Have you ever walked into shop, and seen more employees than customers? This is not uncommon. Chances are, many of these retail establishments would just be fine with half as many workers. Many of those workers would love the opportunity to earn a bit more. And perhaps some of them will soon find opportunities making phones.
Punitive US tariffs on China are set to remain in place. And so, Apple recently announced it would manufacture all US bound iPhones in India. In fact, Apple intends to move all its iPhone production to India in the coming years. This heralds a golden opportunity for India’s manufacturing sector. As of 2023, manufacturing as a share of India’s GDP stands at just 13%. In contrast, manufacturing as a share of China’s GDP is 26%.
Unfortunately, manufacturing as a share of GDP has been trending down in recent years. It was as high as 17% in 2010. And its recent peak was 18% in 1995.
Policy makers want India’s manufacturing share to increase to 25% by 2030. And for good reason. All of today’s wealthy countries either were, or are, dominant in manufacturing. The Indian economy’s growth in recent years has been driven mostly by services. The IT sector is a good example. Revenue grew at 11% in 2024. It is expected to comprise 10% of the country’s GDP next year.
And yet, the IT sector employs just 5.4 million people. As a fraction of the population, this is only 0.4%. The IT sector, and industries like it, generate good opportunities for well-educated and high skilled workers. But high-end service industries will not make the country rich. And that’s because these sectors can’t hire masses of workers.
This is where the manufacturing sector is needed. The manufacturing sector can hire large numbers of people. And it can create good paying jobs for those in the middle and lower part of the income distribution. Like the extra person working in the shop.
This is how China achieved solid growth in recent decades. By becoming the world’s manufacturer. And focusing on medium to high end products. If Apple and other manufacturers expand production in India, this is a huge economic opportunity.
How can investors take advantage? Find the companies and sectors likely to benefit from an expansion in manufacturing capacity. Examples include energy, transportation, and commodities. And then within each sector, look for well-priced businesses you can hold for the long term.
As the soon to retire Warren Buffett once said: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
This advice especially apt for investing in a manufacturing boom. It will take years for this sector to grow and flourish. You could create an app for your phone in one week. But to build the factory that makes the phone itself? One year at best, but probably longer. Either way, patience is key. But with the right policy and regulatory environment, the manufacturing sector will eventually take off in a big way.
Disclaimer
Note: The purpose of this article is to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly encouraged to consult your advisor. This article is for strictly educative purposes only.
Asad Dossani is an assistant professor of finance at Colorado State University. His research covers derivatives, forecasting, monetary policy, currencies, and commodities. He has a PhD in Economics. He has previously worked as a research analyst at Equitymaster, and as a financial analyst at Deutsche Bank.
Note: The purpose of this article is to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly encouraged to consult your advisor. This article is for strictly educative purposes only.
Disclosure: The writer or his dependents do not hold any of the assets discussed in this article