India needs greater sophistication in manufacturing, says FM Nirmala Sitharaman

India must increase manufacturing and its share in global value chains, taking the support of government's policies aimed at making the country self-reliant, Union Finance Minister Nirmala Sitharaman said on Friday. 

India will need to have greater sophistication in manufacturing as it figures at the top of investment destinations for US and European companies looking to reduce their dependence on China and shift part of their manufacturing capacity to emerging markets, Sitharaman said speaking at industry body CII's annual business summit.

“So their preferences for India, 65% of nearly 760 executives surveyed (in a Capgemini Research Institute report in May) were planning to increase investments significantly in India,” Sitharaman said. “Expanding manufacturing also help India be self-reliant," she added.

India a compelling growth story

Western businesses have made significant investments in China over the past three decades drawn by the country’s low labour and manufacturing costs, as well as the enormous and expanding local consumer market, resulting in an excess of their business interests being concentrated in China.

However, several Western companies now want to diversify their supply chain and do away with their dependence on China by channeling investments into manufacturing away from the Asian giant and into emerging markets like India.

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Sitharaman said India’s consumer market will double by 2031, contributing 18% to global growth in the next five years.

“India Story is a compelling growth story for several reasons,” Sitharaman said.

“The IMF estimated that India's contribution to global growth for five years beginning 2023 will be 18%. So between 2023 and 2028, we are looking at an India which is going to be very dynamic, contributing to 18% of the global growth,” she added.

Sustainable future

The country has also evolved from its earlier twin balance sheet problems to now have a twin balance sheet advantage, with the balance sheets of both corporations and banks having turned around in recent years, the finance minister said.

“The corporate sector balance sheet and the government and the financial sector (bank) balance sheet have not just turned around, they are now in the pink of health,” she said.

“The vibrancy with which investments can happen, expansions can happen, the banking sector can be buoyant enough to address the credit requirements, (which) will push the economy faster (and) make sure that the big and small (companies) have credit access,” Sitharaman added.

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On the demographic dividend in India, Sitharaman said that over the next three decades the country will historically have the lowest dependency ratio, thus pushing net benefits more towards consumption.

“India’s transition towards green energy, green economy, and sustainable future is responsibly going to be built up. It is sure to generate a new market and a global demand,” she said. “The World Economic Forum has projected 50 million net new economy jobs are going to be created in India by 2030.”