India's Manufacturing Boom- Unveiling Progress and Top Manufacturing-Based Funds

India's booming manufacturing sector, technology adoption, and investment opportunities for NRIs.

May 5, 2024
8 mins read
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In the vibrant landscape of India's manufacturing sector, profound transformations have taken place, spearheading the nation's economic growth. This article delves into the remarkable developments that have shaped India's manufacturing ecosystem over time, accompanied by noteworthy statistics. Moreover, we shall unveil the top manufacturing-based mutual funds, offering investors an opportunity to partake in India's industrial progress.

The Evolution of India's Manufacturing Ecosystem

Over the last ten years, India's manufacturing output and GDP have grown significantly, reflecting the country's economic progress. The Compound Annual Growth Rate (CAGR) for the manufacturing sector and GDP during this period has been impressive.

India's Compound Annual Growth Rate (CAGR) over the last 10, 5 and 3 years was 5.5%, 3.7% and 2.7%, respectively.

Rise of Advanced Technologies in Manufacturing

The manufacturing industry in India has undergone a significant transformation with the rapid adoption of advanced technologies. In recent years, there has been a substantial embrace of cutting-edge innovations, such as artificial intelligence (AI), robotics, and automation, which have revolutionized the way manufacturing processes are carried out. This technological revolution has profoundly impacted the sector, leading to enhanced productivity, improved product quality, and cost reduction, ultimately boosting India's competitive edge in the global market.

Artificial Intelligence (AI):

AI is crucial in reshaping the manufacturing landscape by enabling machines and systems to perform tasks that traditionally require human intelligence.

One of the most significant benefits of AI in manufacturing is predictive maintenance. AI-powered sensors can monitor machinery conditions in real-time, detecting anomalies and predicting potential failures before they occur. This proactive approach to maintenance minimizes unplanned downtime, reduces repair costs, and enhances overall equipment efficiency.

Tata Steel uses AI-powered sensors and data analytics to monitor the condition of its machinery and equipment in real-time. This enables them to predict potential failures and perform proactive maintenance, reducing downtime and enhancing overall equipment efficiency.

Robotics and Automation:

Robotics has been a game-changer in manufacturing, automating repetitive and labour-intensive tasks previously performed manually. Industrial robots with advanced sensors and AI capabilities can handle complex assembly tasks with precision and speed, minimizing errors and maximizing output.

Combined with robotics and AI, automation has transformed manufacturing plants into smart factories. Automated systems efficiently handle various stages of production, from material handling and assembly to packaging and quality control.

By integrating automation with data analytics, manufacturers gain real-time insights into production performance, allowing them to identify bottlenecks, optimize workflows, and enhance resource allocation. This data-driven approach results in cost reduction and improved resource efficiency.

Mahindra & Mahindra, an automotive manufacturer, has integrated robotics and automation into their assembly lines. Industrial robots equipped with AI capabilities handle complex tasks such as welding and painting, improving precision and speed in the manufacturing process.

Supply Chain Management:

Advanced technologies have also revolutionized supply chain management in the manufacturing industry. AI-powered predictive analytics helps forecast demand, enabling manufacturers to optimize inventory levels and avoid stockouts. This streamlines the supply chain, reduces lead times, and improves responsiveness to market demands.

Automation and robotics in warehousing and logistics have led to faster order fulfilment and reduced shipping times. Autonomous vehicles and drones are being used to transport goods within warehouses and for last-mile delivery, further enhancing operational efficiency.

Hindustan Unilever Limited utilizes AI-powered predictive analytics to forecast consumer demand and optimize inventory levels for their wide range of consumer products. This data-driven approach streamlines their supply chain, reducing lead times and enhancing responsiveness to market demands.

Skill Development and Workforce Transformation:

The rise of advanced technologies in manufacturing has necessitated upskilling and reskilling of the workforce to adapt to the changing industry demands. Traditional job roles are evolving, and workers must acquire digital literacy and technical expertise to operate and maintain automated systems effectively.

Manufacturers are investing in employee training programs to equip their workforce with the necessary skills to collaborate with machines and leverage advanced technologies. This workforce transformation ensures that human workers remain an essential part of the manufacturing process, complementing the capabilities of AI, robotics, and automation.

Larsen & Turbo, a conglomerate with diverse manufacturing businesses, invests in extensive employee training programs. They focus on upskilling and reskilling their workforce to adapt to new technologies, ensuring employees can collaborate effectively with AI, robotics, and automation systems.

Expansion of Export Capabilities

India's manufacturing sector has experienced impressive growth, leading to a significant expansion of its export capabilities. Key industries like automotive, pharmaceuticals, and textiles have driven this growth.

Automotive Industry: India is a major exporter of small cars, motorcycles, and commercial vehicles to various regions, benefiting from low production costs and skilled labor. The automobile industry contributes 7.1% of India's GDP and accounts for 49% of its manufacturing GDP.

Pharmaceuticals Industry: India's pharmaceutical exports have surged, making it a leading global supplier of generic drugs and vaccines. The Indian pharmaceutical industry has logged a compound annual growth rate (CAGR) of 6-8%, primarily driven by an 8% increase in exports and a 6% rise in the domestic market.

Textiles Industry: The country's textiles are in high demand worldwide due to their unique designs and craftsmanship. Exporters have seen a growth of 10-11% in FY23.

Other Industries: IT services, engineering goods, chemicals, and agricultural products have also contributed to India's export growth.

