajan and Bhide (2004) observed that the economic reforms of the early 1990s did not
lead to sustained growth of the manufacturing sector. After acceleration in the mid-1990s,
growth slowed in the decade's second half. They found that manufacturing sector growth in the
post-globalization period has been "input driven" rather than "efficiency driven," with
significant levels of technical inefficiency.
Rajat et al (2014) identified the manufacturing slowdown, including lack of policy focus,
unsupportive external environment, etc. They analysed the potential for India to develop its
high value manufacturing sector and provides recommendations on measures to achieve this
objective. They also compared India with other East Asian economies such as Korea, Japan
and China reveal that India has an opportunity to develop a comparative advantage in other
sectors including electronics and computer hardware.
Sahnmugam and Bhaduri (2002) analyzed size, age and firm growth in the Indian
manufacturing sector using balanced panel of 392 manufacturing firms during the period from
1989-1990 to 1992-1993 to explore un observed heterogeneity among the firms. The result of
their study indicated that the age positively influences growth, which was in contradiction to
the result obtained in previ ous studies. The findings of the study also indicated that the smaller
and older firms grew faster than their counter parts. Size effect was found larger in food
industry while the age effect was larger in non-metal industry.
Ahluwalia (1991) made a detailed study of the trends in productivity growth in the Indian
manufacturing sector. Her study covers the period from 1959-60 till 1985-86. She computed
the Chenery measures of the contribution of import substitution to growth for 62 industry
groups of manufacturing. Using this measure as an 25 explanatory variable in an equation
explaining growth in productivity, she addresses the question of whether total factor
productivity growth across the industry groups is systematically related to the degree of import
substitution of these industries. The study established a negative relationship between total
factor productivity growth and a Chenery measure of import substitution. She concluded that
the protective impact of import substitution dominates any market expanding impact on
productivity growth.
3

1.4 OBJECTIVE OF THE STUDY

Manufacturing Industry can be called the backbone of the development of any country. It is
one of the key indicator of where a country stands in the competitive world market. It not only
increases the GDP of a country but also provide huge employment ultimately increasing
purchasing power of the people of that country.
The objective of this study is

To point out the immense need for development of Indian manufacturing sector.
To study the promising areas of Indian Manufacturing sector; mainlyi.
Steel
ii.
Food Processing
iii. Pharmaceuticals
iv.
Automobiles
v.
Chemicals

To provide a brief knowledge on governments MAKE IN INDIA initiative.

1.5 METHODOLOGY
This project is descriptive and exploratory in nature. It involves conceptual understanding of
the data on the Indian Manufacturing Sector. The source of data includes secondary data.
Secondary data includes books, journals, magazines, newsletters relating to the Indian
Manufacturing Sector .The data collected from the public are transcript analysed and inferences
drawn on the different sectors. Based on the industry concept findings of the research were
driven and recommendations are made.

1.6 LIMITATIONS OF THE STUDY

All the economic/ scientific studies are faced with various limitations and therefore this project
work is no exception to this phenomenon. The various limitations of the study are:

Time constrains-due to the shortage or less availability of time it may be possible that all
the related and concerned aspects may not be covered in the project.
Resource constraint- availability of data was constraint due to due to which only secondary
data is considered. Analysis done is limited to the availability of data. There has been a
problem of sufficient homogeneous data from different sources.
Wide area to study- study being conducted was very wide and analysis requires expertise
knowledge and skill which was lacking.
No direct source of information available- the information is collected from indirect
sources, so in some information, data is not available.

1.7 CHAPTER PLANNING

In this project the topic of research undertaken has been introduced in this chapter. The
background of the study involves about the history and brief introduction about the
Manufacturing Sector in India.
The rationale of the study explains as to why the topic has been undertaken to conduct the
research work. The review of literature has been incorporated to reflect the kind of research
that has been done, related to this topic in the previous years. The objective of this research has
been stated and the method of conducting the research has been discussed in brief. There has
been certain limitation pertaining to this project which has been disclosed.
In the next chapter, the conceptual framework, contribution of Manufacturing Sector in our
country & role of the Manufacturing Sector in major economies. The study talks about the role
of Manufacturing Industry in the economy.
In chapter 3, the presentation of data and analysis of data have been provided. In this chapter
the immense need of Indian Manufacturing sector has been pointed. It also represents the
promising areas of manufacturing sector that needs focus. The much talked Make in India
initiave has also been explained in this chapter.
In the final chapter, a conclusion has been given to overcome the challenges and withstand the
position in global market. The data provided in the research are taken into consideration as
valuable reports have been prepared on the basis of it. Various recommendations have also
been provided below for the improvement.

