Share of manufacturing in GDP to rise from 14% in FY24 to 21% by FY34
FinTech BizNews Service
Mumbai, June 26, 2024: India's manufacturing sector is on the brink of substantial growth over the next decade. By the fiscal year 2034, the sector is forecasted to expand threefold, reaching a market size of USD 1.66 trillion from its current USD 459 billion in fiscal year 2024. This growth surpasses the average increase of USD 175 billion experienced over the last decade. Additionally, the manufacturing sector's contribution to the GDP is anticipated to rise from 14% in fiscal year 2024 to 21% by fiscal year 2034, bolstered by lower logistics costs and improved infrastructure.
Investments in infrastructure are set to climb from 33% of GDP in fiscal year 2024 to 36% by fiscal year 2029, sparking a ripple effect on the economy. Industry capacity utilization, according to the RBI survey, has already hit 75%, with the top three steel producers operating at over 90% capacity. This uptick signals a surge in demand for commodities like steel, cement, and aluminum as infrastructure projects gain momentum.
However, to avoid obstacles such as inflation spikes or project delays, it's crucial for these sectors to ramp up their capacities. The power sector, in particular, faces mounting capital expenditure requirements due to factors like the increasing demand for electricity driven by data centers, manufacturing incentives, electric vehicle adoption, and heightened air conditioner usage.
DSP projects that India's Production Linked Incentive (PLI) Scheme has the potential for significant capital expenditure. It's anticipated that sectors will spend around USD 39 billion between fiscal years 2024 and 2026. While current PLI investments are focused on pharmaceuticals, mobile phones, and solar PV modules, upcoming sectors like semiconductors, specialty steel, textiles, and automobiles are set to witness increased investment in fiscal year 2025. Sectors like Power, Defense, Water, and Manufacturing are primarily fueled by demand rather than a push.
"Manufacturing as a % of GDP is struggling at 14% for India while for other Asian countries, it is much higher at over 20%. We continue to be positive on the manufacturing theme as we believe most of the segments are at the cusp of a significant pickup in demand which would drive earnings growth for the companies. We are witnessing companies adding capacities to meet the increased demand as supply has not kept pace.
The last 5 years focused on key reforms by government and policy changes. We believe that the period from FY25-30 is going to be about execution. Also, private capex which had been weak for a very long time could witness revival from FY26 led by rising utilization levels, strong corporate balance sheets and political stability," said Charanjit Singh, Fund Manager, DSP Mutual Fund.
