Sourcing from India: Industries and manufacturing centers

This article is an excerpt from Sourcing From: India, a series of reports that provides buyers sourcing information from alternative manufacturing hubs in Asia. To read the entire articles, click here and here.

The Sourcing From series is produced by the Hinrich Foundation, a development organization that aims to promote sustainable global trade by, among others, helping create jobs in emerging Asia. It also produces industry-specific sourcing reports through Online Developing Country Sourcing.

Since India liberalized its economy in the early 1990s, it has been growing at an average rate of over 7 percent each year. Today, India is the third-largest Asian economy following China and Japan. It also has the fourth-largest GDP in the world at $4.9 trillion and the world's second-largest labor force at 487.3 million people. India’s economy relies on its manufacturing sectors, which include oil and gas refining, auto, plastic, textiles, and steel production, and also its agriculture and services sectors.

Major exports

Mineral fuels and oils is the largest contributor to India's export earnings, as it accounts for over $64 billion annually. Agriculture and food is second at $22 billion. Iron and steel are third at $11 billion. Vehicles and organic chemicals complete the top five export earners, as they represent $13 billion and $12 billion, respectively. Other major industries in India are nuclear reactors and machinery, pharmaceuticals, electrical machinery and parts, plastics, fish, rubber, footwear, leather and furniture.

Textiles & garments - India is one of the world's largest sources of textiles and garments with an abundance of skilled workers and raw materials such as cotton, silk, wool and jute. The textiles segment is the second- largest employment sector behind agriculture, directly employing over 45 million people.

India is the world's second-largest producer of cotton behind China. The country produced 34 million tons of cotton in 2012-2013. The states of Gujarat, Maharashtra and Andhra Pradesh lead the nation in cotton production, combining for nearly 70 percent of the total production in the country.

Gems and jewelry - Accounting for more than $43 billion in exports and 13 percent of India's total export value in 2013-14, precious gems and jewelry continue to be an important industry for India.

Diamond and gold are considered the two most important products of the gems and jewelry sector. Diamond processing (cutting and polishing diamonds) is also a major industry in India. According to the India Brand Equity Foundation, the country's success in the gems and jewelry market can be attributed to highly skilled and low cost labor, excellence in jewelry and diamond polishing and technologically advanced diamond cutting units.

Trading partners

The five largest trading partners of India in the fiscal year 2013-14 were mainland China, trading a total of $65.9 billion, the US, $61.5 billion, the UAE, $59.6 billion, Saudi Arabia, $48.8 billion, and Switzerland, $21.2 billion. Rounding out the top 10 were Germany, Hong Kong, Indonesia, Iraq and Singapore.

Major manufacturing centers

Maharashtra - Maharashtra has the highest gross state domestic product (GSDP) of all states, accounting for 14.5 percent of India's GDP in 2012-13. Its capital is Mumbai and it is the country's third-largest state. Total FDI in the state from 2000-13 reached nearly $65 billion. Key industries include chemicals, textiles, electrical and nonelectrical machinery, auto and auto components, oil and gas, engineering, and pharmaceuticals. The state is home to three international and five domestic airports, two major and 53 minor ports and a well-developed power supply grid.

Rajasthan - With a total land area of 342,239 square kilometers, Rajasthan is the largest state in India based on land area. Situated at the border dividing India and Pakistan, its capital city is Jaipur. Handicrafts made in Rajasthan include items such as marble products, woolen carpets, embroidery, jewelry, leather products, pottery and brass products. Other key commodities include textiles, cement, chemicals, marble and steel.

Madhya Pradesh - India's second-largest state at 308,000 square kilometers, Madhya Pradesh is one of the fastest growing states in the country. Located in the center of India, Madhya Pradesh registered a GSDP of $67 billion in 2012-13. The state is rich in mineral resources such as iron, manganese, coal, tin and limestone. Key industries include auto and auto components, textiles, cement, agro- and forest-based industries, pharmaceuticals, manufacturing, and tourism.

Foreign trade zones

India has established several foreign trade zones in an effort to encourage export production. These include Special Economic Zones (SEZ), Export Processing Zones (EPZ) and Export Oriented Units (EOU).

SEZs are treated as foreign territory and therefore operate outside of the domain of customs authorities. They receive exemptions from industrial licensing requirements, avoid FDI equity caps, and enjoy tax breaks and tax holidays.

EPZs are industrial parks with incentives for foreign investors investing in export-oriented businesses. Among other objectives, EPZs aim to create employment opportunities, develop backward regions, and create linkages by increasing demand for local raw materials, semifinished goods, or packing materials, and promoting the growth of ancillary industries.

EOUs are industrial companies located anywhere in India that export the entirety of their production. In return for concentrating exclusively on products for the export market, manufacturing units receive many of the benefits afforded to the EPZs, but with the option of establishing operations in any part of India.