Indias unsung growth sector

Fri, 23 Dec Pre-Open

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Whenever we talk about India's growth story, one immediately recollects the IT and services sector. While IT and services have been the poster boys of the India growth story, especially in the overseas markets, India's manufacturing sector has been quietly taking giant strides. India has emerged as one of the key manufacturing hubs for global manufacturing companies in the automotive, pharmaceutical, packaging, food processing, and textiles industries. In 2010, Deloitte Touche Tohmatsu ranked India as offering the second best global manufacturing platform in the world, above traditional manufacturing countries such as the US, Germany, and Japan.

Many global companies are using India as their manufacturing base to export their goods. For example, Japanese carmaker Nissan has so far manufactured 185,000 units in India but has sold only 35,000 units in India and exported the rest. Another example is that of metal castings. US castings imports are moving out of China, but not back to the US. Increasingly, Indian die casting manufacturers are acquiring work away from China for products which are ultimately destined for US markets. In iron castings, US imports from China in 2010 rose 2.6%. But similar imports from India rose by a whopping 30%.

The most inspiring story of how Indian manufacturers are beating Chinese competition comes from the textile sector. The demand for denim which is the fabric used for making jeans is increasing day by day. Indian denim manufacturers have a competitive edge as compared to Chinese manufacturers because domestic cotton prices, the main raw material for denim fabric, are significantly lower than global prices and are expected to stay soft on the back of a bumper cotton crop. While major denim buyers like Wal-Mart and VF Corporation are now looking to India for denim, some denim makers have even managed to turn the tables on their Chinese counterparts, and are selling denim at up to 20% lower prices than Chinese denim manufacturers to Chinese jeans manufacturers.

But the manufacturing sector still faces lot of challenges. The manufacturers need access to global markets and competitive capital, legal and regulatory processes must be stable, efficient and transparent and taxation must be globally competitive. To create a competitive playing field for manufacturing, government also needs to invest wisely in critical infrastructure - physical, social and digital. The government needs to be involved in building roads, ports and power grids infrastructure that manufacturers rely on but cannot build themselves. The National Manufacturing Policy 2011 unveiled by the government which aims to create huge manufacturing zones is the step in the right direction to further boost Indian manufacturing.