Chapter 2- CONCEPTUAL FRAMEWORK,

NATIONAL and INTERNATIONAL SCENERIO

2.1 CONCEPTUAL FRAMEWORK

In the twenty-first century manufacturing development remains relevant for poor countries
trying to catch up with more advanced economies and to provide increasing standards of living
for their populations. Although the need for such industrialization remains, the challenges are
more daunting than in the past. The emergence of global value chains has affected the nature
of international competition. The prominence of multi-national companies in the global
economy influences access to knowledge and technology. The rise of China as a workplace of
the world makes it harder for late industrializers to enter markets for manufactured products.
Jobless growth in manufacturing may contribute to unemployment and social tensions. The
challenge of climate change and global warming calls for new more sustainable patterns of
production, innovation, and energy use.
Manufacturing matters to any country because it provides high-wage jobs, commercial
innovation (the nations largest source), a key to trade deficit reduction, and a
disproportionately large contribution to environmental sustainability. The manufacturing
industries and firms that make the greatest contribution to these four objectives are also those
that have the greatest potential to maintain or expand employment. Computers and electronics,
chemicals (including pharmaceuticals), transportation equipment (including aerospace and
motor vehicles and parts), and machinery are especially important. Productivity and wages vary
greatly within as well as between industries. In any industry, manufacturers that are not already
at the top have room to improve their performance by adopting high-road production, in
which skilled workers make innovative products that provide value for consumers and profits
for owners.

2.2 NATIONAL SCENERIO

According to 2013-14 statistics, in India manufacturing sector contributed 21.5 per cent
whereas agriculture sectors contribution was 13.7 per cent and services sector contribution
was the maximum with 64.8 per cent of overall GDP. To meet future needs, it is not desirable
to have such a large inequality in manufacturing sector contribution. Contribution of
manufacturing sector in employment generation has remained 20 per cent by the year 2012.
According to the McKinsey Quarterly Report, manufacturing sector has potential to contribute
US$1 trillion to Indian economy by the year 2025 and creating 90 million job opportunities .

To achieve double digit growth for India, manufacturing sector needs to contribute at least 25
per cent in overall GDP. In comparison to other countries including China where
manufacturing sectors contribution is about 40 per cent, India lags behind significantly. Even
in lower income category countries like Pakistan and Bangladesh, manufacturing sector
contributes 12 and 18 per cent respectively whereas in middle income category countries like
Vietnam, Sri Lanka, Indonesia, Malaysia and Brazil, manufacturing sector contributes more
than India. Malaysia manufacturing sector contributed 24 per cent to its GDP, whereas
manufacturing contribution in Sri Lanka and Vietnam contribution is about 17-18 per cent.
Among rich countries like Russia, Japan, US and European Union manufacturing sectors
contribution is more than India.
Fig 1: Growth rate of sectors between 1951-2014 in %

Source-statisticstime.com
This scenario is a matter of great concern for policy makers. It is highly undesirable especially
when India has huge market, is rich in natural resources and have low cost labour in abundance.
Lagging in manufacturing sector has not only impacted growth and employment generation
but has also caused adversely on its market and demand. Not only this, India exports are also
lower resulting in trade deficit significantly. Although services sector has tried to meet this
deficit through its export orders and is also providing employment opportunities significantly
but for a country like India where over 600 million people are educated only up to secondary
level, labour intensive manufacturing sector is the only sector that has capacity to provide
employment opportunity at such massive scale. Unfortunately, as indicated above contrary to
its large capacity, in last twenty years, only about 53 million job opportunities could be
developed with a growth rate of about 1.87 per cent per year in manufacturing sector, whereas,
services sectors contribution during this period has been 150 million jobs with a 6.5 per cent
growth rate per year. Targets fixed under National Manufacturing Policy, 2012 also seem
unattainable. As against target of 25 per cent contribution to GDP and about 100 million
7

additional job creation by the year 2022, India has been able to reach only up to 15 per cent
contribution of manufacturing sector in total GDP and less than 5 million additional job
creation has taken place, which is highly disappointing.

2.3 INTERNATIONAL SCENERIO

The global manufacturing landscape has been evolving at a fast pace. While
continuous change in wages, energy costs, productivity and currency rates are shifting
the global standings on cost competitiveness, factors other than cost are becoming
more and more important for companies to decide the location for sourcing and
manufacturing. According to data from World Bank, on average, productivity in Indias
manufacturing sector is lower than in other emerging markets such as China, Brazil, Turkey or
Indonesia. Indeed, according to the 2012 Competitive Industrial Performance Index of the United
Nations Industrial Development Organization, India was ranked 44th out of more than 140
countries, behind competitors such as Thailand and Indonesia.
The shifts in the relative manufacturing costs have resulted from a
wide variety of reasons as detailed below.
Indonesia
Indonesia has edged India on cost competitiveness primarily on the back of its
wages and the lower cost of its natural gas. Rising factor costs in China and political
uncertainty in other parts of south-east Asia including Thailand and Vietnam have
further worked in Indonesias favor. Several companies including General Electric,
LG and Toyota have announced their plans to expand manufacturing operations in
Indonesia.
China
Chinas cost advantage is fast eroding and the cost to produce goods in China is now
only marginally better than some of the developed countries. Its productivity-adjusted
wages and natural gas costs have more than doubled in the last decade. Electricity
costs have grown by more than 60 percent. Moreover, the Chinese currency, Yuan,
has appreciated by more than 10 per- cent in the last five years.
Russia
Like China, Russias cost competitiveness has eroded over the last decade. In this
period, productivity-adjusted wage rates and industrial natural-gas costs have more
than tri- pled, while electricity costs have doubled. Costs in Russia are estimated to
be at near parity with those in the US.
Political instability and tensions have further aggravated the concerns of
manufacturers in Russia. Recent western sanctions in the energy sector have started
to weigh on Russian manufacturing, resulting in higher fuel costs. Russian countersanctions on imports may further increase inflation. All these factors might result
in further eroding Russias cost competitiveness.

