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Challenges Faced By Indian Manufacturing Sector

Experts believe that India’s focus shifted from agriculture to service sector bypassing the important manufacturing sector. Due to this, manufacturing is not increasing at the pace at which the service sector in increasing.

India’s service sector is already booming and getting the resources which are required; parallel to it pressure on agricultural sector can’t be increased as it is already pressurized due to high level of over-employment due to which India has to give importance to the weak manufacturing sector to increase the GDP.


Following is the table showing FDI inflows from April 2000- March 2020 in different sectors:

Countries and companies are soon realizing their over dependence on China and the repercussions for the same. Prior to COVID-19, Donald Trump had emphasized that we need to move the production base out of China as we are heavily dependent which can cause long term harm ( this statement was made during the ongoing trade war between China and US).

India could have taken the leverage of the situation and could have attracted more companies which were exiting China. But somewhere we failed to attract many companies as majority of firms shifted their base to Vietnam and only handful of companies set up production units in India. However,this might not be the end for us as we have way more opportunities and scope than Vietnam.


Where does the problem lie ?

India majorly faces following problems while attracting foreign investments (also known as domestic bottlenecks)-

  • Poor infrastructure

  • Slow movement of logistics

  • Lack of reliability on electricity

  • Regulatory hurdles

  • Problems in enforcing contracts

  • Land reforms

How can India attract more companies and countries to invest in India ?

Indian Government reduced the corporate tax to 25%, one of the lowest in Asia pacific region to create lucrative opportunities for firms to invest in the country, a further decrease in tax rates is not viable and expected from the government of India.

India as a country has to develop infrastructure which would in turn help faster movement of goods from one location to other making the logistical movement faster and swifter reducing time and cost for firms by large.

Countries like Australia, United Kingdom, UAE are giving tax credits and other grants to companies who are producing goods with the help of 3D printing and automated real-time processing in manufacturing. This brings latest technology in the country which increases the quality of the products and reduces the cost at same time. We should also adopt some measures to attract companies which could invest in 3D printing and automated real time processing which could revolutionize the manufacturing sector.


One of the major bottlenecks that India has to tackle and overcome is the regulatory hurdles and problems faced while enforcing contracts. Seamless and transparent policies with quick permission route to companies for their proposals can reduce the bottleneck by large.

Acquiring land for manufacturing purposes should be made easy with proper coordination between state governments and central government. Reforms in land acquisition can surely act as an catalyst to attract more companies.Training more labors and making them available at required location can help firms in mitigating problems regarding skilled labor.


RAY OF HOPE

Apple and Samsung both announced that they will be exporting $100 billion worth mobile phones in the next 5 years.


PLI scheme and Mobile Manufacturing Firms

Ministry of Electronics and Information Technology announced the production linked incentive scheme ( PLI ) for large scale electronics manufacturers so as to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components which includes Assembling, Testing, Marking and Packaging of units. The scheme provides direct incentive of 4%-6% in cost reduction on the basis of incremental sales of goods manufactured in India for period of 5 years.

This is one of the government’s boldest move to promote their “Atmanirbhar Campaign” becuase mobile manufactures like Samsung and Apple are going to open their manufacturing units in India as they estimate cost benefit worth 41,000 crores under PLI scheme and additional 9,000 crores under “ modified electronics manufacturing scheme”, totaling to 50,000 crores of incentive.

Samsung will be creating a manufacturing plant in Noida which will be the largest in the world and export 30% of handsets manufactured there. Apple’s distributors; Foxconn and Wistron are going to invest in India . Foxconn plans to invest around $1 Billion in India by setting up manufacturing plants in Chennai over a span of 3 years which will create roughly 6000 direct job opportunities. While, Wistron is planning to start its manufacturing in the state of Karnataka with an estimated workforce of 10,000 people.This will certainly help in procuring cheaper phones within the country and parallel to it our export of smartphones would increase by large leading to a win-win situation for the country.

Samsung and Apple did plan to move manufacturing units to India mainly because of the cost benefits which the government provided. In similar ways, if the government wants to attract more investments in the manufacturing sector they should provide more direct cost benefits and must eliminate the bottlenecks mentioned above which will help India in escalating the ladder of ease of doing business.

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