Envisioning the Future Landscape of India's Manufacturing Sector

Srikanth Chakravarthy, VP Middle East & Africa, Bekaert, in an exclusive interview with Industry Outlook, shares his views on the  key trends shaping India's manufacturing sector, how infrastructure improvements impacted the manufacturing sector competitiveness, opportunities for foreign investors looking to establish manufacturing operations and more. He has served various leadership roles with increasing scope and responsibility covering Marketing and Sales, Operations, Technology management, Supply Chain Management, Global Account  Management, Global Strategy, P&L and regional responsibility.   

To begin with, can you elaborate on the current key trends shaping India's manufacturing sector, and how do they differentiate India from other regional competitors?

India's manufacturing sector stands out for its combination of government policy support, technological adoption, and the growing skilled workforce, and these three factors are working towards evolving the manufacturing landscape in India. These factors differentiate us from other regional competitors, enabling us to work both on reducing the cost of production and accessing higher technology industries with a focus on sustainability. Indeed, our large domestic market is also making us unique compared to some of our other manufacturing competitors in the region. Now, compared with Vietnam and Thailand, they have a lot of export potential. However, the domestic markets are not as huge as India.

Moreover, India is on a growth trajectory, going from 3.5 trillion dollar economy to 8 trillion dollar economy, which is very interesting for not only us to export but also to make in India. We also have a young population that is going to support this growth and the success of manufacturing.  Highways, which used to be constructed at less than 11 kilometers a day, are now 30 kilometers a day. So that has given a lot of access to many regions. The digital adoption that India has had is one of the best in the world. So, the digital infrastructure and the physical infrastructure are going to support manufacturing opportunities. Another factor is high-tech manufacturing: when you compare that with many other countries, which are focused on being cheaper, low-cost alternatives, India can compete with the best in the world. In the recent Ukraine crisis, we have witnessed how India has been able to balance between the Western world and the powers like Russia to our advantage. This neutrality supports trade because we've maintained good political and foreign relations with different countries.

How have recent infrastructure improvements and policy changes in India impacted the competitiveness of its manufacturing sector?

The digital infrastructure has changed a lot. However, the road infrastructure growth does not merely increase the number of kilometers but provides access to different markets. For instance, in the northeast of India, we had very poor access, and now we have better road access opening up that entire population to new markets. So, the infrastructure improvement will bring a lot more scale and opportunity to a more significant part of the population, which was kept outside of this growth. Then, we have dedicated trade corridors, which have increased logistics speed, improved logistics quality, and reduced logistics costs.

Another aspect of infrastructure is the power situation. In manufacturing, this can be a big problem, leading to losses and cost escalations. So, that has transformed a lot. India has become very reliable in terms of power availability. However, in most of India, where the manufacturing hubs are located power availability is no longer a concern. Some areas perhaps have concerns on quality of power still. In terms of policy, one of the biggest ones for the domestic market has been simplifying taxes through GST. And then, there are schemes like PLI that people are aware of. India has a lot more to do to be as supportive of the industry as China or Vietnam governments are though. However, we have made a lot of progress, and that's encouraging.

What role do government incentives and support programs play in enhancing India's appeal as a manufacturing hub compared to its regional counterparts?

The Indian government support has been, in a way, sectoral. If we look at the industries the government has tried to encourage, we see that it has focused on high-tech industries, providing incentives and creating conditions for sustainability. The previous year, the government cabinet issued guidelines on hydrogen and renewable energy. There's a lot of focus on solar, wind and other renewable energy sources. Solar energy used to be about seven or eight rupees per unit, but now it has come down to two to three rupees. There is evidence to show how this has helped lead to scale and reduce costs and, therefore, improve competitiveness. Hence, the government's sectoral focus on high-tech industries, technology, R&D, sustainability, and infrastructure has helped improve India's competitiveness. However, in terms of taxation, there are people who are satisfied with the business taxation of government. For instance, they reduced the corporate tax to 15 percent, which has also made it attractive for foreign investors, and GST has helped with ease of doing business. 

How do labor costs and skill levels in India influence its manufacturing competitiveness, and how do these factors compare to those in neighboring countries?

Labor arbitrage is a short-term advantage. However, it is still a relevant and very current advantage today, and there is an obsolesce to this; for instance, in China, the labor costs were very low about 25 years ago, but as they started automating and got modernized, we have seen the labor costs increased quite significantly in China and that's what's going to happen in India as well, as with more automation, we need more skilled workforce and therefore the quality of the workforce changes, the investment in the workforce would need to increase and also the cost of the workforce increases. However, with automation, we can reduce the impact of labor costs since a machine can do specific tasks continuously and for longer-term periods. There is mitigation to labor arbitrage, but that remains a very relevant advantage that we have in the current and short term. Also, labor costs are related to skills, and India is improving, but we still have a lot of opportunities to increase skills. We still need to invest more in the development of skills. In that case, this will be a significant advantage not only for India's consumption but also for India's making the skills-based export services a relevant opportunity for employment.

What are the major opportunities for foreign investors looking to establish or expand manufacturing operations in India, and how can they capitalize on these opportunities?

The first thing is the ease of doing business for foreign investors, as India is a place where they can conduct business generally without much complications. Now, If we look at the red-tapism that we used to have 10-15 years ago and where we are today with many approvals being digitally managed it is a big improvement. Digital technology has improved along with government processes, and government agencies have adapted to working in this way. Hence, for foreign investors, that's a valuable opportunity. Second, India is a growing market for its own domestic consumption, but China further enhances it, plus one opportunity to be an exporter as well. So, growth depends not just on the domestic market but on the combination of domestic and export. India could be a base for many foreign investors to supply the world and capture India's growth, which is pretty significant and extensive.

Moreover, foreign investors would look at the IT and legal landscape. Since our judiciary is independent, it allows good IP landscapes and high-tech companies to enter India, obtain patents, and engage in value-added activities without fear that, in the future, the government can overrule the procedures that exist today.

Looking ahead, what future developments or strategies will be crucial for maintaining and enhancing India's competitiveness in the manufacturing sector over the next decade?

To enhance competitiveness in the manufacturing sector, the industry can look for local presence, the right partners or if they're coming in by themselves or even Indians, then it is the right time as the next decade is a decade for growth no matter which government comes in. We have a government for five years so that we can be sure of continuity of policies for the next five years, but even after that, whatever government comes in, the growth will continue. Hence, ensuring that our presence is at the right time is a strategic decision everybody must make in India. Given that we still have labor arbitrage, costs are decreasing through digitization, better infrastructure, power availability and scale. Even manufacturing scale is essential. The dual advantage of domestic and export gives us a much bigger scale. These factors for the industry promise improved competitiveness, and technology is there to help us. Industry 4.0 is something that will not only improve productivity, quality, and efficiency but also reduce costs. Hence, we can evolve systems and manufacturing practices to be more efficient and competitive.