Mexico
Mexico has regained its status as a leading low-cost manufacturing base. The
biggest factor contributing to this trend is the cost of productivity-adjusted labour
costs. In 2000, labour costs in Mexico were roughly twice of that in China. In the
last decade, while labour costs have quintupled for China, it has increased by only
67 percent for Mexico. In fact, productivity-adjusted labour costs in Mexico are
now estimated to be 13 percent lower than those in China. If electricity and natural
gas costs are also included, total costs in Mexico are 5 percent below that in China,
and only 5 percent higher than India.

The United States

The US is re-emerging as a preferred manufacturing destination, thanks to many
factors. The wage rates have increased by only a third of the average across the top 25
exporting countries. Moreover, other currencies within this set have strengthened over
recent years with re- spect to the dollarmaking it more expensive to buy from them.
It should be noted that though China leads the world in manufacturing at an overall
level, it is the US that tops the chart in technology-intensive manufacturing.

Chapter 3: FINDINGS, ANALYSIS AND

INTERPRETATION OF DATA
3.1

NEED FOR DEVELOPMENT OF MANUFACTURING

Manufacturing has always been considered as one of the most vital cogs in the wheel of
development and the Industrial revolution was a testament to that. In the modern age, China's
accomplishment and development in manufacturing are well referenced. Beyond that, South
Korea's achievements and the role of the manufacturing sector in the country's development
are worth noticing.
Though our Industrial Production rose by 3% in June 2015 when compared to same time last
year, what is troubling is that according to the recent Economic Survey, in India items like
radio, TV, communication equipment & apparatus, accounting and computing machinery have
registered high negative growth while these very items have shown positive growth in the rest
of the world.
According to industry projections, India will have to import $300 billion worth of electronics
out of the total demand of $400 billion over the next six years. Alarming as it may sound, this
would mean our import bill for electronics will be more than that of oil. This, along with a host
of other issues means "Make in India" as a flagship initiative is the need of the hour.
Fig 2- Comparison of India with other top manufacturing countries

1. High level of productivity: In economic parlance productivity is measured as the value

of output obtained with each unit of input. For example, if in an hour a worker produces
2 units of something that is valued at Rs. 100 each, then his productivity works out to
10

Rs. 200. It is well known that economic development can only happen when we move
from low productivity to high productivity activities. While India is primarily an
agrarian society, industrial productivity is low and hence manufacturing can be the real
prime-mover for growth. This will in turn ensure a higher GDP rate for the country.

Fig 3- Comparative Economic Indicator (2014)

Source- Economic Intelligence Unit

2) Self Reliance: A strong manufacturing industry is the pedestal for a strong self reliant
country. Indigenous manufacturing is essential for pertinently sensitive sectors like defence
and this can only happen when the manufacturing capabilities are significantly augmented. The
Make in India scheme wants to drive India towards self reliance in the area of manufacturing,
which bodes perfectly well for the safety and security of the country.
3) Boost to Exports: Make in India would strengthen India's production base and will
gradually reduce our country's dependence on imports. With manufacturing and production
throbbing, India will be in a good stead to increase its export base thereby improving its Current
Account situation.

4) Employment: Manufacturing will pave the way for large scale employment of the youth.
This comes especially at a time when rising labour costs in China is threatening to dislodge its
advantage and surely a country like India stands to gain. While in the age of automation, the
requirements on labor have eased, the registered manufacturing sector has the potential to
create large scale employment avenues. Government must ensure that the Make in India
scheme allows millions of youth join the job market thereby ending their search for meaningful
employment opportunities. Any scheme that does not address the issue of unemployment can
only be termed as counterproductive.

