Indian Trade Minister Goyal states at G20 summit that there is no structural surplus of production capacity

There is an aspiration to make India a major manufacturing center. The global community is paying attention to India because the status of a manufacturing hub is critically important for strengthening any country's economy. However, the question arises: can India become the next global manufacturing hub?

When goods such as automobiles, mobile phones, and clothing begin to be manufactured in the country, import costs are significantly reduced. This leads to job creation for millions of young people, increased household income, and prevention of liquidity problems in the market. Furthermore, when a country begins to meet its needs and export products, foreign currency flows into the country. This is why the establishment of an Indian manufacturing hub is a key element of its economic stability and self-sufficiency.

India relies on production to realize its dream of transforming into a developed nation by 2047. As part of this process, India has intensified its industrial activities under the slogans 'Make in India,' 'Atmanirbhar Bharat,' and with the help of the 'PLI Scheme.' Nevertheless, the question remains open: when and how will this goal be achieved? Where does India stand in this global race, and how far behind China is it? What challenges does the country face?

Analyzing statistical data, India has achieved an initial advantage in the production race, but it is still far from the ultimate goal. India's share in the total global production volume is about 2%. Although India has already become the fifth-largest manufacturing country in the world, its scale remains limited.

On the other hand, China is rightly called the 'world's factory.' Its share in global production approaches 30%. China's annual industrial output exceeds $4.5 trillion, while India's figure is around $500 billion. Thus, China surpasses India by approximately nine times in terms of production volume.

The truth is that India cannot overtake China overnight, but changes have already begun. Global corporations are now adopting a 'China plus one' policy, meaning they aim to locate their factories in countries other than China. This presents a golden opportunity for India, especially considering the growing trade tensions between the US and China. Many American companies operating in China are viewing India as an attractive alternative.

The US also intends to break China's monopoly, but simultaneously does not want to allow India to become an 'economic superpower.' The recently passed US law, the 'Graham Sanctioning Act,' grants the right to impose high tariffs on countries purchasing Russian oil, which poses a challenge even for India. Since production is closely linked to energy, India imports over 85% of its required crude oil. Rising crude oil prices directly increase the cost of transporting goods, electricity tariffs, and raw material prices in India. This raises the cost of production in India, making it more expensive than goods from China, Vietnam, or Bangladesh.

The high cost of oil procurement depletes significant foreign exchange reserves of India. When government and company funds are spent on paying oil bills, capital for investment in infrastructure, new technologies, and research and development (R&D) becomes insufficient.

Over the last decade, India has made significant adjustments to its industrial policy. Under the 'Make in India' and 'Atmanirbhar Bharat' initiatives, production processes have been simplified, and special emphasis has been placed on 'Ease of Doing Business' to increase domestic production.

In accordance with the PLI programs, multi-billion dollar incentives have been provided for more than 14 sectors, including electronics, semiconductors, automotive, pharmaceuticals, and solar panels. As a result, India is now the second-largest mobile phone producer, and a significant portion of iPhones is assembled there.

Production in India will only grow if infrastructure is strengthened. In this regard, over the last decade, the construction of expressways, dedicated freight corridors, the PM Gati Shakti project, and new ports has helped reduce both the cost and time for transporting goods within the country. Simultaneously, India has attracted large investments in chip production, which is the foundation of future technologies.

Despite all efforts, the share of production in India's GDP has remained at 16–17% in recent years. The main reasons for this are four serious obstacles.

1. High logistics costs: The cost of transporting goods from factories to ports in India accounts for about 13–14% of GDP, whereas in China or Vietnam, this figure is maintained at 8–9%. Reducing this gap is a top priority.

2. Complex legislation and bureaucracy: Although attention has been paid to simplifying rules in recent years, at the state level, procedures for obtaining land acquisition permits, labor legislation, and environmental assessments can still take months. Active work is being done on this.

3. Skills shortage: India has a huge youth population, but modern factories and automation require different competencies.

Union Minister Ashwini Vaishnaw noted that the history of the semiconductor industry's development in India has been quite fascinating. Initially, there were significant doubts regarding this sector, but the government's clear vision and honesty allowed these concerns to turn into reality.

During a meeting with CEOs of global semiconductor companies, the Union Minister presented them with the current state of affairs in the country with great respect.