Manufacturing sector seen as key growth driver of Indian economy: DBS
Electronics exports may be the strongest sector now but further growth may rely on semiconductors and EVs in the near future.
The structural shift in India’s manufacturing sector towards more high-tech products will buttress the country's high growth potential, DBS Group Research said in a note.
DBS said the country’s gross domestic product (GDP) is poised to overtake China on a compound annual growth rate (CAGR) basis over the next five years. India is forecasted to record an annual growth rate of around 6% in 2024 and 2025.
Among the “medium-support support pillars” for the economy is its manufacturing sector which offers more competitive costs than China and a few Southeast Asian nations.
Citing results of an industry survey by the Japan External Trade Organisation, 70% of Japanese firms have expressed intention to expand business in the country in the next one to two years largely due to its high growth potential and improving local purchasing power.
The country’s manufacturing exports continued to expand to a point where its market share has risen to account for two-thirds of the overall goods basket last year, outpacing the slowing labour-intensive exports according to the research note.
Electronics were one of India’s fastest-growing manufactured goods having delivered 24% CAGR in the five years through 2023 amid strong demand for “Made in India” smartphones. Total electronic exports are also on track to surpass $100 billion over the next five years, it said.
“These domestic ‘push’ reasons have met with global ‘pull’ catalysts in the past two years,” analysts at DBS said. “Trade conflicts, geopolitical fissures and inward-looking policies have convinced companies to better manage risks to their existing supply chains, providing an additional opportunity for India to attract part of these supply-side capacities.”
Semiconductors and electric vehicles (EVs) were identified as the next growth drivers for the country following the success in mobile phone assembly.
Beyond manufacturing, DBS said India’s projected high growth will also be underpinned by “multi-year capex push, digitalisation, and relative strength in service trade.”
