India set to boost manufacturing share to 3% of global trade in five years: Accel

India’s manufacturing sector is expected to contribute approximately 3% to the global goods trade by 2030, up from its current share of around 1.8%, according to a new report released by Accel.

The report on Advanced Manufacturing also notes that “Domestic manufacturing is estimated to reach $1.3 trillion by FY30 at a CAGR of 18%.” While India’s current domestic manufacturing GDP stands at $471 billion, a significant portion of this growth is expected to be driven by advanced manufacturing.

Earlier this month, a survey by HSBC reported that India’s manufacturing sector growth strengthened in July, reaching a 16-month high of 59.1. This growth was supported by faster increases in new orders and output, amid favourable demand conditions. At the same time, an S&P Global study from May highlighted India’s progress in the manufacturing sector, stating that India has made “notable progress” in improving its competitiveness and making its manufacturing sector “more attractive to global investors.” Accel has so far invested in 18 manufacturing companies.

Geopolitics, talent, and other factors

So, what’s driving this growth in the manufacturing sector? The Accel report notes that India could be an alternative to China, amid the ongoing US-China tensions.

“US-China tariffs impacted over $550 billion in bilateral trade, prompting countries to look for alternative policy interventions: The US CHIPS Act and Inflation Reduction Act incentivise domestic or allied nations. EU and Japan are also promoting friend-shoring to mitigate exposure to authoritarian regimes,” the report states.

While the report commends India’s Performance-Linked Incentive (PLI) scheme and other policy changes, it also highlights India’s growing talent advantage compared to countries like China, Japan, and South Korea. “Rising educated, English-speaking population plays to India’s advantage vs other Nations in manufacturing,” notes the report.

India’s demographic advantage is also significant. The median age in India is 28, compared to 39 in China, 49 in Japan, and 44 in South Korea. The report further notes that India produces more engineers and offers comparatively lower talent costs.

That being said, there are challenges too. For instance, India’s R&D spend is just around 0.7% of the GDP, in contrast to 2.4% in China, 3.3% in Japan, and 4.4% in South Korea. While China’s is the second largest GDP in the world, Japan’s and India’s are quite comparable. Another challenge in India is the low employability of the workforce and weak university-industry linkages.

Sectors to watch out for

According to the report, several key sub-sectors are expected to drive higher market growth in India’s manufacturing industry. These include aerospace and defence, electronics and electrical products, automobiles, chemicals, medical devices, and space.

The report highlights that India’s $200 billion electronics and electrical sector is poised for 3X growth by 2030. It also notes that many publicly listed companies in the sector have shown strong growth  compared to pre-COVID levels. A few reasons for the growth here include brands like Apple, Dell, and HP shifting their production to India, the government’s PLI scheme, an increased focus on indigenisation and a growing domestic market.

While India’s aerospace and defence market is projected to double by 2030, the automotive sector is projected to grow at 11% during the same period, driven by the electric vehicle (EV) boom. In FY25, 1.3 million EVs were sold in India. Recently, global EV giant VinFast set up its first assembly plant outside Vietnam, in India.