A golden opportunity to become a global
supply-chain hub
India’s manufacturing
moment
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INDIA’S MANUFACTURING MOMENT
A DETAILED ANALYSIS OF IMPROVEMENTS—AND CHALLENGES—IN THE COUNTRY’S BUSINESS ENVIRONMENT AS IT STRIVES TO ATTRACT
MANUFACTURING INVESTMENT.
© The Economist Intelligence Unit Limited 2023
1
India’s role in the search for resilient supply chains 2
India’s improving business environment 3
Labour market: ample supply, but skilling a constraint 3
Infrastructure: progress on easing bottlenecks 5
Taxation and incentives: less complexity, more support 7
Foreign trade and exchange controls: bilateral progress, multilateral hesitancy 9
Policy towards foreign investors: more active outreach 9
Technological readiness: an emerging digital power 10
In a regional tug-of-war for manufacturing investment 12
Contents
INDIA’S MANUFACTURING MOMENT
A DETAILED ANALYSIS OF IMPROVEMENTS—AND CHALLENGES—IN THE COUNTRY’S BUSINESS ENVIRONMENT AS IT STRIVES TO ATTRACT
MANUFACTURING INVESTMENT.
© The Economist Intelligence Unit Limited 2023
2
• India is well-placed to benefit from geopolitical and economic trends that are driving the
diversification of Asia’s manufacturing supply chain. A strong, stable economy and access to a large
labour supply will form the basis of its appeal to investors.
• Policy reforms are making it easier to do business in India. EIU predicts major improvements in areas
such as infrastructure, taxation and trade regulation, which will reduce the risks associated with
manufacturing investment in the country.
• Sti competition from peer emerging markets, especially in South-east Asia, will make India’s
journey to becoming a major manufacturing power a long one. Excessive red tape and protectionist
attitudes will remain challenges for investors.
Over the last decade, global manufacturing supply chains have been through a period of
turbulence. Geopolitical strains between the US and China, the rapid adoption of e-commerce,
the covid-19 pandemic and the Russia-Ukraine war have led to a rethinking of strategies for
reshoring sourcing, the diversification of supply routes and the localisation of manufacturing. Many
companies have become wary of supply-chain overreliance on China—”the world’s factory”—and are
implementing or considering “China plus one” strategies aimed at building production across multiple
markets.
India’s role in the search for resilient supply chains
India is increasingly well placed to capitalise on these trends. South-east Asian economies, such
as Vietnam, have so far been the principal beneficiaries of supply-chain diversification. However, in
the long term, India is the only single market that oers a potential scale comparable to that of China.
Alongside intrinsic capabilities including solid economic fundamentals, a sound digital infrastructure
and favourable demographics, improvements in the country’s business environment are reducing the
risks that have previously acted to hold back major manufacturing investment.
EIU can help to guide firms and investors considering India as a location for manufacturing.
Besides our in-depth policy and economic forecasts and operational risk analysis, our quarterly
updated business environment rankings (BER) score 11 key pillars of a country’s business environment
using a range of quantitative and qualitative indicators. Besides providing insight into the strengths and
businesses of a single market, the BER also helps in benchmarking multiple markets against each other.
This could help to inform a decision about whether to invest in India, for example, or a South-east
Asian economy.
INDIA’S MANUFACTURING MOMENT
A DETAILED ANALYSIS OF IMPROVEMENTS—AND CHALLENGES—IN THE COUNTRY’S BUSINESS ENVIRONMENT AS IT STRIVES TO ATTRACT
MANUFACTURING INVESTMENT.
© The Economist Intelligence Unit Limited 2023
3
India’s improving business environment
Our BER scores for India show that doing business in the country is becoming steadily easier.
Improvements across most of the BER category scores push its ranking to 10th in Asia in our 2023-
27 forecast period, from 14th in 2018-22 (we assess 17 economies in the region). The improvement is
mostly attributable to gains in its scores for foreign trade and exchange controls, infrastructure and
technological readiness. India’s highest-scoring category is market opportunities, aided by the large and
growing domestic market that the country oers, while political environment receives the country’s
lowest score.
