Complete Guide to Manufacturing in India: Investment Opportunities and Challenges

Manufacturing in India

Manufacturing in India is the country’s biggest private sector player, more so since the recent trade-related differences between China and the USA have encouraged international companies to expand their manufacturing supply chains in markets other than China. Although India is primarily regarded as the hub for outsourcing software development, the country is attracting more interest from FDI for its manufacturing potential.

While there is no single formula to manufacturing success, we have invited our partner, Octagona India, to shed some light on how foreign businesses can be successful when setting up manufacturing in India. Vishnu Krishna – Director at Octagona India presented their insights, followed by a Q & A session moderated by our COO, Viktor Kyosev.

Based on the discussion, here’s all you need to know about manufacturing in India:

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Why should we look at India for manufacturing investment opportunities?

Why India?

  • The 5th largest global economy, with GDP of USD 2 trillion in fiscal year 2019.
  • The 3rd largest consumer economy by 2030 and the 2nd largest in food production globally.
  • Strong and skilled labor force of 170 million people, young population of median age under 30 years, and English speaking demography.
  • Ranked 63 in Ease of Doing Business in 2020 (World Bank) improved from where it was at 142 in 2014.

Why manufacturing?

  • Manufacturing sector contributes 16% to India’s GDP (planned to increase to 25% by 2025).
  • About 240 functional Special Economic Zones catering to different industry sectors and six new industrial corridors being planned and implemented.

What are the advantages of setting up a manufacturing incorporation in India?

Lower Tax Incentives

Manufacturing in India : Corporate Tax Rate

Competitive Labor & Power Rates

  • Labor Rates: India is a low-cost, high-volume, high-capacity labor country. The unskilled labor cost is the lowest compared to other low-cost labor countries and the skilled labor cost has competitive rates.
  • Power Rates: While India may not be the lowest, we are very close to being very competitive.

Labour & Power RatesImproved Ease of Doing Business

India’s rank in the Ease of Doing Business in 2020 (World Bank) has been positively dropped to 63 from where it was at 142 in 2014. It came across on several parameters:

  • Process: Integrated and simplified incorporation system
  • Time: Fast track approval for construction permits
  • Trade: ‘Indian Customs Single Window Project’ implemented
  • Legal: Commercial Courts and Appellate Division of High Courts established
  • Exit: Insolvency and Bankruptcy Code 2016 made simpler for resolving insolvencyEoDB India

Is there any government initiative to empower the manufacturing sector in India?

Make in India is a major national programme of the Government of India designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property, and build best-in-class manufacturing infrastructure in the country. The purposes are:

  • Making India the easiest and simplest place to do business
  • Eliminating paperwork, processes, procedures, rules & acts
    • Government agency Invest India to facilitate fast-track investor queries
  • Using technology to leapfrog
  • Converging and integrating government departments

Which manufacturing sector should we invest in India?

While these names might be some of the big ones, even if you are a smaller company it doesn’t mean that you have no chance in India. The Indian domestic market is so big that there is enough space for competitors to coexist without losing market share.

Food Processing

  • Reasons to invest: World’s biggest production in Dairy, Fruits & Vegetables, and Poultry & Meat processing; strategic geographic location and proximity to food-importing nations.
  • Foreign Investors: Coca Cola (USA), Kraft (USA), Nestle (Switzerland), Danone (France), Ferrero (Italy), Kagome (Japan), Unilever (Anglo Dutch).

Power & Electrical Machinery

  • Reason to invest: ‘Power for All’ scheme plans to add 88.5 GW of capacity by 2017 and 93 GW by 2022; increasing demand for electrical machinery due to the incentives for power generation capacity addition.
  • Investment opportunities: Generation machinery and transmission machinery
  • Foreign Investors: Babcock (UK), Toshiba (Japan), Ansaldo (Italy), Schneider Electric (France), GE (USA).

Healthcare & Medical Devices

  • Reason to invest: One of India’s largest sectors in revenue and employment, expected to grow at over 17% between 2016-2022.
  • Investment opportunities: Estimated 3 million beds would be needed by 2025 to achieve the target of 3 beds per 1000 people; the medical devices market is expected to grow to USD 11 billion by 2022 owing to a growing sector.
  • Foreign Investors: GlaxoSmithKline (UK), Boots (UK), Pfizer (USA), Phillips (Netherlands), Novartis (Switzerland).

Renewable Energy

  • Reasons to Invest: India has the 5th largest power generation portfolio worldwide with a power generation capacity of 271.722 GW; economic growth, increasing prosperity, a growing rate of urbanization, and rising per capita energy consumption has widened access to energy in the country.
  • Foreign Investors: Canadian Solar (Canada), Enercon (Germany), Vestas (Denmark), NEG (Japan), Jinko (China), Applied Materials (USA).

 

Which Indian states are recommended for incorporating manufacturing business?

India has 29 states, and there are about 10 states attracting most of the FDI that comes into the country. The top states for manufacturing would be:

  • Maharashtra for sugarcane
  • Gujarat for gems and diamond processing
  • Karnataka for softwares
  • Tamil Nadu for automotive
  • Telangana for pharmaceutical
  • Andhra Pradesh for seafood
  • New Delhi and Haryana (north) for food processing

How long does it take to set up a manufacturing incorporation in India?

Today, it takes less than 45 days to get your certificate of incorporation in India. Afterwards, you can get taxation numbers and employee superannuation code. The 45 days does not include land identification.

What kind of investment opportunities are available for manufacturing incorporation in India?

  • Bank – always available, but high interest rate.
  • Private equity (angel investor) – not so well-known for manufacturing.
  • Foreign Direct Investment – facilitated by a ministry dedicated to micro, small, and medium scale enterprises.

How well-protected is intellectual property in India?

In India, the Intellectual Property Rights and Trademark Act allows a person to legally challenge a case if their brand name / trademark / product design / manufacturing process has been copied. Despite Indian courts being famous for delaying cases, with a good trademark attorney the result can come pretty quickly.

 

Watch the full webinar session here:

Since April, at Greenhouse we’ve have been working closely with our network of service providers and partners across Southeast Asia to launch a series of webinars on topics like:

  • Adaptation to COVID-19
  • Business opportunities
  • Fast-growth markets
  • Market entry strategy
  • Opportunities in emerging markets
  • Venture Capital

Reach out to us for any questions about this session!

All experts who have shared on this panel are actually partners of Greenhouse, and their company profiles are listed on our platform. To see a comprehensive profile of each company and approach them, click here.