Manufacturing

Sector in India
Finance Club, JBIMS
 INDEX

Sr. No Contents Page No

1 Introduction 2

2 Policy and Policy changes 3

3 Indices 5

4 Recent News 6

5 New Trends in Manufacturing 7

1
1. Introduction

Manufacturing employs more than 30 million people in India (Organized and unorganized both).
More than 5 million manufacturing establishments are already running in the rural areas. Indian
manufacturing sector is contributing 16% to the country's GDP. The sector was boosted to certain
extent by 1991 economic reforms, ending license raj.

Officially, manufacturing industries are classified in 24 divisions.

Although, 8 core industries are as follows –

1. Coal Production
2. Crude Oil Production
3. Natural Gas Production
4. Petroleum Refinery processing
5. Steel Production
6. Cement Production
7. Electricity Generation
8. Fertilizer Production

Advantage of manufacturing in India –

1. Huge Domestic Market - By 2030, Indian Middle Class is expected to consume 17%
of global production.

2
 2. Availability of raw materials and skilled and semi skilled workforce.
3. Easing up norms of FDI
4. Policy changes and initiatives for boosting investment.

Merchandise exports for FY19 account for US$331 Billion, with engineering and petrochemical
industries accounting for maximum share.

India ranked 30th on World Economic Forum’s Global Manufacturing Index 2018.

2. Policy and policy changes

Government policies from pre 1991 era led to rise in inefficiency in PSUs as competition was limited
by license raj. Further, agro industries were given more attention. All these led to industries losing
their competitiveness.

Post 1991, services sector saw huge growth and became major driver of economy while industrial
and manufacturing sector, though witnessing growth, also experienced volatility in growth rates.

Government of India has undertaken many initiatives and modified certain policies to boost
industrial production in India.

Initiavitives undertaken –

1. Make in India Initiative

Launched in 2014

Covers 27 sectors including accounting and financial services, environmental services etc.

3
 2. Skill India Initiative

Launched in 2015

Aims to train more than 400 million people in various skills

Schemes involved are National Skills Development Mission, Pradhan Mantri Kaushal Vikas Yojna
and National Policy for Scheme Development and Entrepreneurship.

2017-18 budget aims to establish 100 India international skill centres

3. Start Up India

Launched in 2015

No inspection regarding labour laws, self certification required for environmental compliance

Can claim up to 80% rebate in income tax

Can apply for income tax and Capital gains tax for first 3 years

Last Industrial policy was framed in 1991. A draft industrial policy is currently being framed by
Department for Promotion of Industry and Internal Trade (DPIIT).

National Manufacturing Policy

Introduced in 2011

Aims to increase manufacturing sector’s share in GDP to 25%, create 100 million jobs by 2021

Created National Investment and Manufacturing zones. NIMZ are self governed, autonomous
industrial townships, managed by a Special Purpose Vehicle.

3 zones granted final approval viz Prakasam in Andhra Pradesh, Medak in Telangana, Jajpur in
Odisha.

14 approved in principal. 8 to be developed along Delhi Mumbai Iindustrial Corridor.

An initial draft industrial policy has been prepared by the Department for Promotion of Industry
and Internal Trade (DPIIT) which has set a target to raise value addition in the manufacturing
sector to US$ 1 trillion by 2025. This is the first industrial policy since 1991.

4
Policy changes –

100 % FDI allowed in contract manufacturing through automatic route

IT Rate for all companies having turnover up to 250 Cr to 25%

Government has prepared Startup India Vision 2024 including tax incentives and other measures

100% FDI allowed in Electronic system design and Manufacturing Sector

100% FDI is allowed in Defense Sector

100% FDI in coal mining to achieve long term goal of 300 million tonnes of steel production.

Corporate tax rate cut to 22% for existing companies and to 15% for new manufacturers.

Reforms in Insolvency and bankruptcy code,2017 have shown a positive impact on current scenario.

3. Indices

Following indices are used to measure performance of manufacturing sector

1. IIP – Index of Industrial Production

It is prepared by Central Statistics Office and measures activities in 3 sectors, viz. Mining,
Manufacturing and electricity. Still it is considered as benchmark to measure manufacturing
sector because this sector accounts for 77.63% weight in the index. It is released on a monthly
basis, 6 weeks after the reference month.

For Sept ’19, IIP dropped to 4.3%

5
 2. GVA – Gross Value Added

It is a measure of value of goods and services produced in the sector.

GVA for FY19 is estimated to be US$ 403 billion at current prices.

3. ICI – Index of Eight Core Industries

This index measures production performance of 8 core industries, viz. Coal Production, Crude Oil
Production, Natural Gas Production, Petroleum Refinery Processing, Steel Production, Cement
Production, Fertilizer production and Electricity Generation. This index is also released monthly.

Overall index grew by 4.3% during FY19. Current absolute value of index is 131.9 in July’19

4. PMI – Nikkei India Purchasing Manufacturers Index

This index measures sentiment related to manufacturing activity in the economy. A value greater
than 50 is considered as positive.

Current PMI is 50.6 as on Oct’19, lowest in 2 years.

4. Recent News

GDP growth rate has fallen down drastically, to 5% in Q1 FY19-20

Demonetization has led to removal of cash from economy, causing distress mainly in MSMEs
and SMEs. Negative impacts of the move on real estate sector further indirectly affected
manufacturing.

6
 NBFC crisis further created liquidity crunch, which significantly hit the demand, particularly in
automobile sector. The crisis impacted SMEs and MSMEs dependent on the auto sector
severely.

Sector is headed for further stagnation, as PMI dropped to 2 years low of 50.6. Growth was
restored in capital goods and softened in consumer goods sector, although sales have
increased for 24th consecutive months.

Factory output reaches lowest level since April 2012, in Sept’2019 to 4.3%. All the components
of IIP recorded a fall. 17 out of 24 groups showed a fall in performance during the month.

India’s power demand fell to 13.2% in October, sharpest fall in 12 years.

India opted out of Regional Comprehensive Economic Partnership (RCEP), a 16 country trade
partnership because it was looking for more protection of its domestic industry and
agricultural sector from surge of imports, particularly from China.

5. New Trends in Manufacturing

1. Additive Manufacturing - Popularly known as 3D printing, this new manufacturing technology

uses digital models to create products by printing layers of material

2. Industry 4.0 - Manufacturing sector has started implementing Internet of Things as a new
network of sensors and actuators for data collection, monitoring, decision making and
process optimization over internet infrastructure

3. Digital Technologies - It is estimated that 65 per cent of manufacturing companies will have
high levels of digitalization by 2020.