India’s Manufacturing Exports To Touch $1 Trillion By FY28 Led By Chemicals, Auto, Pharma

A fertile combination of focused policy initiatives, supply chain diversification and increased inflow of capex is expected to scale up India’s manufacturing exports to $ 1 trillion by fiscal year 2027-28. This is driven by six sectors including chemicals, auto, electronics, pharmaceuticals, textiles and industrial machinery, reports Bain & Company, in ‘The Trillion-Dollar Manufacturing Exports Opportunity for India’.

The report comes in the backdrop of favourable trends in manufacturing and growth in priority sectors and exponential growth in India’s manufacturing exports.

Manufacturing exports saw a growth of over 40 per cent to touch $418 billion in fiscal year 2021-22 despite possible recessionary and inflationary pressure, compared to the $290 billion from the previous year.

Last year’s exports reflect a surge not just in comparison to the pandemic-hit financial year 2021 (FY21), but also the pre-pandemic peak of $328 billion in FY19, the report points out.

“The mega trends will continue to play out during the course of this decade. This will accelerate India’s manufacturing-led exports,” according to Deepak Jain, partner, Bain and Company and co-author of the report.

The six sectors which will steer India’s manufacturing export boom over the years are — chemical with projected exports growth at a CAGR of 19-23 per cent, pharma with growth of 16-18 per cent, industrial machinery with growth of 18-20 per cent and electrical and electronic with exports projected to grow at 35-40 per cent. The automotive sector’s projected export growth is 15-18 per cent and textile and apparel have a projected exports growth of 13-16 per cent.

India’s export growth has been propelled by six megatrends that got fast-tracked during the last two years, driving overall export attractiveness for multiple sectors in India. The report projects India on the cusp of structural shifts in the manufacturing sector enabled by a post-pandemic global focus on supply chain diversification.

While big Asian economies like Japan began looking towards India as an alternative to China for sourcing their requirements, American companies considered India among the top four destinations for relocation of operations.

Moreover, lower in 2021, CO2 emissions in China were 6 per cent (almost 500 metric tonnes) above 2019 levels — while India’s emissions were 1.4 per cent (30 metric tonnes) above 2019 levels, helping companies shift to India to comply with their environmental, safety, and health standards, as per the report.

Policy initiatives like the production-linked incentives (PLIs) to encourage local manufacturing and fresh investments that are pouring into the country’s core industrial sectors are giving a further boost to manufacturing.

While the PLI outlay of $47.8 billion has increased in-country production and helped manufacturing-led exports, the foreign direct investment policy initiatives aimed at decreasing the FDI restrictive index have augmented the capital inflow by about 65 per cent between 2015 and 2020.

The PLI schemes will also improve capacity utilisation, increase manufacturing gross value added, and boost sales across 13 key sectors and promise to lead to infusion of investment of nearly $50 billion.

Sectoral advantages have come to the forefront in chemicals, pharmaceuticals, automotive, electronics, industrial machinery and textiles, on the back of inherent strengths in these sectors.

In chemicals, Indian manufacturers are consistently building on India’s cost advantage and strong supplier base, as compared to other manufacturing hubs, as well as strengths in research and development (R&D) capabilities.

In pharmaceuticals, India’s manufacturing cost is about 30 per cent — 35 per cent lower than that of the US and Europe. In the automotive sector, several global companies are looking at export-oriented production in India because of the cost advantage over the US and Europe and strong manufacturing capabilities.

In electronics, manufacturers like Samsung, Wistron, and Foxconn are shifting production to India because of strong manufacturing and R&D capabilities, a growing supplier base, and strong policy support.

In industrial machinery, India is becoming a destination for exports thanks to low manufacturing costs and strong capabilities in technology. In textiles, India has the cost advantage because of the availability of cheap raw materials and lower wages.

Fourth, India’s capex cycle is expected to fast-track in the wake of post-pandemic economic growth and high-capacity utilisations, which will help cater to the increased demand. The Indian government has budgeted a 35 per cent year-over-year increase in capex for FY23 to $100 billion.

Fifth, manufacturing companies are also using the mergers and acquisitions (M&A) route to drive growth and reshape their portfolios to acquire new capabilities and enter new markets and segments. While scope acquisitions outside companies’ core operations account for four out of 10 transactions, in 2021 India saw the finalisation of 85 strategic deals valued over $75 million of which first time buyers had a share of 80 per cent of the volume. Further, 15.7 per cent of the deals were in the manufacturing sector.

Finally, private equity-venture capital or PE-VC-led investments into major sectors have been creating digital and technology-led disruption in manufacturing, especially in the post-pandemic era. Such PE/VC investments in Indian firms were up by 55 per cent since 2019, hitting a record of nearly $70 billion in 2021 and bringing in integrated manufacturing platform development in the chemical, pharmaceutical, automotive and electronics sectors, resulting in an increase in exports.