• Labour market: ample supply, but skilling a constraint
India’s youthful demographic profile is a crucial advantage, promising good availability of
labour. We forecast India’s working-age population to expand by almost 100m in the period to 2030,
pushing it comfortably past 1bn, while that of China will fall by 40m to under 950m. India’s median age
of 28.4 years compares with that of 38.4 years in China. Absorbing additional labour supply creates
strong incentives for the government to develop the manufacturing sector.
Ample supply and less onerous labour regulation will help keep a lid on manufacturing
labour costs. India’s regulatory guidelines on labour have traditionally been complex, but a major
simplification in 2019-20 that amalgamated 29 pieces of labour legislation into four comprehensive
labour codes has driven improvements, even while state-level variations persist in implementation.
The codes simplify compliance by ensuring a single licensing mechanism for industries and provide
operational flexibility for small and medium-sized enterprises. They also provide for faster dispute-
India’s business en
vironment score has improved across most parameters
(10 r
epresents the best possible score)
Source: EIU.
2013-17 2018-22 2023-27
Over
all position
P
olitical environment
Macr
oeconomic environment
Mark
et opportunities
P
olicy towards private enterprise & competition
P
olicy towards foreign investment
Fo
reign trade & exchange controls
T
axes
F
inancing
Labour mar
ket
Infr
astructure
Te
chnological readiness
0 2 4 6 8
10
INDIA’S MANUFACTURING MOMENT
A DETAILED ANALYSIS OF IMPROVEMENTS—AND CHALLENGES—IN THE COUNTRY’S BUSINESS ENVIRONMENT AS IT STRIVES TO ATTRACT
MANUFACTURING INVESTMENT.
© The Economist Intelligence Unit Limited 2023
4
resolution mechanisms. With minimum-wage
norms not being prevalent across Indian
industries, the cost of labour, particularly for low-
end manufacturing, is likely to remain modest.
A low participation rate remains a weakness
in India’s labour market environment.
The overall labour participation rate in India
consistently falls short of 50%, below peer
economies, mainly because female participation
in the labour force remains extremely low. As a
result, India’s labour force is smaller than that of
China, even though it has a larger working-age
population. Gains in development and education
will boost the participation rate, but it will remain
a limit on potential.
Low levels of literacy and technical skills are
a further constraint. Secondary educational
levels are still inadequate in India, giving rise to
skill gaps in the population. The average duration
of schooling in India is only 6.5 years; this compares with 8.3 years in Vietnam and 8.9 years in Thailand.
The government’s skilling programmes will improve the quality of available workers, but these eorts
India will see massi
ve growth in working-age
population
over this decade
Philippines
Malaysia
Vietnam
Sri Lanka
Thailand
Sour
ce: EIU.
(c
hange in working-age population between 2020 and
203
0; m)
Indonesia
(-40.2)
India
(113.5)
China
(18.2)
(2.2)
(0.2)
(-3.3)
(2.8)
(12.5)
Among la
rge emerging economies, India boasts cheap skilled labour
(ave
rage monthly earnings of employees in 2020 by skill level, US$)
Sources: ILO; EIU.
Low Medium High
0
200 400 600 800
1,0
00
Myanmar
Nepal
Laos
P
akistan
Banglades
h
Indonesia
Sri Lank
a
C
ambodia
India
Bhutan
Vietnam
Philippines
Thailand
Maldives
INDIA’S MANUFACTURING MOMENT
A DETAILED ANALYSIS OF IMPROVEMENTS—AND CHALLENGES—IN THE COUNTRY’S BUSINESS ENVIRONMENT AS IT STRIVES TO ATTRACT
MANUFACTURING INVESTMENT.
© The Economist Intelligence Unit Limited 2023
5
will take time to filter through into outcomes. In the meantime, these conditions mean higher training
costs for companies engaging the workforce.
Overall, the improvements in India’s labour market are set to make it a more competitive
location for manufacturing. Streamlining labour laws across states will remain a challenge over
the next few years. However, improved infrastructure, low manufacturing wage rates and reduced
risks from labour unionism will be helpful. India’s regional BER ranking in the labour market category
improves modestly from 16th in 2018-22 to 13th in 2023-27, above China, Sri Lanka and Bangladesh.