11

Fig 4- Comparison of contribution three sector of economy

Source- Ministry of Statistics

5) Skill: While we look at the progress and what manufacturing has meant for China, we should
only consider the best practices. China flourished primarily because of the labour arbitrage as
low-skilled workers made a beeline in the country. However, we need to guard against India
becoming a sweatshop for the developed world and lay utmost emphasis on skilled
manufacturing and human capital sustainability.
Given the nature of our education system, vocational education has not got the respect that it
is worthy of. This has harmed the manufacturing sector in the country and stunted our growth.
In that sense the other flagship plan of the Government around 'Skill India' is equally important
if not more than 'Make in India'. Setting up of manufacturing units will yield little results if we
do not have the skilled workers to man it.
6) Infra boost: There are several infrastructural issues when it comes to manufacturing in the
country. From roads, ports, electricity to warehousing &manufacturing, the country faces
logjams at multiple levels. For example, manufacturing units in North India face nearly 8-10
hours of power cuts every day during summers. Having to rely upon diesel generators renders
our manufacturing uncompetitive, besides being detrimental to the environment. With a plan
that endeavours to spur manufacturing in the country, the Government needs to ensure that all
bottlenecks are resolved and infrastructure projects are rolled out unhindered and uninterrupted.
7) Reverse Talent Flow: For years, India has been grappling with the issue of 'Brain Drain' as
more and more technically qualified people had been heading overseas to make a career. With
'Make in India' rolled out in full throttle, we will actually witness a 'Reverse Talent Flow'
whereby not only would the Indian companies offer tremendous growth opportunities for
retaining best brains but the Foreign Multinational Companies setting up manufacturing
projects in India will also send quality talent to this market. This will eventually enhance the
technological quotient of our country.
8) More credit flow: According to a recent Economic Survey, the growth of credit flow to the
manufacturing sector at 13.3 per cent in 2014-15 was lower than the growth of 25.4 per cent
registered in 2013-14, reflecting the tepid environment in the sector. Chemicals, food
processing, and textiles have seen a sharp decline in the growth of credit in 2014-15. In the
12

same year, growth in the medium scale and large scale industries has been 0.7 % and 6.1 %
respectively.
SME's have undeniably been a vital part of Indian Economy employing close to 40% of our
workforce and contributing to nearly 45% of India's manufacturing, yet for them to raise
finance is still uncannily difficult. The share of SMEs in the National GDP is almost 9%. The
Make in India plan rightly puts the spotlight back on the manufacturing sector. Government
must do everything it can to ensure that institutional financing increases. Capital is the lifeline
for growth and the 'Make in India' plan must have provisions to ensure better finances for the
manufacturing sector.

3.2

PROMISING AREAS FOR MANUFACTURING

AUTOMOBILE INDUSTRY
The Indian auto industry is one of the largest in the world with an annual production of 23.37
million vehicles in FY 2014-15, following a growth of 8.68 per cent over the last year.
The automobile industry accounts for 7.1 per cent of the country's gross domestic product
(GDP).
The Two Wheelers segment with 81 per cent market share is the leader of the Indian
Automobile market owing to a growing middle class and a young population. Moreover, the
growing interest of the companies in exploring the rural markets further aided the growth of
the sector. The overall Passenger Vehicle (PV) segment has 13 per cent market share.
India is also a prominent auto exporter and has strong export growth expectations for the near
future. In FY 2014-15, automobile exports grew by 15 per cent over the last year. In addition,
several initiatives by the Government of India and the major automobile players in the Indian
market are expected to make India a leader in the Two Wheeler (2W) and Four Wheeler (4W)
market in the world by 2020.
Market Size
The industry produced a total 14.25 million vehicles including PVs, commercial vehicles
(CVs), three wheelers (3W) and 2W in April-October 2015 as against 13.83 in April-October
2014, registering a marginal growth of 3.07 per cent year-on-year.
The sales of PVs grew by 8.51 per cent in April-October 2015 over the same period last year.
The overall CVs segment registered a growth of 8.02 per cent in April-October 2015 as
compared to same period last year. Medium & Heavy Commercial Vehicles (M&HCVs)
registered very strong growth of 32.3 per cent while sales of Light Commercial Vehicles
(LCVs) reduced by 5.24 per cent during April-October 2015 year-on-year.
In April-October 2015, overall automobile exports grew by 5.78 per cent. PVs, CVs, 3Ws and
2Ws registered growth of 6.34 per cent, 17.95 per cent, 18.59 per cent and 3.22 per cent
respectively in April-October 2015 over April- October 2014.

13

Fig 5- Growth for the auto segment (2009-15)

Investments
In order to keep up with the growing demand, several auto makers have started investing
heavily in various segments of the industry during the last few months. The industry has
attracted foreign direct investment (FDI) worth US$ 13.48 billion during the period April 2000
to June 2015, according to data released by Department of Industrial Policy and Promotion
(DIPP).
Fig 6- FDI trends over the past few year (USD billion)

Source: Department of Industrial Policy& Promotion (India)

Some of the major investments and developments in the automobile sector in India are as
follows:
Global auto major Ford plans to manufacture in India two families of engines by 2017, a 2.2
litre diesel engine codenamed Panther, and a 1.2 litre petrol engine codenamed Dragon, which
are expected to power 270,000 Ford vehicles globally.
General Motors plans to invest US$ 1 billion in India by 2020, mainly to increase the capacity
at the Talegaon plant in Maharashtra from 130,000 units a year to 220,000 by 2025.
US-based car maker Chrysler has planned to invest Rs 3,500 crore (US$ 525 million) in
Maharashtra, to manufacture Jeep Grand Cherokee model.
Mercedes Benz has decided to manufacture the GLA entry SUV in India. The company has
doubled its India assembly capacity to 20,000 units per annum.
Germany-based luxury car maker Bayerische Motoren Werke AGs (BMW) local unit has
announced to procure components from seven India-based auto parts makers.
14

