Indian manufacturing market has the potential to reach US$ 1 trillion by 2025-26, Gujarat is poised to become India’s foremost manufacturing powerhouse: Colliers

Gujarat ranks first, followed by Maharashtra and then Tamil Nadu as the Top regions to invest in India

MUMBAI, India, Dec. 13, 2023 /PRNewswire/ — The manufacturing sector in India has been witnessing a proliferating growth in investment, depicting crucial phase in the country’s economic arena. As per the published dossiers by the Department for Promotion of Industry and Internal Trade (DPIIT), manufacturing sector engrossed substantial Foreign Direct Investment (FDI), with FDI equity inflows tallying around USD 17.51 billion in the FY 2020-21 itself. This surge emphasizes intensified investor confidence and exhibits India’s attractiveness as one of the most lucrative manufacturing destinations in the world, as per Colliers India.

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The ‘Make in India‘ initiative, a government-led campaign aimed at encouraging domestic manufacturing, has played a pivotal role in accelerating investments. Furthermore, policy reforms and incentives, comprising of the Production Linked Incentive (PLI) scheme, the government has pro – actively incentivized various manufacturing industries, such as automobiles, electronics, and textiles, nurturing an environment conducive to augmented investment.

“The Indian government is actively fostering a conducive environment for global manufacturing companies through strategic initiatives such as the Bharatmala Pariyojana Project, the proposed DESH Bill, National Logistics Policy, appropriate taxation and incentives for various sectors, thereby enhancing opportunities in the industrial market. Emulating these measures, Indian states offer a myriad of advantages to industrial players, including incentives, subsidies, robust infrastructure, and essential utilities. These companies also assess critical factors such as Ease of Doing Business, government policies, economic conditions, pricing, labor availability, regulatory environment, supply chain efficiency, proximity to transport nodes, and raw material accessibility when considering entry into the Indian market,” said Swapnil Anil, Executive Director & Head, Advisory Services at Colliers India.

Propelled by progression in significant sectors and urged by favorable megatrends, India’s manufacturing sector has started itself into new geographies and sub sector/segments. Emphasis on the competitive advantage of a skilled workforce and lower cost of labor, the manufacturing sector is also beholding an amplified inflow of capital investment and M&A activity, leading to a surge in manufacturing output and consequential increased contribution to exports.

The manufacturing GVA at current prices was estimated at US$ 110.48 billion in the first quarter of FY24.

The manufacturing sector contributes around 17% to the GDP supported by robust physical and digital infrastructure which is expected to grow to 21% in the next 6-7 years. India is well-positioned to enhance its manufacturing sector, making considerable advances in global supply chains.

The automotive sector, a keystone of India’s manufacturing prowess, has seen prominent interest from global players like Tesla and Ford, depicting intents for establishing or expanding their manufacturing footprints within the country. Electronics manufacturing experienced a rise in investments, particularly in smartphone production domain.

Major players like Apple’s contract manufacturers established assembly units in India, implying a shift to local production strategies. Additionally, the textiles and garment manufacturing sectors have witnessed upsurge in investment activities, with several global brands reconsidering their sourcing strategies and investing in Indian textile units, take advantage of on India’s competitive advantages in the said domain.

The Government of India’s Ministry of Heavy Industries and Public Enterprises has launched SAMARTH Udyog Bharat 4.0 in 2021 as a strategic initiative intended to enhance the manufacturing sector’s competitiveness, predominantly in the capital goods domain.

The government is committed to fostering comprehensive national development by emphasizing the development of industrial corridors and smart cities. These corridors are intended to encourage the adoption of advanced manufacturing practices as well as to facilitate integration, monitoring, and the creation of a favorable environment for industrial growth with employment for more than around 27 million workers.

With all the policy incentives and various initiatives, the Indian manufacturing market has the potential to reach US$ 1 trillion by 2025-26.

Number of MoU’s in Manufacturing sector by various states

There has been various MoUs signed but different states in India to boast industrial and manufacturing sector. The Maharashtra government has signed 21 memorandums of understanding (MoUs) of INR88,420 crore at World Economic Form in 2023. The MoU have employment potential of over 55,000 jobs. The MoU conversion rate in Maharashtra is 30- 40%. Andhra Pradesh signed MoUs in Global submit 2023 with 352 firms in with proposed investment of 13.5 crore. These projects of launched successfully will create 6,00,000 jobs within the state. In addition to this, Gujarat has signed 3 MoUs in Oct 2023 worth INR 3,000 crores for textile, industrial park, engineering, including auto sector; 9,000 new employment opportunities followed by Tamil Nadu state, which has signed total 79 MoUs in year 2022-23 with the total sum of 165,748 cr.