• Infrastructure: progress on easing bottlenecks
Government initiatives are helping to address weaknesses in India’s infrastructure. Recent
budgets have delivered strong increases in infrastructure-related capital spending, geared towards
defence, energy, telecommunications and transport. Flagship initiatives such as Bharatmala (a network
of cross-country roads and highways), Sagarmala (connecting and developing port infrastructure),
India needs to mak
e greater strides in improving educational levels
(
percentage of population, 25 years and older, with secondary education)
Source: Our World in Data.
1990 2010
0 10 20 30 40 50 60
70
Myanmar
C
ambodia
Nepa
l
Laos
Pa
kistan
Thailand
Maldives
India
Banglades
h
Indonesia
Singapor
e
Philippines
Malaysia
Hong K
ong
Vietnam
Sri Lank
a
C
hina
Ca
rgo trac at major Indian ports
has risen
(m
metric tonnes)
Source: Indian Ports Association.
Average turnaround time*
Average pre-berthing time†
20
02 04 06 08 10 12 14 16 18 20 21
0
200
400
600
800
2002 04 06 08 10 12 14 16 18 20
0
1
2
3
4
5
Eciency of Indian ports has improved
over time
(average number of days)
*The average time that a vessel spends at a port. †The average time before a cargo ship is berthed at a por
t.
INDIA’S MANUFACTURING MOMENT
A DETAILED ANALYSIS OF IMPROVEMENTS—AND CHALLENGES—IN THE COUNTRY’S BUSINESS ENVIRONMENT AS IT STRIVES TO ATTRACT
MANUFACTURING INVESTMENT.
© The Economist Intelligence Unit Limited 2023
6
Udaan (the development of regional airports in poorly served destinations) and the National
Infrastructure Pipeline (a set of infrastructure projects to be undertaken by 2025) are helping to deliver
a more co-ordinated approach. Through these initiatives, India’s regional BER ranking for infrastructure
will improve markedly, from 14th in 2018-22 to 10th in 2023-27, moving it ahead of the Philippines,
Indonesia and Vietnam.
The infrastructure development under way will reduce logistic costs significantly, diminishing
an impediment to manufacturing. A National Logistics Policy unveiled in September 2022 will
reduce transport-related challenges and improve the cost-competitiveness of manufacturers. The
infrastructure sector also has scope for private-sector participation, though given the typically long
gestation period for infrastructure projects, the government will have to maintain the heavy lifting.
Time and cost overruns will be a recurring challenge in relation to infrastructure projects.
Despite a fast track on government clearances for industrial projects in recent years, diculties in
land acquisition and company leverage levels remain obstacles to progress. The clean-up of company
balance sheets instituted under the Insolvency and Bankruptcy Code, and our expectation that the
national government will ease land acquisition and leasing processes after the general election in 2024,
will help to relieve these bottlenecks gradually.
The road ahead for India in terms of infrastructure upgrade will still be very long. For example,
Mumbai Nhava Sheva Port, which is India’s largest, ranked 35th on the global port capacity list in 2020,
and handles only a tenth of the capacity at Shanghai (the world’s largest port). Other enablers, such as
reliable and consistent electricity supply, intermodal freight transfers and inland waterways, need to be
improved substantially from current levels. However, industrial corridors being developed across the
country will smoothen logistical challenges.
The railway network has not expanded
significantly despite investment
(’000 km) (’000 km)
Source: Ministry of Railways.
2
000 02 04 06 08 10 12 14 16 18 20 21
0
10
20
30
40
50
60
70
80
2000 02 04 06 08 10 12 14 16 18 20 21
0
20
40
60
80
10
0
12
0
14
0
16
0
The national highway network has
expanded rapidly in recent years
INDIA’S MANUFACTURING MOMENT
A DETAILED ANALYSIS OF IMPROVEMENTS—AND CHALLENGES—IN THE COUNTRY’S BUSINESS ENVIRONMENT AS IT STRIVES TO ATTRACT
MANUFACTURING INVESTMENT.
© The Economist Intelligence Unit Limited 2023
7
Taxation and incentives: less complexity,
more support
India’s taxation system has become less
complex and cumbersome to navigate. The
nationwide roll-out of the goods and services tax
(GST) in 2017 has enabled a significant reduction
in intra-country travel time, resolved state-level
tax anomalies and checkpost discrepancies, and
added materially to government revenue coers.
