Where is India’s manufacturing industry headed in 2023?

Following a bounce-back ushered by the release of trapped demand, the manufacturing industry has maintained healthy forecasts for the last 16 months. What’s coming in 2023, and how will manufacturers respond?

Despite ranking 5th on Global Manufacturing Output, India’s manufacturing industry continues to lag in terms of its competitiveness. While global manufacturers are now advancing towards paradigms like manufacturing on demand and mass customisation, India’s manufacturers are yet to reap the promises of digitization. Where global manufacturers have spent $900bn on Industry 4.0 technologies, India’s manufacturing technology spend hovers around $5-6bn, logged mostly by large-scale players.

However, the basics remain the same. The industry continues to receive governmental support with empowering schemes and looks at a largely untapped potential of its domestic market. With improved digital and financing infrastructure at its disposal, the industry may be headed towards penultimate moment of digitization in 2023, with significant opportunities abound for small and midscale players.

Manufacturing industry in 2023: 5 key trends

#1 Industrial IoT networks will enable lean manufacturing and mass customisation

Despite the promise of the Internet of Things (IoT) in manufacturing, the technology has largely been deployed within the walls of large-scale manufacturing facilities. However, industry leaders believe that the technology holds significant value in the form of increased productivity, automation, and consistency of output, especially for SMEs.

In 2023, as SMEs improve their digital connectivity and adopt fast networking services, IoT-driven shop floors will become a reality. Expansion of IoT networks will be premised on secure network services, and will not only empower fast and lean manufacturing, but also unlock possibilities like mass customisation down the line.

#2 Nearshoring and supply chain reorganisation will improve margins

From auto components and heavy machinery to textiles and electronics, India’s manufacturing industry relies strongly on imports to produce final products. What’s more, India’s reliance on imports grew to a record high in 2021, amidst stronger efforts to reverse this equation. In this light, the government is issuing renewed PLI scheme to reduce the industry’s reliance on overseas players.

This is set to trigger a further consolidation of the supply chain. At the same time, SMEs will continue to forge relationships with multiple suppliers to retain their hard-earned resilience as they emerge from the pandemic. As manufacturers begin to source from multiple local players, they will find greater margins, which will ultimately unlock more funds for digitisation.

#3 Cybersecurity will be top of mind as digital adoption increases

Digital adoption, while crucial to ensure the survival of manufacturers amidst an increasingly competitive market, has proved to be a double-edged sword. Why? Because increased digital adoption has opened small enterprises up for cyberattacks – and SMEs with less than 500 employees are the target of 54% of cyber attacks.

As a result, cybersecurity will be top of mind for SMEs as they advance their digitisation initiatives. Adoption of solutions that are secure by default and secure by design will be a key factor in ensuring that SMEs remain shielded from the risks of cyberattacks in manufacturing.

#4 Niche ecommerce platforms will give rise to ecosystem strategies

While SMEs responded to the new rules of business during the pandemic with ecommerce adoption, these transformations were provisionary, at best – especially in the case of SMEs. At the moment, value chains across key segments like metal, electrical equipment, and textiles remain unorganised.

This is set to change in 2023 with the emergence of niche ecommerce platforms that cater to the needs of specific sectors. Equivalents of Amazon, which leads the retail sector in ecommerce, are likely to emerge for industries such as agricultural equipment, textile, construction, etc. As more and more players adopt these platforms, the industry will witness formation of ecosystems which will compete to weed out lagging businesses.

#5 Finance platformisation will improve cash flow and ease payments

As India aims to expand MSME’s share of exports to $1tn by 2027, manufacturers will require simpler solutions to accomplish cross-border payments, and faster and easier access to credit. Over the course of the pandemic, SMEs have found greater comfort with digital solutions for making and receiving payments.

In the coming years, the industry will witness a platformisation of its financial railroads. Purpose-built solutions, aimed at simplifying the SMEs’ finance function will enable businesses to function with financial excellence. Such solutions will enable SMEs to take loans, make local and cross-border payments, and file taxes on a single platform.

Implications for manufacturers

What do these trends imply for manufacturers, especially in light of growing optimism? The Purchasing Managers Index for the Indian manufacturing sector remains at its peak, and waning pricing pressures have led to upbeat projections for the next year. In other words, small and midscale manufacturers are faced with a limitless opportunity to realise their next phase of growth over the coming year. During the pandemic, manufacturers were able to realise growth with digital adoption, even in a pessimistic market. 2023 will be the year to test the complete potential of digitally driven manufacturing.