The Economic Survey 2022-23, tabled in the Budget Session of Parliament today, underlines that India has a unique opportunity to become a 'global manufacturing hub' in this decade. The three primary assets to capitalise on this unique opportunity are the potential for significant domestic demand, the government’s drive to encourage manufacturing, and a distinct demographic edge, including a considerable proportion of the young workforce, says the Economic Survey.
"The manufacturing sector in India is gradually shifting to more automated and process-driven manufacturing, which is expected to increase efficiency and boost the production of the industry."
It says the government’s Make-in-India initiative has facilitated investment, fostered innovation and built world-class infrastructure. Gaps in domestic manufacturing capabilities have also been addressed, it says.
The PLI (Production Linked Incentive) schemes will unlock India's manufacturing capacity, boost exports, reduce import dependence and lead to job creation for both skilled and unskilled labour, says the Economic Survey 2022-23. Such schemes -- with an estimated Capex of around ₹3 lakh crore over the next five years and the potential to generate over 60 lakh jobs -- across 14 categories will provide a much-needed boost to India's manufacturing plans, it states.
The Survey says despite global headwinds, industrial production expanded during FY23, backed by sustained demand conditions. "The growth in bank credit has kept pace with industrial growth, with a sequential surge evident since January 2022. Credit to MSMEs has seen a significant increase in part, assisted by the introduction of the ECLGS. Amidst heightened global uncertainty, FDI in the manufacturing sector moderated in the first half of FY23. However, inflows stayed well above the pre-pandemic levels, driven by structural reforms and measures improving the ease of doing business, making India one of the most attractive FDI destinations in the world."
On the positive side, says the Survey, easing input cost pressures due to a fall in international commodity prices augur well for company margins. "Capacity utilisation in the manufacturing sector has been rising. It bodes well for new investment activity in creating additional capacity. Credit growth in the industry has also increased remarkably, suggesting that prospects for Capex investments by companies are brighter."
The survey flags that India's exports are slowing down and are likely to "moderate", along with the probable "global economic slowdown". "Volatile international commodity prices and supply disruptions in raw materials can weigh on industrial growth in the wake of new disruptions at the global level."
The re-emergence of Covid-19 in China is also expected to trigger supply chain disruptions, as was the case during the pandemic period. On the other hand, if China returns to normalcy from Covid-19, says the Survey, there can be an increase in commodity demand, which will reverse the recent decline in commodity prices.
Despite uncertainty over commodity prices, China’s economic recovery and the growth outlook in North America and Europe, the Survey says the industrial output in India should continue to grow steadily based on "resilient domestic demand".