India’s regional BER ranking for taxation moves
from 16th in 2018-22 to 13th in 2023-27.
The corporate tax burden has been lowered to
encourage investment. In 2019 the government
reduced the standard corporate tax rate from
30% to 25%, while also oering a lower 22% opt-
in tax, down from the standard rate of 30%, to
eligible firms that choose not to avail themselves
of certain deductions. Furthermore, the tax
rate was reduced to 15% for any new domestic
company incorporated from October 2019 which
made fresh investment in manufacturing and
will commence production before March 2024.
However, a further lowering of rates and the streamlining of a complex taxation regime will happen
only gradually.
Incentive programmes have been widened dramatically. The Production Linked Incentive (PLI)
schemes form the bedrock of the government’s plans to convert India into a global manufacturing hub.
PLI schemes are operational in 14 sectors of the economy, including high-value-added manufacturing
sectors, backed by around Rs2trn (US$25bn)
of government support. Vehicles and auto
components, speciality steel, advanced batteries,
solar panels, mobile phones, electronics
components, pharmaceuticals and food
processing have attracted investment because of
attractive subsidies and quick approvals.
Big-ticket investment projects in PLI-
supported sectors such as steel will still
take longer to secure approval and will
therefore remain laggards. In the white goods
sector, a quarter of approved companies have
started production, but the remainder are in the
process of making committed investments. The
corridors being developed will be
acturing sector
Amritsar
Bengaluru
Chennai
Vizag
Kolkata
Mumbai
Delhi
Amritsar-Kolkata industrial corridor
Delhi-Mumbai industrial corridor
Mumbai-Bengaluru economic corridor
Bengaluru-Chennai industrial corridor
Chennai-Vizag industrial corridor
Co
rporate tax rates are relatively high in
India, despite r
eforms
(top
corporate tax rate in 2021, %)
Source: EIU.
Thailand
Vietnam Indonesia Malaysia India Philippines
0
5
10
15
20
25
30
35
INDIA’S MANUFACTURING MOMENT
A DETAILED ANALYSIS OF IMPROVEMENTS—AND CHALLENGES—IN THE COUNTRY’S BUSINESS ENVIRONMENT AS IT STRIVES TO ATTRACT
MANUFACTURING INVESTMENT.
© The Economist Intelligence Unit Limited 2023
8
government is expanding the PLI ambit to cover more sectors, including chemicals and petrochemicals
and shipping-grade containers.
The PLI schemes oered by the central government to support industries are matched by
state-level actions. In special economic zones (SEZs) spread across Indian states, state taxes on goods
and services—along with some national taxes—are exempted or discounted for a period (usually 5-10
years). Some states have also eased labour laws in the SEZs. The western state of Gujarat, for example,
has oered an amendment to industrial dispute legislation to allow flexible employment in SEZs.
Production Linked Incentive sectors span critical areas and industries of the future
Sector Approved financial outlay from the government over 3-5 years (Rs bn)
Drones & drone components 1.2
Manufacturing of medical devices 3.4
High-eciency solar photovoltaic modules 45
Electronic/technology products 50
White goods (air conditioners & LED) 62
Specialty steel 63
Drug intermediates (DIs)/active pharmaceutical
ingredients (APIs)
69
Textile products (man-made fibre segment &
technical textiles)
107
Food products 109
Telecoms & networking products 122
Pharmaceuticals 150
Advanced chemistry cell (ACC) battery 181
Large-scale electronics manufacturing 410
Vehicles & auto components 570
Source: Indian Ministry of Finance
Manufacturing sector projects have risen after
a period of stagnation
(% share of manufacturing investments in total investments;
fiscal years starting April 1st)
(% share of new investment projects in manufacturing,
2017-21)
Source: Centre for Monitoring Indian Economy.
