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India's economic landscape is a tapestry of growth drivers, with the manufacturing sector emerging as a pivotal force propelling the nation forward. Quite simply, manufacturing can very well be considered among the next themes for the decade, potentially transforming India’s economy. <br /><br /><h2>Driving forces: Economic engine &amp; contribution</h2>The growth narrative of any nation is closely linked to the performance of its key sectors. In India, while agriculture and services have traditionally played significant roles, manufacturing is now set to lead the next phase of economic growth. <br /><br />Currently, services dominate with 56% of Gross Value Added (GVA), while manufacturing contributes 27%. Despite not yet reaching its full potential, the manufacturing sector holds immense promise as a leading force in India's economic journey.<br /><br />India's growth trajectory has been significantly shaped by agriculture and services. However, manufacturing, with its vast potential for expansion, remains a key player yet to fully realise its capacity. As the sector grows, it is expected to play a crucial role in driving the country's economic progress.<br /><br /><h2>Key pillars of manufacturing growth</h2><h3>1. Infrastructure and Technology Investments</h3><br />Investments in manufacturing infrastructure and technology are critical for driving sustainable economic growth. These investments facilitate import substitution, boost exports, create jobs, foster innovation, and enhance productivity.<br /><br />Strengthening local manufacturing reduces dependency on imports, fostering self-reliance and mitigating external vulnerabilities. Also, a robust manufacturing sector not only serves domestic demands but also fuels export-oriented growth, bolstering India's position in the global market.<br /><h3><br /></h3><h3>2. Job creation</h3><br />Manufacturing's labour-intensive nature translates into significant job opportunities, contributing to socio-economic development and livelihood enhancement. Developed countries over the years which have grown on the back of manufacturing have shown that large-scale manufacturing fosters innovation, driving improvements in product quality, efficiency, and competitiveness on the global stage.<br /><br /><h3>3. Government initiatives, emerging trends</h3><br />The government's steadfast focus on promoting manufacturing is evident through initiatives like "Make in India" and "Vocal for Local." Additionally, Production Linked Incentive (PLI) schemes incentivize key sectors, propelling production and exports.<br /><br />Growing environmental awareness worldwide is driving a shift towards eco-friendly industrial practices, presenting India's manufacturing sector with new opportunities. Another factor supporting domestic manufacturing is India's urbanisation. This necessitates significant investments in affordable housing and urban infrastructure, creating avenues for manufacturing-led growth.<br /><br /><h2>Investment opportunities in manufacturing</h2>Investment opportunities within the manufacturing sector are abundant, with various avenues for potential growth and profitability. From traditional manufacturing industries like textiles and automobiles to emerging sectors such as renewable energy and advanced manufacturing technologies, there is a diverse range of opportunities for investors to explore within the manufacturing theme.<br /><br />Investors who have already invested in this theme have witnessed substantial wealth creation in recent years. For example, the Nifty India Manufacturing Index (price return variant), which tracks the <a href="http://www.niftyindices.com">performance </a>of stocks that represent manufacturing sectors in India, increased by 55% in one year and delivered 21% (CAGR) over 5 years as of April 30, 2024. <br /><br /><h3>Outlook</h3>As India charts its course towards economic resurgence, the manufacturing sector emerges as a beacon of hope, driving inclusive growth, fostering innovation, and propelling the nation towards a brighter tomorrow.<br /><br />With the right policies, investments, and strategic interventions, manufacturing can unleash its full potential, contributing significantly to India's journey towards becoming a global economic powerhouse. This theme has the potential to be a wealth creator for the next decade and beyond.<br /><br /><em>Disclaimer: The article is authored by RC Rawal, MD, Imperial International. The opinions expressed are those of the author and do not necessarily reflect the views of Business Insider India. Do your own research (DYOR) before deciding to invest in any financial asset class. </em><em>This article is published by the Insider Studios team. You can get in touch with them on </em><a href="mailto:insiderstudios@businessinsider.in"><em>insiderstudios@businessinsider.in</em></a><em>.</em><br />