Mahindra Two Wheelers Limited (MTWL) acquired 51 per cent shares in France-based
Peugeot Motorcycles (PMTC).
Government Initiatives
The Government of India encourages foreign investment in the automobile sector and allows
100 per cent FDI under the automatic route.
Some of the major initiatives taken by the Government of India are:
Government of India aims to make automobiles manufacturing the main driver of Make in
India initiative, as it expects passenger vehicles market to triple to 9.4 million units by 2026,
as highlighted in the Auto Mission Plan (AMP) 2016-26.
In the Union budget of 2015-16, the Government has announced to provide credit of Rs
850,000 crore (US$ 127.5 billion) to farmers, which is expected to boost the tractors segment
sales.
The government has formulated a Scheme for Faster Adoption and Manufacturing of Electric
and Hybrid Vehicles in India, under the National Electric Mobility Mission 2020 to encourage
the progressive induction of reliable, affordable and efficient electric and hybrid vehicles in the
country.

FOOD PROCESSING
The Indian food industry is poised for huge growth, increasing its contribution to world food
trade every year. In India, the food sector has emerged as a high-growth and high-profit sector
due to its immense potential for value addition, particularly within the food processing industry.
Accounting for about 32 per cent of the countrys total food market, the food processing
industry is one of the largest industries in India and is ranked fifth in terms of production,
consumption, export and expected growth. The total food production in India is likely to double
in the next 10 years with the countrys domestic food market estimated to reach US$ 258 billion
by 2015.
The Government of India has been instrumental in the growth and development of the food
processing industry. The government through the Ministry of Food Processing Industries
(MoFPI) is making all efforts to encourage investments in the business. It has approved
proposals for joint ventures (JV), foreign collaborations, industrial licences and 100 per cent
export oriented units.

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Fig 7.- Major Destination of processed food and agriculture related product exports in
FY-15 (USD million)

Source- Ministry of Food Processing Industry

Market Size

The Indian food and grocery market is the worlds sixth largest, with retail contributing 70 per
cent of the sales. It is projected to grow at the rate of 104 per cent, touching US$ 482 billion
by 2020.
The Indian food processing industry accounts for 32 per cent of the countrys total food market,
14 per cent of manufacturing Gross Domestic Product (GDP), 13 per cent of Indias exports
and six per cent of total industrial investment. Indian food service industry is expected to reach
US$ 78 billion by 2018.The Indian gourmet food market is currently valued at US$ 1.3 billion
and is growing at a Compound Annual Growth Rate (CAGR) of 20 per cent. It is expected to
cross US$ 2.8 billion by 2015.
The online food ordering business in India is in its nascent stage, but witnessing exponential
growth. The organised food business in India is worth US$ 48 billion, of which food delivery
is valued at US$ 15 billion. With online food delivery players like FoodPanda,
Zomato, TinyOwl and Swiggy building scale through partnerships, the organised food business
has a huge potential and a promising future.

16

Fig 8- Contribution of food processing industry to Indias GDP through manufacturing

Investments
According to the data provided by the Department of Industrial Policies and Promotion (DIPP),
the food processing sector in India has received around US$ 6.55 billion worth of Foreign
Investments during the period April 2000September 2015. The Confederation of Indian
Industry (CII) estimates that the food processing sectors have the potential to attract as much
as US$ 33 billion of investment over the next 10 years and also generate employment of nine
million person-days.
Investment in food start-ups, which mainly include food ordering apps, has increased by 93 per
cent to US$ 130.3 million1 comprising 17 deals in 2015 till September 2015 as against only
five deals in 2014.

Government Initiatives
Some of the major initiatives taken by the Government of India to improve the food processing
sector in India are as follows:
Government of India plans to allow two Indian dairy companies, Parag Milk Foods and
Schreiber Dynamix Dairies, to export milk products to Russia for six months, after these
companies got approval for their products by Russian inspection authorities.
In the Budget 2015-16, a corpus of Rs. 2,000 crore (US$ 300 million) was created under
National Bank for Agriculture and Rural Development (NABARD) to provide cheaper credit
to food processing industry. Excise duty on plant and machinery for packaging and processing
has been brought down to six per cent from 10 per cent.
The Government of India has planned to set up 42 mega food parks across the country in next
three to four years.

