SAP for Manufacturing: Powering India's Growth

With India’s 78th year of Independence, we know it’s one of the fastest-growing economies, the third largest by the economy in terms of purchasing power parity, and a glorified participant of the “China Plus One” strategy to diversify its supply chain and manufacturing activities.

Manufacturing is becoming a crucial driver of the country’s economic growth, supported by other sectors such as automotive, engineering, chemicals, pharmaceuticals, and consumer goods. According to the Economic Survey 2023-24, India’s real GDP grew 8.2% in FY2023-24 due to high-value manufacturing, steady consumption, and improved investment demand. Contributing to 17% of India’s GDP, the manufacturing sector is set to be US$ 7.3 trillion by 2030. It is the third most sought-after manufacturing destination worldwide with the potential to export goods worth US$ 1 trillion by 2030, projected to be one of the fastest-growing sectors- Nuvama report.

India’s manufacturing sector also holds tremendous potential as a catalyst for economic growth, job creation, and technological advancement. The rising income levels may result in higher demand for manufactured goods. The investments made through PLI schemes have exceeded US$ 11.9 billion, resulting in a significant direct and indirect income source for about 3,822,730 people. This is in line with India’s vision of becoming ‘Atmanirbhar’. The implementation of the Production-Linked Incentive (PLI) schemes for 14 sectors strives to improve India’s manufacturing and export capacities. The share of US imports from India has surpassed that of China. Their domestic exports have seen a significant uptrend in the last few years.

Make in India Initiative

To restore the manufacturing sector, the Make in India initiative was launched in September 2014 to transform India into a global manufacturing hub with a focus on the electronics, automotive, defence, and textiles sectors.

Along with fostering innovation, it also attracts domestic and foreign investment to build better manufacturing infrastructure, enrich skill development, and streamline regulatory processes to create an ideal environment for businesses to flourish.

Industry 4.0

Manufacturers from India are embracing digital technologies like the Internet of Things (IoT), Artificial Intelligence (AI), and big data to improve productivity, and quality, and reduce costs.

India is slowly progressing towards Industry 4.0 through the Government’s initiatives like the National Manufacturing Policy seeks to increase the share of manufacturing in GDP to 25 percent by 2025. Another one is the PLI scheme for manufacturing, launched in 2022 to develop the core manufacturing sector to match global manufacturing standards.

Foreign Direct Investment

The liberalization of FDI norms in key manufacturing sectors has made foreign investment easier. Leading to growth in collaborative ventures, technology transfers, and adoption of global best practices in India. Due to the government’s sustained efforts during 2014-2023, Foreign Direct Investment equity inflow in the manufacturing sector increased by 55% to reach US$ 148.97 Billion compared to US$ 96 Billion during 2005-2014. Under the current FDI policy, almost all sectors allow for 100% FDI, except for certain restricted sectors. In the defence industry, 74% of FDI is permitted under the automatic route, and 100% under the government route.

Goods and Service Tax

With simplification and subsumption of different taxes under a single tax structure, GST has reduced the production cost of manufacturing goods. Its introduction has streamlined indirect taxation and automated tax compliances, reducing the burden on manufacturers and businesses. Before this, manufacturers had to pay extra production costs, around 25-26%. Additionally, reductions in corporate taxes, simplified construction permits, and the dissolution of old laws improved the ease of doing business. Coupled with FDI policy reforms to attract foreign capital, these measures collectively enhanced the business environment and drove economic growth.

Investments and Developments in Manufacturing Trends

The export of mobile phones from India nearly doubled to US$ 5.5 billion by August in FY24, with the government expecting mobile phone exports worth US$ 12 billion this year
From April 2000 to March 2024, the automobile sector, chemical manufacturing sector, pharmaceutical manufacturing sector, and food processing industries received FDI inflows of US$ 36.26 billion, US$ 22.14 billion, US$ 22.52 billion, and US$ 12.58 billion respectively

In FY23, the export of the top 6 key commodities – Engineering goods, Petroleum products, Gems and Jewellery, Organic and Inorganic chemicals, and Drugs & Pharmaceuticals stood at US$ 295.21 billion

In October 2021, information technology major Zoho planned to invest US$ 6.7-13.4 million and form a new company that will focus on research and development (R&D) in the manufacturing sector
In April 2021, Samsung started manufacturing mobile display panels at its Noida plant and plans to speed up manufacturing IT display panels. Samsung Display Noida has invested US$650.42 million to relocate its mobile and IT display manufacturing plant from China and received special incentives from the state government.

How we help manufacturers with SAP

Industry experts have anointed the “golden era” of India’s industrial expansion with the current phase. India prioritizing innovation, technology adoption, and skill development will be critical for sustaining the momentum in the manufacturing sector.

The manufacturing sector in India is slowly moving to more automated and process-driven manufacturing which tends to increase the efficiency and boost production of the manufacturing industry. We utilize the SAP Manufacturing module in the SAP ERP system to help manufacturers manage their production processes. As we look towards the future of manufacturing, we invite you to join us on this exciting journey and reach out to find out how Rialtes is helping Navratna’s plan for a future-proof era.