Fresh projects are concentrated in the
chemicals sector
Chemicals & chemical products
Food & agro-based products
Metals & metal products
Machinery
Transport equipment
Textiles
Construction materials
Consumer goods
Others
20
05
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
10
15
20
25
30
35
40
45
50
47
13
10
7
6
6
6
4
3
INDIA’S MANUFACTURING MOMENT
A DETAILED ANALYSIS OF IMPROVEMENTS—AND CHALLENGES—IN THE COUNTRY’S BUSINESS ENVIRONMENT AS IT STRIVES TO ATTRACT
MANUFACTURING INVESTMENT.
© The Economist Intelligence Unit Limited 2023
9
• Foreign trade and exchange controls: bilateral progress, multilateral hesitancy
India’s greater willingness to sign bilateral trade agreements has driven improvements in this
aspect of its business environment. Pacts with Australia and the UAE were concluded in 2022, and
we expect ongoing negotiations with partners such as the EU, the Gulf Co-operation Council, Israel
and the UK to be concluded, at least in early harvest form, by 2025 at the latest. This is the major factor
pushing up India’s regional ranking in this category of the BER from 15th in 2018-22 to 12th in 2023-27.
Bilateral deals will increase access to the Indian market for foreign exporters by lowering tari and non-
tari barriers to trade.
Initiatives to boost supply-chain resilience also promise some benefits for India. Along with
Japan and Australia, India launched the Supply Chain Resilience Initiative (SCRI) in April 2021, to
diversify supply chains by developing well-planned industrial clusters. In July 2022 18 countries and
markets, including India, the US and the EU, unveiled a four-point roadmap for building resilient long-
term supply chains.
India’s reluctance to sign multilateral trade deals will remain a major competitive
disadvantage. Protectionist concerns over the impact of larger trade deals on employment and
the competitiveness of locally produced goods will persist. However, with many South-east Asian
economies having joined mega-regional trade deals such as the Regional Comprehensive Economic
Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, India’s
position means that it will attract fewer export-oriented manufacturing investors than it could.
• Policy towards foreign investors: more active outreach
Policy towards foreign investment has become friendlier. Policy initiatives and reforms seem
designed to improve India’s image to investors as well as boost competitiveness. The government
India has fe
wer multilateral trade alliances than the countries of South-east Asia
SCRI
RCEP
South-East
BIMSTEC
CPTPP
India
Australia
Cambodia
Indonesia
Philippines
Laos
Malaysia
Singapore
Vietnam
Brunei
South KoreaChina
Thailand
Myanmar
Bhutan
Bangladesh
Nepal
Sri Lanka
Japan
New Zealand
Canada
Chile
Mexico
Peru
Sour
ce: EIU.
Bay of Bengal Initiative for
Multi-Sectoral Technical and
Economic Co-operation
Regional Comprehensive
Economic Partnership
Supply Chain Resilience
Initiative
Comprehensive and
Progressive Agreement for
Trans-Pacific Partnership
Association of South-East
Asian Nations
BIMSTEC:
RCEP:
SCRI:
CPTPP:
ASEAN:
INDIA’S MANUFACTURING MOMENT
A DETAILED ANALYSIS OF IMPROVEMENTS—AND CHALLENGES—IN THE COUNTRY’S BUSINESS ENVIRONMENT AS IT STRIVES TO ATTRACT
MANUFACTURING INVESTMENT.
© The Economist Intelligence Unit Limited 2023
10
has moved to settle disputes over retrospective taxation with foreign companies, which had acted to
unnerve investors. Foreign direct investment (FDI) inflows to India increased 20-fold between 2000 and
2021. Much of this FDI has been targeted towards the financial services and software sectors, as services
have been the mainstay of the Indian economy over the past few decades, but we expect a rising
allocation for manufacturing in the future.
• Technological readiness: an emerging digital power
India scores well for technological readiness and is ranked in the top 10 regionally in the
BER during 2023-27. This is because of a more conducive environment for e-commerce and an
enhancement of information technology-ready government services. The country boasts a relatively
advanced research-and-development infrastructure, owing in part to the education system’s historical
bias towards higher education institutions. This has facilitated the development of relatively research-
intensive sectors such as pharmaceuticals and technology.
Digital technologies are transforming traditional businesses. Emerging technologies in the Indian
economy include blockchain, which has the potential to disrupt industries such as banking, healthcare,
logistics and real estate. The internet of things, which refers to the interconnectedness of physical
devices and objects that are equipped with sensors and software, is enabling new applications in areas
such as smart cities, while artificial intelligence is being used in a number of sectors, such as healthcare,
finance, manufacturing, and agriculture.