17

CHEMICALS
Chemical industry is one of the oldest industries in India. The industry, including
petrochemicals, and alcohol-based chemicals, has grown at a pace outperforming the overall
growth of the industry.
The Indian chemical industry is at the threshold of rapid growth with the Government of India
providing an atmosphere of support and encouragement. India's vibrant chemical and
petrochemical industry plays a significant role in the economic development of our country.
In terms of volume, the Indian chemical industry is the 6th largest in the world and the 3rd
largest in Asia, with the size worth $108.4 billion.
Market Share
The Indian chemical industry has witnessed robust growth in the past decade and has been
ranked 6th largest in the world and 3rd largest in the Asia according to United Nations
Industrial Development Organisation (UNIDO). The industry has been forecast to reach USD
200 billion mark by 2020.
India is the 13th largest country in terms of ethylene capacity and proposes enhancing the
refining capacity to 300 mmtpa in 2017 from the current 190 mmtpa. India is emerging as
Asias refining hub and become the net exporter of petrochemicals to countries like the
Middle East, Korea, Japan and Singapore.
Petrochemicals are derived from various chemicals compounds, mainly hydrocarbons. These
hydrocarbons are derived from crude oil and natural gas. Among the various fractions
produced by distillation of crude oil, petroleum gases, naphtha, kerosene and gas oil are the
main feed-stocks for the petrochemical industry. Unconventional feed-stocks are also
gradually coming up like shale gas, coal, CBM, pet coke etc.
The estimated size of the market is USD 144 Billion.
India accounts for approximately 16% of the world production of dyestuff and dye
intermediates.
Total production of the Indian chemicals industry was 19,308 Thousand Metric Tonnes in
2013-14.
It is one of the most diversified sectors, covering more than 70,000 commercial products.
Current production of polymers is around 9 Million Tonnes with imports of around 2.8
Million Tonnes.
Polymer demand is expected to grow by 8-10% with healthy growth in industries such as
clothing, automobiles etc.

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Fig 9- Production of Major Chemicals (000MT)

Government Initiatives
Industrial licensing has been abolished for most sub-sectors except for certain
hazardous chemicals.
The government is continuously reducing the list of reserved chemical items for
production in the small-scale sector, thereby facilitating greater investment in technology
upgradation and modernisation.
Policies have been initiated to set up integrated Petroleum, Chemicals and
Petrochemicals Investment Regions (PCPIR).
PCPIR will be an investment region spread across 250 square kilometers for the
manufacture of domestic and export-related products of petroleum, chemicals, and
petrochemicals.

STEEL
India is the worlds third-largest producer of crude steel (up from eighth in 2003) and is
expected to become the second-largest producer by 2016. The growth in the Indian steel sector
has been driven by domestic availability of raw materials such as iron ore and cost-effective
labour. Consequently, the steel sector has been a major contributor to Indias manufacturing
output.
The Indian steel industry is very modern with state-of-the-art steel mills. It has always strived
for continuous modernisation and up-gradation of older plants and higher energy efficiency
levels.

19

Fig 10- Top 10 Steel Producers (share%)

Market Size
Indias crude steel capacity reached 109.85 Million Tonnes (MT) in 2014-15, a growth of 7.4
per cent. Production of crude steel grew by 8.9 per cent to 88. 98 MT. Total finished steel
production for sale increased by 5.1 per cent to 92.16 MT. Consumption of total finished steel
increased 3.9 per cent to 76.99 MT.
India produced 7.34 MT of steel in the month of September 2015, which was nearly equal to
the country's steel production in September 2014.
The steel sector in India contributes nearly two per cent of the countrys gross domestic product
(GDP) and employs over 600,000 people. The per capita consumption of total finished steel in
the country has risen from 51 Kg in 2009-10 to about 59 Kg in 2014-15. India's steel
consumption for FY 2015-16 is estimated to increase by 7 per cent, higher than 2 per cent
growth last year, due to improving economic activity, as per E&Y's 'Global Steel 2015-16'
report.
Fig 11- Total Finished Steel Production (in MT)

Source- Ministry of Steel Reports, 2014

20

Investments
Steel industry and its associated mining and metallurgy sectors have seen a number of major
investments and developments in the recent past.
According to the data released by Department of Industrial Policy and Promotion (DIPP), the
Indian metallurgical industries attracted Foreign Direct Investments (FDI) to the tune of US$
8.7 billion, respectively, in the period April 2000September 2015.
Some of the major investments in the Indian steel industry are as follows:
National Mineral Development Corporation (NMDC) has planned to invest Rs 40,000 crore
(US$ 6.1 billion) in the next eight years to achieve mining capacity of 75 million tonnes per
annum (MTPA) by FY2018-19 and 100 MTPA by FY2021-22, compared to 48 MTPA current
capacity.
Posco Korea, the multinational Korean steel company, has signed an agreement with Shree
Uttam Steel and Power (part of Uttam Galva Group) to set up a steel plant at Satarda in
Maharashtra.
Iron ore output in India is expected to increase by 25 per cent to 153 Million Tonnes in FY
2016, which in turn will help reduce iron ore imports by two-thirds to five Million Tonnes,
SAIL plans to invest US$23.8 billion to increase the steel production to 50 MTPA by 2025.
ArcelorMittal, worlds leading steel maker, has agreed a joint venture with Steel Authority of
India Ltd (SAIL) to set up an automotive steel manufacturing facility in India.
Iran has evinced interest in strengthening ties with India in the steel and mines sector, said
ambassador of the Islamic Republic of Iran, Mr Gholamreza Ansari in his conversation with
Minister of Steel and Mines, Mr Narendra Singh Tomar.
Public sector mining giant NMDC Ltd will set up a greenfield 3-million tonne per annum steel
mill in Karnataka jointly with the state government at an estimated investment of Rs 18,000
crore (US$ 2.8 billion).
JSW Steel has announced to add capacity to make its plant in Karnataka the largest at 20 MT
by 2022.
Government Initiatives
The Government of India is aiming to scale up steel production in the country to 300 MT by
2025 from 81 MT in 2013-14.
The Ministry of Steel has announced to invest in modernisation and expansion of steel plants
of Steel Authority of India Limited (SAIL) and Rashtriya Ispat Nigam Limited (RINL) in
various states to enhance the crude steel production capacity in the current phase from 12.8
MTPA to 21.4 MTPA and from 3.0 MTPA to 6.3 MTPA respectively.
The Minister of Steel & Mines, Mr Narendra Singh Tomar, has reiterated commitment of
Central Government to support the steel industry to reach a production target of 300 Million
Tonne Per Annum (MTPA) in 2025.
The Ministry of Steel is facilitating setting up of an industry driven Steel Research and
Technology Mission of India (SRTMI) in association with the public and private sector steel
companies to spearhead research and development activities in the iron and steel industry at an
initial corpus of Rs 200 crore (US$ 31.67 million).
Some of the other recent government initiatives in this sector are as follows:
Government of India plans to auction eight coal blocks with reserves of 1,143 million tonnes
to steel and cement firms in January 2016, as per coal secretary Mr Anil Swarup.

