A manufacturing enclave in the high-growth state of Gujarat provides a glimpse of the industry’s possible future. Ford Motor Company’s sprawling, 460-acre facility can churn out 240,000 vehicles and 270,000 engines a year. Nearly two dozen suppliers have set up shop next door, creating a just-in-time manufacturing ecosystem. The plant manager at the time of my visit, Kel Kearns, a former Royal Australian Air Force flight lieutenant, said the highly automated Ford facility is “more like what you’d see in North America or Europe than traditionally in Asia-Pacific.”
It’s hard to overemphasize the importance for India of getting manufacturing right. While the country’s world-class information-technology sector put it on virtually every global boardroom’s agenda, Indian manufacturing trails that of East Asian powerhouses such as South Korea and Taiwan, or even much smaller economies like Vietnam or Bangladesh. As a percentage of GDP, manufacturing in India contributes only about 17 percent, essentially unchanged from the amount it contributed at the advent of economics reforms back in 1991.
To put this in perspective, manufacturing accounts for 29 percent of economic output in China and South Korea, and 27 percent in Thailand, according to World Bank data. Moving millions of workers from farms to factories has played a pivotal role in reducing poverty and raising living standards across East Asia.
It should come as no surprise, then, that India seeks to raise manufacturing as a percentage of GDP from 17 percent to 25 percent, and to create 100 million jobs within a decade. Shortly after his 2014 election, Prime Minister Narendra Modi launched the “Make in India” campaign with the avowed goal of transforming India “into a global design and manufacturing hub.”
Against this backdrop of patchy industrialization, the relative success of India’s car industry reveals how a once-closed sector gradually—and without receiving much attention—became the world’s sixth-largest automobile manufacturer. Ford is just one of many firms with a presence in India. Suzuki, Toyota, Honda, Hyundai, Volkswagen, BMW, General Motors, Mercedes Benz, Mitsubishi, Renault, Audi, Nissan, and Skoda all manufacture in the country now. They add to the variety of models available from India’s dominant domestic makers: Maruti Suzuki (a pioneering joint venture now majority-owned by Japan’s Suzuki), Tata Motors (which includes Jaguar Land Rover), Mahindra and Mahindra, Hindustan Motors, and Premier Automobile. That list does not include manufacturers focused on the motorcycle and scooter markets that still account for the vast majority of vehicle sales in India.
Even before India’s economic opening in 1991, a state-led experiment planted the seeds of India’s auto flowering. In 1981, the state-owned enterprise Maruti Udyog sought an international partner to manufacture subcompact cars for India’s growing middle class through a government-licensed joint venture. Suzuki was selected the next year, and the partnership flourished. The first car, a boxy white knockoff of the Japanese-made Suzuki Fronte, rolled off a factory floor outside Delhi in 1983.