Driven by the production-linked incentive (PLI) scheme, the country's manufacturing sector is projected to expand threefold, reaching a market size of $1.66 trillion from the current $459 billion (FY24), a report showed on Tuesday.
Unprecedented Growth Rates
This growth surpasses the average increase of $175 billion experienced over the last decade. The manufacturing sector's contribution to the GDP is anticipated to rise from 14 per cent in FY24 to 21 per cent by FY34, bolstered by lower logistics costs and improved infrastructure, according to the report by DSP Mutual Fund.
Infrastructure Investments and Economic Impact
Investments in infrastructure are set to climb from 33 per cent of GDP in FY24 to 36 per cent by fiscal year 2029, sparking a ripple effect on the economy.
"We continue to be positive on the manufacturing theme as we believe most of the segments are at the cusp of a significant pickup in demand which would drive earnings growth for the companies," said Charanjit Singh, Fund Manager, DSP Mutual Fund.
Key Reforms and Policy Changes
The last five years focused on key reforms by the government and policy changes. "We believe that the period from FY 25-30 is going to be about execution," Singh added. Private capex which had been weak for a very long time could witness a revival from FY26 led by rising utilisation levels, strong corporate balance sheets and political stability, the report mentioned.
The PLI scheme has the potential for significant capital expenditure. It's anticipated that sectors will spend around $39 billion between fiscal years 2024 and 2026.
"While current PLI investments are focused on pharmaceuticals, mobile phones, and solar PV modules, upcoming sectors like semiconductors, speciality steel, textiles, and automobiles are set to witness increased investment in the fiscal year 2025," the report mentioned. Sectors like power, defence, water and manufacturing are primarily fueled by demand rather than a push, it added.