21

3.3 MAKE IN INDIA

Revival of the manufacturing sector has been one of the cornerstones of the new
governments electoral promises and efforts so far. The centerpiece of these efforts is the
Make-In-India program which was launched in September 2014 to facilitate investment,
foster innovation, enhance skill development, protect IP and build manufacturing
infrastructure.
In addition, the government has initiated bold moves to address key concerns on
multiple fronts including the much anticipated goods and services tax, initiatives in
the power sector reforms land acquisition and labor law. While some of these have
been able to make a difference on the ground, the others are stuck on the legislative
or implementation runway and are yet to take off. This chapter takes stock of the
governments efforts and progress on the key fronts that can unlock the development
of the manufacturing sector.
Make In India Framework
The Make-In-India initiative is
aimed at bringing a paradigm shift to the
manufacturing sector. With intent to attract both foreign and domestic investment in
manufacturing, the initiative was launched last year in all Indian states and several
overseas embassies. The Make-In-India initiative has four key themes:

Procedural simplification aims to improve the ease of doing business through

deregulation, reducing licensing requirements, simplifying and rationalizing rules
and leveraging information technology.

Infrastructure build-out through development of large scale industrial

corridors. Work on five smart cities is currently underway in the Delhi Mumbai
Industrial Corridor (DMIC). Feasibility of other industrial corridors is also being
studied; these include the Bangalore Mumbai Economic Corridor, East Coast
Economic Corridor and Amritsar Kolkata Industrial Corridor.

New sector growth by aggressively attracting investments in specific

industries. For example, 100 percent FDI is now invited in railways and medical
devices. FDI is allowed up to forty nine percent in defense manufacturing and 55
percent of the items have been removed from licensing requirements.

Ushering in a new mindset to transform the Government from a regulator to a

facilitator. An investor facilitation cell has been set up to assist investors with
subjects like policies, incentive schemes and opportunities. The government has
also taken steps to reduce regulatory filing. For instance, companies now need to file
a single self-certified compliance report for 16 central labor laws.

22

Key Initiatives taken under Make In India

Though the government has been pushing active reforms and procedural
simplifications to make it easier to do business, the industry is yet to see a clear change
on the ground. Thirty nine percent of the top management surveyed felt there has been
no improvement in the ease of doing business over the last year, while 20 per- cent felt
it has improved somewhat. Specifically, more executives saw an improvement in
project clearance and approvals, while land acquisition and labour laws continued to
be seen as difficult in terms of ease of doing business.
GST- Still Some Way to Go
Several past regimes have initiated and discussed a move towards GST which will
replaced most indirect taxes with one single tax. GST is expected to transform India
into a single unified market, reduce the cost of manufactured goods and boost exports
by 10-14 percent. It is expected to boost Indias GDP growth by about 2 percent and is
considered to be the most significant tax reform since Independence. The new
government has shown strong intent to implement GST and has set a deadline of
April 1, 2016. Significant work on GST has been completed. The Bill has been
passed in the Lower House (Lok Sabha) but still pending in Upper House.
Fig 12- Ease of Doing Rankings by World Bank

Source- World Bank Ease of Doing Business 2014&15

23

 Land Acquisition BillOnus on State Governments

Acquisition of land for industrialization and infrastructure development has been a
hotly debated issue in Indian socio-politics for a variety of genuine reasons.
Farmers have opposed conversion of fertile farmlands for other uses;
environmentalists have opposed deforestation and coast- al zone development; and
sociologists are keen to ensure protection of tribal habitats. On several occasions,
these legitimate oppositions have acquired political overtones.
Labour Laws- Several Small Steps forward
Indian labor laws are the most rigid among the BRICS countries. Many date back as
far as 1926. Reform efforts focus on rationalizing the legal requirements as well as
simplifying the compliance procedures. Online portals have been launched, that
clearly lay out the regulatory requirements. A new web-based labor inspection
system will do away with the current arbitrary selection of factories, thus curbing
harassment of factory officials by government inspectors. Another portal helps
employers submit a single compliance report for 16 labor laws.