Which sectors have benefitted from India’s manufacturing boom?

India's industrial production has experienced a significant surge, displaying impressive double-digit growth in recent years. Several key sectors within the industrial landscape, such as electronics, machinery, and chemicals, have witnessed remarkable expansions, underscoring the overall robustness and dynamism of the sector.

Electronics Sector:

The electronics industry in India has emerged as a driving force behind the country's industrial growth. With a strong emphasis on manufacturing under the "Make in India" initiative, the electronics sector has seen rapid advancements in production capabilities, leading to a surge in domestic consumption and export volumes. The country's electronics export is expected to reach $ 120 Bn by FY26. The export of electronic goods from India has increased from $ 5 Bn in FY17 to $ 15 Bn in FY22, growing at a CAGR of 22%.

The demand for consumer electronics, such as smartphones, laptops, and smart appliances, has witnessed exponential growth, fueled by a tech-savvy population and rising disposable incomes. India has also become a hub for electronic components manufacturing, attracting investments from multinational companies seeking to leverage the country's skilled workforce and favourable business environment. 97% of the smartphones sold in the country are produced domestically, while exports have increased by over 139% over the last three years. 96% reduction in data cost from INR 268 per GB in 2014 to INR 10 per GB in 2022 has further helped in proliferation of internet-based electronic goods.

Machinery and Capital Goods:

The machinery and capital goods sector has played a crucial role in augmenting India's industrial production. This sector encompasses various products, including industrial machinery, construction equipment, and machine tools. The growth rate of capital goods production in India was at 29 percent in fiscal year 2022.

The growth in infrastructure development, construction, and manufacturing activities has spurred the demand for capital goods and machinery. India's emphasis on modernising its manufacturing facilities and adopting advanced technologies has further fueled investments in this sector. Additionally, the government's initiatives to boost domestic manufacturing and reduce import dependency have contributed to the expansion of this critical industry.

Chemicals Industry:

The chemicals sector has experienced rapid growth, positioning India as a significant player in the global chemical market. India's competitive advantage in chemical manufacturing lies in its access to diverse raw materials, skilled manpower, and a vast domestic market. The sector is projected to grow by 11 to 12 percent during 2021–27 and by 7 to 10 percent during 2027–40—tripling its global market share by 2040.

The chemicals industry caters to various sectors, including pharmaceuticals, agrochemicals, petrochemicals, and specialty chemicals. The sector's robust growth has been driven by increasing demand from domestic industries and rising exports to international markets.

Foreign Direct Investment (FDI) Inflow

The manufacturing sector in India has become an attractive destination for foreign direct investment (FDI), reflecting the growing investor confidence in the country's industrial capabilities. Over the years, the influx of FDI into the manufacturing industry has brought several advantages, including technology transfer, improved infrastructure, and expanded market access for Indian manufacturers. FDI Equity inflow in Manufacturing Sectors has increased by 76% in FY 2021-22.compared to the previous FY 2020-21

Technology Transfer:

FDI inflow into the manufacturing sector has facilitated the transfer of advanced technologies and best practices from foreign companies to Indian manufacturers. Multinational corporations investing in India often bring cutting-edge technologies, production methodologies, and research and development expertise. This technology transfer enhances domestic manufacturing capabilities, enabling Indian companies to produce high-quality products at par with international standards. Adopting modern technologies also increases efficiency, productivity, and competitiveness in the global market.

Improved Infrastructure:

FDI has played a crucial role in bolstering the infrastructure in the manufacturing sector. Foreign investors often bring in substantial capital investments, which are utilized to develop state-of-the-art manufacturing facilities, research centers, and logistics infrastructure. This infusion of funds results in the modernization and expansion of existing manufacturing units, creating a conducive environment for innovation and growth. Improved infrastructure positively impacts the overall supply chain efficiency, reducing production costs and time-to-market for Indian manufacturers.

Widened Market Access:

Foreign direct investment has opened new avenues for Indian manufacturers to access global markets. Collaborating with foreign investors provides Indian companies with access to international distribution networks, marketing expertise, and a broader customer base. This global exposure enables Indian manufacturers to expand their reach and sell their products in diverse markets, leading to increased export opportunities. As a result, FDI inflow enhances India's export capabilities, drives economic growth, and strengthens the country's position in the global trade landscape.

Employment Generation:

The influx of FDI into the manufacturing sector generates employment opportunities for the Indian workforce. Foreign investments lead to new manufacturing units, expansion of existing facilities, and establishment of research and development centres, requiring a skilled workforce. This job creation not only benefits the manufacturing sector but also contributes to reducing unemployment and improving the standard of living for the Indian population.

Economic Growth and Development:

FDI inflow into the manufacturing sector has a cascading effect on the Indian economy. The growth of the manufacturing industry stimulates demand for raw materials and services from various sectors, encouraging domestic industries to flourish. This increased economic activity boosts government revenue through taxes and promotes overall economic development.

Sectoral Diversification:

FDI in manufacturing has encouraged sectoral diversification, with foreign investors exploring opportunities in various industries such as automotive, electronics, pharmaceuticals, and aerospace. This diversification reduces dependence on a specific sector and contributes to a balanced and resilient economy.

How to get benefits of India’s manufacturing growth

Manufacturing has played a pivotal role in India's economic development, contributing a substantial share to the country's Gross Domestic Product (GDP). This consistent growth has reinforced the sector's significance in the overall economy. Following are some funds through which you can also partake in the growth as an NRI

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