A rapid expansion of e-commerce will widen the market for manufacturing firms, given the
potential of the country’s large and rapidly growing consumer class. E-commerce has become
the focal point of India’s digital revolution, owing to factors such as a growing middle class, the
availability of relatively cheap mobile connections and skilled labour to develop indigenous technology
platforms. Structural changes in spending behaviour prompted by the covid-19 pandemic are likely
to hasten the uptake of e-commerce, particularly in retail. The development of online commerce
will also be facilitated by the government’s BharatNet programme. The government’s restrictions on
e-commerce businesses will remain in place over the next few years to protect small bricks-and-mortar
businesses, and policies in this space could be unpredictable, as this is a novel domain.
INDIA’S MANUFACTURING MOMENT
A DETAILED ANALYSIS OF IMPROVEMENTS—AND CHALLENGES—IN THE COUNTRY’S BUSINESS ENVIRONMENT AS IT STRIVES TO ATTRACT
MANUFACTURING INVESTMENT.
© The Economist Intelligence Unit Limited 2023
11
Source: International Financial Statistics.
*Includes financial, banking, insurance, non financial/b
usiness,
outsourcing, R&D, courier, technology and other
s
Source: Department for Promotion of Industry and Internal Trade.
Fo
reign direct investment to India has
steadil
y risen
Services, software and construction lead in attracting
FDI to India
Services*
Computer hardware
& software
Construction
& infrastructure
Telecommunications
Trading
Automotives
Chemicals
Drugs
& pharmaceuticals
Metallurgical industries
Hotels & tourism
Power
Renewable energy
Others
2000 05 10 15 20 22
0
10
20
30
40
50
60
70
16
15
9
6
6
6
3
3
3
3
3
2
25
(% of total FDI inflows in 2000-2022)
(US$ bn)
INDIA’S MANUFACTURING MOMENT
A DETAILED ANALYSIS OF IMPROVEMENTS—AND CHALLENGES—IN THE COUNTRY’S BUSINESS ENVIRONMENT AS IT STRIVES TO ATTRACT
MANUFACTURING INVESTMENT.
© The Economist Intelligence Unit Limited 2023
12
In a regional tug-of-war for manufacturing investment
India’s increasing viability as a destination for manufacturing investment is clear. Proactive
government incentives for manufacturing, steadily improving infrastructure, low-cost labour
availability and bilateral trade deals are driving gradual improvements in the business environment.
Broader geopolitical factors and the search for alternatives to China will also encourage investors to
look at India. The country has a golden opportunity to galvanise its manufacturing sector, which only
accounts for less than 20% of its GDP, and to drive economic growth and exports.
India will, however, face intense competition in attracting investment. South-east Asian
economies in particular are pursuing similar strategies to appeal to firms and, in many cases,
are more advanced in their oerings. Malaysia and Thailand already have strong electronics and
automotive manufacturing clusters respectively, and Indonesia is implementing significant business
environment reforms to woo international investors. Vietnam has mopped up a lot of the low value-
added manufacturing to have already left China. The eciency of China’s supply chain will also retain
considerable appeal, notwithstanding geopolitical developments. Red tape and protectionist political
sentiment remain major challenges in India.
An important factor weighing in India’s favour will be the size and potential of its domestic
market. Firms will make investment decisions based on individual considerations, weighing the sort
of factors assessed in our BER. However, proximity to a large market seems likely to make international
firms more minded to overlook aspects of India’s business environment that remain challenging. That is
why we are relatively confident in stating that India’s manufacturing moment has arrived.
South-east Asia poses str
ong competition to India
(E
IU business environment ranking score for 2023-27; 10=best)
Source: EIU.
India Indonesia Philippines Vietnam Thailand
Over
all score
Infr
astructure
Labour mar
ket
Mark
et opportunity
Te
chnological readiness
Fo
reign direct investment policy
Macr
oeconomic environment
T
axes
Fo
reign trade and exchange controls
0 2 4 6 8
10
© The Economist Intelligence Unit Limited 2023
13
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