Global Investors Finding India’s Manufacturing Sector Appealing: S&P
India’s Manufacturing Sector Attracts Global Investors Amid Changing Trade Landscape
According to S&P Global, India’s manufacturing industry is increasingly capturing the attention of international investors as trade dynamics shift. With sustainable growth, diversification of supply chains, and improvements in competitiveness, India is well-positioned to enhance its manufacturing capabilities, draw in foreign direct investment (FDI), and increase its share in global exports.
The manufacturing value added represents a modest 17.2% of India’s real GDP for the 2024-25 period, falling short of the government’s target of 25%.
As the global trade environment evolves, India’s manufacturing sector is becoming more appealing to worldwide investors, and the country stands ready to seize these opportunities, S&P Global indicated in a recent report. “India has made significant strides in boosting its competitiveness, making its manufacturing sector more enticing for global investments. As countries adapt to new trade dynamics and tariff obstacles, India can leverage this momentum to accelerate manufacturing growth and integrate more deeply into global supply chains,” the report stated.
Potential for Enhanced Investment
These insights could enhance the confidence of the Indian industry, potentially attracting global companies and investment firms to the nation’s manufacturing landscape. Although there has been some progress in capitalizing on the China Plus One supply-chain opportunities, the manufacturing sector’s contribution to the nation’s GDP at constant prices has decreased, moving from 16.8% in FY18 to 15.7% in FY25, according to the second advance estimate. While sectors such as electronics, particularly smartphones, have seen significant advancements, challenges persist, especially concerning relatively low domestic value addition, while labor-intensive manufacturing sectors appear to be stagnating.
The report titled “India Forward: Transformative Perspectives” from S&P highlighted that even amidst a slowdown in real GDP growth, India continues to be the world’s fastest-growing major economy. The estimated GDP growth for India is around 6.5% in FY25, with projections of 6.3-6.5% for FY26, a decline from 9.2% in FY24, as rising global trade tensions and uncertainties impact overall economic performance. S&P noted that over the last thirty years, India has experienced considerable growth in size, scale, and international influence, positioning itself to potentially become the third-largest economy globally by the fiscal year 2030-31.
Global Trade Policies and Opportunities
Looking further ahead, shifts in global trade policies could stimulate supply-chain diversification, benefitting India. An analysis of S&P Global Market Intelligence’s Strategic Opportunity Index (SOI) over time indicates that India has significantly enhanced its competitiveness, making its manufacturing sector more attractive to global stakeholders. Martina L. Cheung, President & CEO of S&P Global, remarked, “India is showcasing remarkable resilience as it navigates unpredictable global market fluctuations and geopolitical risks. As a prominent player on the international stage, it’s a nation that deserves attention.”
However, S&P cautioned that India is not sheltered from the ongoing global shift towards protectionism in trade and tariff policies, despite a moderate reliance on international trade for growth. The country is grappling with increased tariffs on exports to the United States, its largest export market. The broader ramifications of heightened global trade and financial uncertainty may pose a more significant threat to India’s growth in the near term, particularly affecting private corporate investments which might be susceptible to prolonged policy ambiguity.
“While there may be an initial adverse impact, S&P Global Market Intelligence suggests that the trend of rising trade protectionism could actually encourage supply-chain diversification, which would benefit India. The potential for higher tariffs on various Asian economies, including China, Vietnam, Taiwan, Thailand, and Bangladesh, presents an opportunity for India to accelerate its manufacturing growth and expand its share in global exports,” S&P commented.
Challenges and Growth Outlook
Currently, the manufacturing value added constitutes only 17.2% of India’s projected real GDP for 2024-25, while the government targets 25%. Despite this, India’s share in global manufacturing exports has remained largely unchanged over the past decade, achieving a mere 1.8% in 2024. In contrast, the country’s share in global service exports has risen from 2.9% in 2014 to 4.3% in 2024. Moreover, India’s share in foreign direct investment inflows has decreased significantly following a post-pandemic boost, dropping from 6.5% in 2020-21 to 2.1% in 2023-24.
As economies navigate changing trade dynamics and tariff challenges, India has the potential to utilize this momentum for an accelerated growth trajectory in manufacturing and better integration into global supply chains. A strategic pivot towards local sourcing, closer proximity to end-markets, and enhanced regional cooperation can attract further investments in the sector, driving technological advancement, improving manufacturing competitiveness, and generating high-quality jobs, the report concluded.
