Economic Survey 2023: India's Industries Bounce Back Post-Pandemic

As has been the case globally, India’s industries have been hammered by the double whammy of the Covid-19 pandemic and the Russia-Ukraine war.

While the pandemic disrupted demand, manufacturing, and production, the unexpected war last year resulted in the rise of commodity prices, thus putting pressure on transportation costs, investments, and so forth. Consequently, the demand suffered.

However, industries in India have fared well in financial year 2023 (FY23), compared to the previous financial year, says the Economic Survey 2023. 

Investments across steel, electricity, construction, mining, chemicals, automobiles, textiles, cement and pharma have registered an uptick. It must be noted that a lot has to do with the pent-up demand from the two Covid years.

India's manufacturing has registered a strong comeback.

Food and beverages, wearing apparel, leather and related products had strong growth in 2022, given the increased demand post-Covid and people resuming their pre-pandemic routines.

Further, petroleum, chemical products, and basic metal products also registered an uptick in manufacturing.

The year 2022 was also noteworthy for motor vehicle manufacturers with increase in sales.

In the first half of FY23, global demand also helped in the surge of exports before the war-induced inflation took over.

The strong manufacturing sentiment can also be affirmed by the credit growth across several industries.

Compared year-on-year, most industries were in the green when it came to credit deployment for FY23.

The Narendra Modi government’s obsession with getting a semiconductor manufacturing plant in India is an open secret, and in the larger scheme of things, it’s the right obsession to have.

The survey highlights the importance of PLI schemes, taking the example of the semiconductor industry.

A a comprehensive programme with an outlay of Rs 76,000 crore (approximately $10 billion) was approved by the government of India in September 2022.

The government will provide financial support for 50 per cent of the capital expenditure to be incurred by the investing firms

Supply chain vulnerabilities, especially with respect to the imminent reunification of Taiwan by force or otherwise, dependence on China in the face of border conflicts with India and trade war with the United States, and the growing demand of a digitised economy with supply-side constraints warrant urgent investments and incentives for willing semiconductor manufacturers looking to set up shop in India.

The Indian government must continue to demonstrate intent on this front, and even if it takes $20 billion in incentives over 10 years, take the leap, and get something going on the lines of Japan Advanced Semiconductor Manufacturing (JASM).

Pushed today, India may not achieve self-reliance in the high-end semiconductors, but may end up with local companies having expertise and majority market share in basic chips used in cars or everyday appliances by 2035.

Another lesson from the pandemic, with respect to supply chains, has been the dependence of the Indian pharma industry on China. With production-linked incentive (PLI), the government is undoing this error.

In March 2022, it was reported that manufacturing of 35 active pharmaceutical ingredients, which were being imported earlier, had started in India under the production linked scheme for the pharmaceuticals sector.

Under the PLI scheme, 32 new plants for the production of APIs (active pharmaceutical ingredients) have been set up and production has now started in 35 of the 53 identified APIs.

India has a 90 per cent dependence on 35 APIs, which used to be imported earlier.

However, India has now started manufacturing these APIs under the PLI scheme.

In the future, this will have a direct bearing on India's pharma exports and the FDI (foreign direct investment) inflow to the sector, even beyond the PLI scheme.

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