India has huge potential for the development of its contract manufacturing industry. Huge domestic demand finished goods from a growing population, growing investment in the manufacturing sector, initiatives such as ‘Make in India’ that aims to make India a global manufacturing hub, and rising working population are the key factors that are offering robust growth to the contract manufacturing industry in India. The contract manufacturers are likely to expand their manufacturing base in the country owing to the availability of low cost and skilled workforce. In 2019, India has moved 14 places to be 63rd among 190 nations in the World Bank’s ease of doing business ranking. The improving ease of doing business in India ranking is again supporting the confidence of the contract manufacturers to expand their manufacturing base in India. The automobile industry, drugs and pharmaceuticals, chemical, food processing, electrical equipment, cement, textile, and electronics are the major sectors of the Indian contract manufacturing industry. 

Sector-wise FDI inflow from April 2000 to December 2019, (in $ Billion)

Drivers of the contract manufacturing industry in India

Robust demand for finished goods, growing investment, and government support are the key factors contributing to the growth of the Indian contract manufacturing industry. In August 2019, the Government of India permitted 100% FDI in contract manufacturing through the automatic route. The high FDI inflow is expected to position India as a favorable destination for manufacturing by encouraging international players to make in India and sell in India. At present situation, when contract manufacturers are searching for new manufacturing locations to increase their global presence in the face of the ongoing US-China trade war. India is expected to be a suitable destination for these players to run their manufacturing operating through contract manufacturing.   

India is on the way of becoming the hub for high-tech manufacturing as major international players such as Siemens AG, HTC, GE Healthcare, Toshiba, and Boeing have set up or in process of setting up their manufacturing plants in India. According to the India Brand Equity Foundation, India’s manufacturing Purchasing Managers' Index (PMI) stood at 46 in July 2020, indicating the expansion of such plants in the country.   

India is close to many food-importing nations in the Middle East and Southeast Asia. There is also a government initiative for the industry such as the “Make in India”, promoting the domestic manufacturing sector in 2019. The Indian Government has set up a $300 million “Food Processing Fund” to support the opening and growth of food parks. As of December 2019, there were 42 Mega Food parks being set up. This program by the government has prompted investment from many multinational food processing companies such as Kraft, Mars, Nestle, Kellogg, Coca-Cola, and others. Such growing funding in the sector is anticipated to drive the growth of this industry.

Initiatives by the Government of India

• Make in India: Make in India is a major national program of the Government of India designed to enhance skill development, to facilitate investment, foster innovation, protect intellectual property and build best in class manufacturing infrastructure in the country. Make in India program focuses on 25 sectors including automobiles, automobile components, aviation, biotechnology, chemicals, construction, defense manufacturing electrical machinery, electronic systems, food processing, IT & BPM, leather, media and entertainment, mining, oil and gas, pharmaceuticals, ports and shipping, railways, renewable energy, roads and highways, space, textile and garments, thermal power, tourism and hospitality, and wellness. Under the Make in India program, the Government permitted 100% FDI in contract manufacturing through the automatic route in August 2019. The government’s Make in India initiative to strengthen the manufacturing sector in India has spurred contract manufacturing in India. 
• National Manufacturing Policy: The Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce and Industry has notified the National Manufacturing Policy (NMP) in November 2011. This policy was introduced to enhance the share of the manufacturing sector in GDP to 25% from 16% of the present and creating 100 million jobs by 2022. The growing manufacturing sector is anticipated to create lucrative opportunities for the growth of the contract manufacturing industry in India.

Contract Manufacturing Industry Market players Outlook

India’s contract manufacturing industry is composed of several market players offering contract manufacturing services in different sectors. The presence of such players in the country drives the growth of the Indian contract manufacturing industry. These players are adopting different growth strategies such as facility expansion, strategic collaboration, and mergers and acquisitions among others to sustain their place in the industry.