One of the interesting themes in 2021 will be manufacturing-as-a-service. The government’s push for self-reliance through higher local capacity utilization will unlock new and better custom manufacturing opportunities. It will also provide a higher share of the gross manufactured value addition through integration with the global supply chain

The big draw for custom manufacturing will be the massive relocation of global manufacturers towards business environments that offer higher transparency, lesser command-economy regulatory frameworks, and cost advantages. Major sub-sectors that will witness global manufacturers’ relocation to India and fuel demand for custom manufacturing in 2021 and beyond. These sub-sectors include electronics, computer hardware, chemicals, metals, food & beverages, pharmaceuticals, and hi-tech engineering in defense. The government’s previous decision to raise the cap on FDI in defense manufacturing to 74% is likely to attract OEMs to greenfield projects from 2021 and onward. 

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‘In 2021, local Indian manufacturing will also get a significant cushion thanks to the government’s extension of the additional 2% export incentives to MSMEs till 31st March 2021.’

In all likelihood, the government will extend the window further and allow local Indian manufacturers to pass-through the cost advantage to their customers.

‘It will lead to enhanced global trade and demand for Made in India labels of custom manufacturing, such as casting, forging, welding, machining, heat treatment, fabrication and forming.’

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On the supply side, schemes like the CLCS-TUS (that aim to subsidize technology penetration in Indian manufacturing) are likely to provide a formidable incentive to local Indian manufacturers to invest in plant, equipment, and machinery. Such technology integration will lead to an increase in their plant capacity and scale of operations, thereby impacting the unit economics of local Indian manufacturing and making it more competitive.

Bhavik Chheda is Head – Manufacturing As a Service at Moglix

To learn more about manufacturing and supply chain trends in 2021, download our ebook titled Road to Self-Reliant Manufacturing: Procurement and Supply Chain Insights for 2021 here.