Investing in India’s manufacturing sector: Opportunities and outlook

Nothing is certain but death and taxes. You cannot escape it. However, one can surely try to reduce tax liability by investing in avenues which are made available under Section 80 C of the Income Tax Act, 1961. Here, one of the options available is Equity-Linked Savings Scheme (ELSS). <br /><br />ELSS is a type of equity mutual fund wherein the investments made up to ₹1.5 lakh is eligible for tax exemption. However, the caveat here is that it comes with a three-year lock-in. This ensures an investor stays invested despite the volatility in the market thereby helping in wealth creation. In effect, by investing in an ELSS, an investor gets a package of tax benefits and wealth creation at the same time.<br /><cmsannotation type="cmsannotation" annotationid="Understanding ELSS funds" comment="subhead" text="Understanding ELSS funds"><span data-til="noop">Understanding ELSS funds</span></cmsannotation><br />ELSS funds have had an over two-decade-long history. As the awareness around mutual funds gained traction, given the tax benefits attached, this category of funds became popular among the masses. However, Budget 2023 had an announcement that made a lot of people question if indeed investing in an ELSS fund is a good idea. This is because the Finance Minister made the deduction-and-exemption-free new tax regime the default tax filing mode from FY24 onwards. Given the newer tax regime offers higher tax rebates, should you shun ELSS? <br /><br />The answer is certainly not. At its very core, an ELSS fund is a diversified equity mutual fund that offers you attractive returns in the long-term if one stays invested for three years or more. Another positive aspect is that investors have flexibility in terms of the quantum of investment. There is no cap limit, unlike some other traditional investment options. Also, you can invest in lumpsum or stagger investments through SIP. <br /><br />So, tax deduction should never be the main purpose to invest in an ELSS fund, instead it should be wealth creation. The category average return of ELSS for a five, seven and 10-year SIP period is 12-13% which is very impressive.<br /><br />For a person looking to invest in an ELSS fund today, there are two types of ELSS funds on offer. One is an actively managed ELSS fund and the other is a passively managed ELSS fund. Most ELSS funds available today fall in the category of actively managed funds. In such a fund, a fund manager actively picks stocks from across market capitalization to build a portfolio. On the other hand, in case of a passively managed fund, the portfolio will simply mirror an underlying index and the returns too will be akin to the index minus expenses. Right now there are only a couple of passive ELSS funds available. <br /><br />If you are inclined towards investing in an actively managed ELSS fund, during the due diligence stage, do check the long-term track record of the fund, fund performance during various market cycles and the likes. This is to ensure that the strategy followed by the fund works irrespective of the market environment. The three-year lock-in period gives an edge to ELSS fund managers to outperform the benchmark because they don't have to worry about redemptions owing to the stock market moves.<br /><cmsannotation type="cmsannotation" annotationid="Should you invest in ELSS funds now?" comment="subhead" text="Should you invest in ELSS funds now?"><span data-til="noop">Should you invest in ELSS funds now?</span></cmsannotation><br />There is never a wrong time to invest in an equity mutual fund be it ELSS or others. While one can start a systematic investment plan (SIP) in ELSS funds anytime they want, a lump sum investment needs some element of planning, especially at times when the market valuation is not cheap.<br /><br />To conclude, investing in ELSS provides tax-efficient diversification to the portfolio, while aiming to create wealth over the long-term. As a result, this is one investment avenue to build wealth while reducing one’s overall tax burden. Do remember it comes to redemption post lock-in, it is treated just like an equity mutual fund. A capital gain of up to ₹1 lakh in a financial year is exempt from taxation while the remaining amount is taxed at a flat rate of 10%.<br /><br />Given all these aspects, ELSS funds are one of the best options to take exposure in equities. The lock-in period promotes a disciplined approach to investing. While you may give the tax benefit angle some priority, wealth creation should be the main agenda with this investment.<br /><br /><em>Disclaimer: This article is authored by RC Rawal, </em><em>Director,Imperial International</em><em>. The opinions expressed are those of the author and do not necessarily reflect the views of Business Insider India. </em><em>Mutual Fund investments are subject to market risk. Read the scheme-related document carefully before investing. </em><em>Do your own research (DYOR) before deciding to invest in any financial asset class.</em><br />

RC Rawal

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