Budget 2024 | Does Indian manufacturing need more time?

The performance of India’s manufacturing sector has divided opinions, with consumer goods in particular flattering to deceive.

It would be an understatement to say that the government wants the manufacturing sector to do well, with the flagship Production-Linked Incentive (PLI) scheme expanding nearly every year. This, the government hopes, will pave the way for more investments and job opportunities.

As of November 2023, the PLI schemes have attracted more than Rs 1 lakh crore of investment, recorded sales of Rs 8.61 lakh crore, and directly and indirectly created over 6.78 lakh jobs, according to the government.

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"Manufacturing of various electronic components like battery, chargers, PCBA (printed circuit board assembly), PCB (printed circuit board), camera modules, passive components, and certain mechanics have been localised in the country," the government said in a statement on January 17.

But critics see the attention on manufacturing as being oversized. "The problem with this vision is that the world has sort of moved on… This notion that the old, export-led growth in manufacturing is going to be available to us just like it was available to everybody else fails to recognise the reality," former Reserve Bank of India governor Raghuram Rajan told Moneycontrol in an interview in December.

Whatever the case may be, the government is not going to back down and is hoping the sector becomes a cause for envy for the developed world. While certain segments are chugging along nicely, some are not. Take, for instance, consumer goods.

In November 2023, production of consumer durable and non-durable goods was down 5.4 percent and 3.6 percent, respectively, over the last year. In the April-November period, output of non-durables has been up 5.6 percent, and that of durable goods a mere 0.6 percent.

Other indicators of manufacturing performance suggest the sector is faring rather well. The Purchasing Managers' Index has been above 50, which separates expansion in activity from contraction, for 30 months in a row. Further, the GDP data shows the sector is set to expand by 6.5 percent in 2023-24 – five times faster than the growth rate of 1.3 percent in FY23.

Maybe, Indian manufacturing just needs more time?