The growth of manufacturing in India has been modest — with its share in GDP largely unchanged over the last two decades — especially when compared to the services sector. Globally, too, while India's share in global manufacturing production increased from 1.1% in the early 1990s to 2.8% in 2015, China's galloped from less than 5% to 25%.
Even so, India has made greater progress in some manufacturing sectors. For example, since 1995, it has ranked among the top 10 exporters of labour-intensive goods such as textiles, apparel and leather products, jumping to fourth place in 2011.
India has also maintained its comparative advantage in the export of pharmaceuticals and a range of commodity-based manufactures over the last two decades.
Although the criteria for becoming a manufacturing hub are now changing, some manufacturing industries are likely to remain relatively unaffected by Industry 4.0. This includes a range of commodity-based manufactures — basic metals, wood products, paper products and food processing — which are also less traded and, therefore, subject to less international competition. They will remain feasible entry points for India.
India can also remain competitive, at least for some time, in its traditionally strong areas such as the production of textiles, apparel and leather products, which is the least automated subsector so far — as long as it combines low wages with other reforms that enable it to compete.
India's nascent success in the export of autos, auto ancillaries and electronics may, however, be difficult to scale further up as the use of robots in these industries is more widespread. And hence these require closely clustered suppliers that can provide inputs on time basis, thus pushing the balance in favour of established manufacturers.
India's large domestic market is a big asset, where foreign direct investment to manufacture in India for India may be less influenced by cost considerations associated with establishing export platforms. Our large market will continue to provide more space for the domestic manufacture of lower-priced goods.
Notwithstanding these opportunities, the heightened global competition resulting from automation technologies will raise the bar for success in export-led manufacturing. India must, therefore, prepare now to remain relevant. If it can integrate its growing labour force with substantial improvements in the business environment, logistics and other backbone services, regulatory requirements, and so on, this may reduce the incentive for firms to relocate to higher-income countries.
Yet, if there is a limited window to industrialise using older technologies, reforms that improve the country's competitiveness and connectedness acquire greater urgency. India's recent rise to the top 100 in the Doing Business rankings is a step in this direction.
But there is more distance to cover as reports of more instances where no level playing field with Chinese cos is available in India as informed by Intex, the leading mobile handset Indian manufacturer. Indian handset manufacturers do not have a level playing field with Chinese rivals in the country in terms of cost of capital, logistics or production, domestic electronics company Intex Technologies said.
"Chinese manufacturers that set up base in India get some incentives, which in no way can be compensated by the Indian government. They're getting export incentives, marketing incentives from the central government and the provincial government as well," Rajeev Jain, director at Intex said.