The manufacturing sector is the most pivotal sector on this planet as it is the backbone of the world economy and has the highest multiplier effect relative to other sectors. According to the UN, the total annual revenue generated by the global manufacturing sector is about $12trillion.It is an industry where functions of machinery, technology, automation, workforce, management, government interact with each other to produce the final good from raw materials and commodities, and hence directly or indirectly, it is one of the biggest contributors to the national GDP of any country. In 2018, the industry accounted for 16% of global GDP and around 23 % of the total employment are engaged in the manufacturing industry around the globe.
In terms of employment, around 54% of the employed population of Qatar, is engaged in the manufacturing sector, with china having 28.2 %, and U.S 20% in terms of total employment in a particular country in the manufacturing industry. Some of the major goods manufactured in this sector are Chemicals, Machinery, foods, and beverages, Electronics, FMCG goods
The different ways in which a manufacturing sector can be classified on the basis no of factors:
- Raw materials (Agro-based and Mineral-based industries)
- Capital Investment (Small scale and Large-scale industries)
- Ownership (Public, Private, Joint, Cooperative sector)
- Role (Basic or key industries which supply raw materials to produce other goods, consumer industries which manufacture goods that are directly consumed)
Swot Analysis of the manufacturing sector
The manufacturing sector in India (2015-2020)
Post-Independence, the economy of India was mostly dependent on the agricultural sector which contributed around 50% of GDP whereas the manufacturing sector contribution was 9% of GDP during 1950-1951. But over the year with the advancement of technology, the contribution by the service sector and manufacturing got increased and currently, the contribution by the manufacturing sector over the past decade is around 16% on average. The GOI wants to increase this 16% to 25% by 2025 and also to create 100 million new jobs in this sector by 2022. During 2014-2018, the number of workers increased by around 15 lakhs, and the total number of persons engaged increased by around 17 lakhs in the organized manufacturing sector of India.
The” Make in India” campaign which was started in 2014 is the biggest initiative by GOI to boost the manufacturing sector and reach its target of 25% of GDP by 2025. Because of this initiative, many global manufacturing giants like HTC, Samsung, Toshiba, Boeing have brought their manufacturing plant or are in the process of setting up their plants in India. Moreover, the FDI inflow in India from March 2014 to March 2019 is $286 Billion which is 49.64% of the overall FDI received in India since April 2000
PMI (Purchasing manager index) of Indian manufacturing aver past 4 years
The above graph shows the maximum and minimum value of PMI over past 4 years and We can see that only 3 times the PMI went below 50 and the rest of the time it is above 50, which is a good sign because it represents expansion.
Some of the GOI initiatives to boost manufacturing sectors in past years are:
- The Ministry of Defence has approved “Strategic partnership mode” which will allow private organizations to tie up with foreign companies for the manufacturing of submarines, helicopters, fighter jets, and other defence equipment.
- To increase mobile production, GOI spared 35 machine parts from basic custom duty in 2018
- Increase in an export incentive by 2% to the labour-intensive MSME sector under the mid-term review of foreign trade policy (2015-2020)
- Before Covid, GOI has permitted 100% FDI in contract manufacturing by automatic route
- National policy on Electronics has been formed to boost the electronic manufacturing industry and reach a target of US$ 400 billion by 2025
- The GOI have provided a subsidy of 20 % in SEZs and 25% on non-SEZs to promote large scale manufacturing
Impact of COVID-19/Social Distancing on the manufacturing sector
Due to Covid 19, the economy of the world has shattered and like any other sector, manufacturing has also get affected. Even after the upliftment of lockdown in many countries, it will take time for the manufacturing companies to work at their 100% efficiency because of the acute shortage of workers as most of the out stationed workers have returned to their home and people of the home state will not easily welcome the outstation workers after lockdown.
It also depends a lot on the government that to what extent are they going to ease the restrictions like transportation facilities for the workers and also the supply chain of the raw materials between different states. To get the industry restart at full pace, the government of every country should come forward and take necessary steps like arranging transportation, shelter, food, insurance facilities.
The other important thing which will get impacted is the sharp decline in the FDI inflows as countries will prevent themselves to get attacked by the giants of other countries during this massive economic slowdown globally. According to UNCTAD (United Nations Conference on Trade and Development), the global FDI inflows will reduce by at least 5-15 % and energy, automotive, airline industries will be the worst impacted.
In Electronics, the smartphone industry is significantly affected as almost all the Chinese factories especially in Wuhan are shut down and china is responsible for the manufacturing for important components like mobile displays, LED chips, memory, printed circuit boards, capacitors, etc and accounts for approximately 85% of the total value of the mobile components. By seeing the current situation in majorly affected countries by a coronavirus, some of the big companies like Samsung Electronics Co have started to take precautions and have decided to shift their portion of a production facility in some other countries (in Samsung case -Vietnam) to minimize the COVID 19 impact on them.
However, one positive thing is that there are some companies in the sector which will increase their manufacturing capacity of products which are medical-related and essential like masks, ventilators, sanitizers and other related components but increase in these products will not be able to mitigate the downfall of the whole manufacturing sector.
Future of the manufacturing sector in India (Post Covid)
Before Covid, the Indian manufacturing sector was expected to reach US$ 1 trillion by 2025 but due to Covid 19, things will not remain the same or as predicted 4 months before about the future of the manufacturing sector, and it will take indefinite time (at least till the end of 2020) for manufacturing companies to start running at their 100 % capacity. But one good thing is, many believe that post-COVID 19, many global firms are trying to diversify their manufacturing units away from china due to the ongoing trade disputes and Covid 19 and India can be the preferred destination because of India’s expanding economy and its ability to support bulk manufacturing by its abundant skilled and semi-skilled labour. But since Covid 19 has impacted globally and because of its uncertainties, it is difficult to say then there would be an increase in FDI by the manufacturing firms in the coming 1-2 years as they will be focussing on the capitalization of the domestic market instead of international.
By looking at the current situation, the manufacturing companies should start considering the following things to mitigate the loss like bankruptcy, downward pressure of demand, supply chain disruptions:
- Companies should start exploring the opportunities of automation technology in this critical time to reduce the workforce density and should start assessing that their loans, cash flow reserves can support them in this low demand and low revenue environment.
- They should start reviewing the capital cost budget and the divestment of underperforming assets as a potential source of cash.
- Companies should start working closely with the state and central government to strike the right balance between producing things at factories and also protecting the health of employees.
It is generally said that India comes back stronger after the economic crisis as it did in the past (1991) which was about the balance of payment problems, while this time around the country’s economy is in a much better position and hence the GOI can leverage this and the changing geopolitical tides around the globe to boost the Indian manufacturing sector.
Overall from the above analysis, what we can see that manufacturing sector is one of the important sectors of every country but due to the pandemic it is severely hit in terms of factory closers, short-time work as most of the work is done on-site/field but at the same time companies should also consider this time as an opportunity to focus on automation, different business models, innovative products, to skill their employees through E-learning, making back up plans to situations like Covid 19.
By- Mohit Yadav, IIM Nagpur