Impact of government policies

Various states in India, including Gujarat, Maharashtra, Rajasthan, Madhya Pradesh, Telangana, and Andhra Pradesh, have strategically implemented a range of incentives to attract and support manufacturing plants within their borders. In Gujarat, the government offers Common Environmental Infrastructure Facilities at 40% of the project cost up to INR 50 crore, along with a concessional rate for land use conversion for industrial purposes. Maharashtra extends support by providing manufacturing plants with land at concessional rates and offering a 10-year tax exemption on profits earned from manufacturing activities. Mega and Ultra Mega projects in the state also benefit from the government’s equity partnership of 9% with Financial Closure Institutions exceeding INR 500 crore.

Rajasthan provides a substantial investment subsidy, covering 75% of the state tax due and deposited for a period of 7 years. Meanwhile, in Madhya Pradesh, large-scale industrial units with investments exceeding INR 10 crore are eligible for a Basic IPA ranging from 40% to 10%. Additionally, financial assistance of up to INR 1 crore is provided for the development of power, water, and road infrastructure, along with support for the establishment or development of industrial parks, including a 15% assistance cap at INR 5 crores.

Telangana focuses on easing the establishment of manufacturing units by providing doorstep access to essential resources like land, power, and water. The government contributes 50% of the infrastructure cost from the Industrial Infrastructure Development Fund (IIDF), with a maximum limit of INR.1.00 crore. The state also supports the adoption of cleaner technologies by offering a 25% subsidy, up to INR 5.00 lakhs, for implementing ‘Cleaner Production Measures.’ Lastly, in Andhra Pradesh, anchor units receive the benefit of required land for their projects at 25% of the land prices, based on the appraisal from the Andhra Pradesh Industrial Infrastructure Corporation (APIIC). These multifaceted incentives showcase the states’ commitment to fostering a conducive environment for manufacturing growth and economic development.

Top Regions to Invest in India

A detailed study was carried out by Colliers across the states of Gujarat, Maharashtra, Rajasthan, Madhya Pradesh, Karnataka, Andhra Pradesh, Tamil Nadu, Telangana, and Odisha focusing on the Industrial Sector.

Gujarat ranked 1st, marginally followed by Maharashtra and then Tamil Nadu. Below are the factors that make them the top-ranking states:

  • Gujarat – Ranks 1 – Due to easy labour availability and at a cheaper cost along with the government supporting policies for the labour force; the state has cheaper land rates for industrial developments. The infrastructure availability in the state, which has such great last mile connectivity and presence of major ports, roadways, railways and also provides water, electricity and renewable energy resources at a cheaper rate compared to other states with very minimal energy dependence. Gujarat also has other financial offering to give to the developers setting up their business within Gujarat.
  • Maharashtra – Ranks 2 – Due to the best policies, subsidies, and incentives offered by the state government. All major and competing businesses have at least a presence in Maharashtra and the state has the highest FDI inflow, industry GDP share, lower unemployment rate, higher number of healthcare and educational facilities, which all combine to make a better general economic scenario of the state. Maharashtra always offers a great deal of support infrastructure in terms of roadways, waterways and railways.
  • Tamil Nadu – Ranks 3 – The state has great availability of labor with cheaper rates and favourable labor policies. Tamil Nadu also has good policies, subsidies, and incentives for the industrial sector and has a fair presence of support infrastructure with many industrial companies having their footprint in the state.

Emerging Manufacturing sectors in India

Exciting emerging themes in India’s manufacturing sector include advanced technologies, sustainable practices, Industry 4.0, local manufacturing focus, AI integration, 3D printing adoption, and IoT (internet of things) driven processes.

The emerging sector includes semi-conductors, agri tech, waste management particularly e waste on which the government has also formulated various policy documents.

Key indicators of economic growth include automotive and auto components, cement and capital goods, engineering, chemicals, pharmaceuticals, paper and paper products, and the paper and paper products industry.

The Union Budget 2023-24 announced significant measures to boost various sectors of the Indian economy. Startups received additional benefits, such as a tax deduction of up to 100% of profits and an extension of the period for carrying forward losses. The income tax rate for new manufacturing co-operative societies was reduced from 22% to 15%, with a 10% surcharge. By establishing Bio-Input Resource Centres, the government hoped to promote natural farming. M-SIPS, Electronics Manufacturing Clusters, and NPE 2019 have all aided in the growth of the Electronics System Design and Manufacturing sector.

About Colliers

Colliers (NASDAQ: CIGI), TSX: CIGI) is a leading diversified professional services and investment management company. With operations in 66 countries, our 19,000 enterprising professionals work collaboratively to provide expert real estate and investment advice to clients. For more than 28 years, our experienced leadership with significant inside ownership has delivered compound annual investment returns of approximately 20% for shareholders. With annual revenues of $4.5 billion and $98 billion of assets under management, Colliers maximizes the potential of property and real assets to accelerate the success of our clients, our investors and our people. Learn more at corporate.colliers.com, Twitter @Colliers or LinkedIn.

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