- It is the 10th anniversary of PM Modi’s ‘Make in India’ policy aimed at boosting manufacturing in the country.
- Manufacturing made up 30% of China’s GDP through the 2000s when it was growing at 10% per annum.
- Infrastructure, regulatory red tape and China’s success have held back India from achieving their manufacturing objectives.
This week was the 10th anniversary of PM Modi’s ‘Make in India’ policy which aimed to transform India into a global manufacturing hub. It incentivised multinational companies to manufacture in India, fostering economic growth and creating jobs locally. The key objective was to boost manufacturing’s share of India’s economic output to 25% by 2025, however, it has fallen well short of this goal:
India Manufacturing Sector (% of Total GVA)
Source: Capital Economics
The policy took a page out of China’s book from the 2000s, where GDP growth averaged 10% per annum in an extraordinary expansion, turning China into one of the world’s largest economies. In China’s booming growth phase, manufacturing contributed just over 30% to GDP and it still sits at 26%.
Why has India not succeeded?
It’s mainly China’s manufacturing capabilities that have hindered India’s aspirations. India has watched its share of global exports in clothing & footwear plummet over the last six years, whilst its market share in furniture and toys has flatlined. Additionally, ‘Make in India’ promised significant investment in infrastructure, such as roads and ports, which was much needed considering its infrastructure was ranked 90th out of 139 countries back in 2011. Despite an increased level of investment and it rising to 70th on the infrastructure leaderboards, this sector remains a bottleneck on manufacturing.
Where next?
Modi is determined to carry on with this policy and we’ve already begun to see India place trade restrictions on China that could boost domestic manufacturing. This also buys goodwill with the US that are seeking to reduce their own dependence on China. Just last month, Apple announced plans to start manufacturing its iPhone 16 Pro models in India – the first time it has moved manufacturing out of China for its high-end models.
If India can get over their infrastructure and regulatory hurdles, there is real potential for them to continue to ramp up their share of global exports given their rapidly growing, and increasingly skilled, population. India’s GDP is already expected to increase by 7% this year, well ahead of any developed economy (the US is the highest at 2.6%) or China (5%). This could have significant ramifications for not only Indian Equities but also Commodities as manufacturing is a commodity-intensive industry. The below chart highlights the impact China’s manufacturing boom had on commodity prices:
Real Commodity Prices:
Source: Capital Economics
Bowmore Portfolios
We have a strong overweight to Indian Equities in our portfolios, where it makes up 6% of our Equity exposure vs just 2% of Global Equity Markets, reflecting our conviction on the Emerging Market’s long-term future. Mahindra and Mahindra is the 6th largest underlying company in our portfolios, an Indian automobile manufacturing company that is up 87% in 2024. Our commodity exposure remains negligible as we watch prices fall but this could change if the India manufacturing story plays out how PM Modi envisions it.
