Manufacturing contributes about 16 percent of India's GDP. Many would argue this is below potential. Compared to Chinese manufacturers capturing nearly 45 percent of global growth in manufacturing exports from low-cost countries between 2001 and 2010, India accounted for only 5 percent, according to a McKinsey study.
However, the Indian manufacturing sector has huge headroom to grow as both in-country consumption and exports are projected to grow. An All India Management Association (AIMA) report estimates that by 2020, India Inc. will generate US$139-365 billion of additional revenue.
Volatile environment
The demand scenario is more dynamic than ever before—and this is further fuelled by a growth in product options. For instance, the automotive manufacturing ecosystem will likely see a spurt in the number of products—from around 165 now to more than 300—over the next three to five years as the market grows and finer customer segments evolve. Impending regulatory changes, recall management, complex labour laws, and sustainability will require specific competencies and value chain redesign.
Furthermore, in a survey of 105 companies in 2014 by MIT's David Simchi-Levi, around 39 percent of the participants said they were considering moving some manufacturing back to the US. Various reports point to labour arbitrage between the US and traditionally low-cost countries approaching diminishing returns by 2015.
Why is this relevant to India? It is because labour arbitrage alone will no longer be a differentiator for China and India. Indian manufacturers now face relentless pressure to create innovative and high quality products and components. Increasing numbers of customers are now digitally connected.
This has resulted in significant adoption of next-generation technologies such as Social, Mobile, Analytics, and Cloud (SMAC), along with sensors, engendering a complete digital ecosystem, where most transactional and decision processes are digital.
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About the authors: Prasad Satyavolu is Assistant Vice President for Innovation, and Badrinath Setlur is Senior Director of Consulting in the Manufacturing and Logistics practice of IT and consulting major, Cognizant.