Fig 13- Labour Market Risk Tracker

Source- World Bank 2014

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Plans in Progress
Plan to develop new smart cities and industrial clusters in selected industrial corridors
Work on 5 smart cities- Dholera, Shendra-Bidkin, Greater Noida, Ujjain and Gurgaon, is in
progress as a part of the Delhi-Mumbai Industrial Corridor
New youth-oriented programs to develop specialized skills
Impetus has also been given on developing Industrial Corridors
National Industrial Corridor Development Authority has been created to coordinate,
integrate, monitor and supervise development of all Industrial Corridors.
New Industrial Clusters have been proposed.
21 Industrial projects under Modified Industrial Infrastructure Upgradation Scheme have
been approved with an increased emphasis on use of recycled water
Approval accorded to 17 National Investment and Manufacturing zones (NIMZ).
100% FDI under automatic route in construction and operation and maintenance in specified
Rail Infrastructure projects.
Government of India is building a pentagon of corridors across the country to boost
manufacturing and to project India as a Global Manufacturing destination of the world.
Fig 14.- Top requirements towards making Make in India a reality? (rank top 2)

Source- BCG Manufacturing Leadership Survey 2014

25

Chapter 4: CONCLUSION
4.1 CONCLUSION
India has the potential to become worlds largest economy. However, to achieve the same, it
has to walk a long way. Dependency on agriculture or services sector alone wont be enough
to reach this goal. Agriculture sector development is prone to the monsoon. Moreover,
employment in this sector is continuously shrinking due to modern cultivation methods where
human intervention and role is minimized. Services sector growth depends largely upon
performance of global economy. Hence, India has to necessarily ensure higher growth of its
manufacturing sector so that it contributes at least 25 per cent to overall GDP and meet the
employment targets set up under Manufacturing Policy, 2012. To achieve the same, India has
to pledge for resurgence of its industry and focus on establishing internationally accepted
quality standards for the industry, so that Indian goods can be exported and accepted in
international markets.
Government has opened up many important sectors like insurance and pension for higher
foreign direct investment (FDI) up to 49 per cent. Government is putting its efforts to remove
all obstacles hindering right investment climate in India. It is essential that India maintain its
momentum of focusing comprehensively on encouraging areas like industries growth and
development; education and skills development, knowledge management; research and
development; innovation; boosting power and electricity generation capacity, infrastructure
and logistics.
India is in a unique position right now. Many things are coming together for the Indian
manufacturing industry as we speak. Make-In-India thrust by the government has
created considerable momentum across various areasespecially in ease of doing
business, labor reforms, etc. There seems to be a renewed vigour at the state level with
many states upping the ante in terms of incentives as they compete for additional
investment. Infrastructure push that has been on for years, has seen the power deficit
situation improve steadily. Transport infrastructure should continue to improve given
the massive investments that have been announced. At the same time, factor costs
for manufacturing are at an all-time low, providing some increase in margins to
manufacturers across the world, driving improved business health and business confidence.
Framing right policies and implementing them will help India to reach the league of developed
economies and becoming worlds largest economy subsequently and India is destined to reach
there in the times to come.

26

4.2 RECOMMENDATION
As we are steadily climbing notches in the ladder of ease of doing business, a much-needed
push to the manufacturing sector is important to sustain and promote an all-inclusive growth.
While the efforts of the Government in this direction are laudable, certain issues do remain
which are holding back the growth of the manufacturing sector.
Here are some of the key areas where reforms are required in order to provide stimulus to the
manufacturing sector:
Demand Push: Manufacturing sector has been plagued by various issues - the major ones
being weak consumer demand, decline in exports, negative growth in capital goods sector and
infrastructure spending. In order that the economy is put on a growth trajectory, it is necessary
that there is a demand push in the form of increased infrastructure spending, which in turn
would result in generation of demand to a great extent.
Facilitate skill development: On the skill side, we are faced with an issue of scarcity in plenty
as the proportion of skilled persons in our large volume of manpower is very small and we may
miss the advantages of the much touted demographic dividend.
Encourage Innovation: Innovation would be a key factor in transitioning India into a global
manufacturing player. Core research is a much neglected sector and this should be
appropriately encouraged and incentivized so that there are innovations from this country.
Protecting domestic manufacturers: Indian Industry has been at the receiving end of imports
from China and is reeling under its impact. While the government has been proactive in
protecting Indian industry with the possibility of treating China as a non-market economy
(NME) in anti-dumping proceedings, greater protection could be afforded to Indian Industry.
Business friendly tax reforms: To promote 'Make in India', it is critical to take measures
from ease of doing business perspective. There needs to be a change in the mind-set of the tax
department to facilitate business instead of playing a restrictive role. Implementation of GST
would be a game-changer too. Passing of the bill is crucial to resolve a plethora of indirect
tax issues as well as enable free flow of goods in the economy.

27

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