India's manufacturing sector is at a pivotal moment, poised to evolve into a significant global player. Romal Shetty, CEO of Deloitte South Asia and a member of Deloitte’s Global Executive Committee, shared his insights on the country's journey towards becoming a global manufacturing economy, drawing from a comprehensive Business Today-Deloitte India study.
Understanding India's Manufacturing Prowess
The study, which analyzed over 5,000 firms and ranked nearly 700 manufacturers, reveals a decade of transformation. Shetty points to three key drivers of success among India’s leading manufacturers:
- Scale with Purpose: Focusing on building market position rather than just volume.
- Profitable Growth: Converting revenue into healthy margins and returns.
- Financial Discipline: Generating cash, controlling debt, and reinvesting in capacity and innovation.
This virtuous cycle is particularly evident in sectors like electronics, automobiles, and capital goods. For smaller and emerging manufacturers, the critical lesson is to prioritize financial resilience and strong balance sheets before chasing scale, enabling them to compete globally through disciplined cash management and technology investment.
The Inflection Point: Progress and Unfinished Transformation
While India has made significant structural progress over the last decade, expanding manufacturing capacity, attracting investment, and building competitive industries, some areas require deeper transformation.
Key Areas of Progress:
- Technology-Led Manufacturing: Sectors such as electronics, semiconductors, automobiles, pharma, and defense have become strategic, supported by advanced manufacturing and digital technologies.
- Global Supply Chain Alternative: India is increasingly seen as a credible alternative in global supply chains, with diversified and competitive exports.
- Financial Quality: Leading manufacturers are demonstrating stronger returns, healthier balance sheets, and robust cash generation.
- Global South Opportunity: India can become a demand engine and supplier of affordable products and industrial capabilities for fast-growing economies in Asia, Africa, and West Asia.
Remaining Challenges:
- Domestic Value Addition: Much growth has been assembly-led, with deeper localization of components, materials, and supply ecosystems still evolving. The manufacturing sector’s contribution to Gross Value Added (GVA) has remained largely flat (17.2% in FY14 to 17.5% in FY24).
- Value Unlock: The next decade should prioritize unlocking productivity through R&D, design, intellectual property, and higher-value manufacturing, moving beyond just creating more factories.
Shifting from Assembly to a Self-Sustained Ecosystem
To transition from an assembly-led model to a deeper, self-sustaining manufacturing ecosystem, Shetty outlines four critical shifts:
- Building Complete Industrial Value Chains: Localizing components, materials, and the supplier ecosystem instead of focusing solely on final assembly.
- Competing Through Technology: Increasing investment in R&D for advanced engineering, automation, tooling, and intellectual property.
- Strengthening Smaller Manufacturers: Empowering them to become globally competitive suppliers.
- Positioning as a Global South Hub: Creating products and industrial solutions tailored for both developed markets and rapidly growing economies.
Geopolitics and Future Competitiveness
Geopolitical factors are now a top concern for companies, driving the need for strategic autonomy and resilient supply chains. Shetty advises medium and small companies to map their entire component value chains, diversify sourcing options, and undertake backward and forward integration to mitigate risks.
Regarding Production-Linked Incentive (PLI) schemes, Shetty acknowledges their role in accelerating initial capacity and attracting significant investment (over Rs 2.4 lakh crore across 14 sectors by March). However, he stresses that long-term competitiveness depends on cost efficiency, technology adoption, domestic value addition, and export demand, not perpetual incentives. Companies must become self-sustaining, leveraging AI and digital twins to improve design, yields, quality, and capacity utilization.
Enhancing Ease of Doing Business
Improving the ease of doing business is crucial. Shetty highlights states that offer single-window approvals and coordinated facilitation officers, simplifying the process for manufacturers. He also advocates for streamlining subsidy and incentive access, reducing bureaucratic hurdles, and accelerating the digital approval process to create a seamless experience for businesses entering the market.
Promising Sectors for Global Companies
Several sectors hold immense promise for creating the next generation of global manufacturing companies from India:
- Electronics
- Defense and Aerospace
- Pharma
- Automobiles and Electric Vehicles
- Industrial Machinery
- Specialty Chemicals
- Clean Energy Equipment
Success in these areas will require proprietary technology, robust product engineering, reliable global networks, and adherence to global quality standards, all supported by strong financial returns and manageable debt.
In sectors like electronics, automobiles and capital goods, leading companies have created a virtuous cycle of growth, cash generation and investment.
Romal Shetty, CEO, Deloitte South Asia
Shetty remains optimistic about India's potential, citing the nation's entrepreneurial spirit, strong domestic demand, and capacity for frugal innovation, especially among the younger generation. He believes these factors position India to become a large global manufacturing economy.