Bullish On India: Watch out for startups bringing innovation and disruption to manufacturing

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Economic history teaches us that no nation has become wealthy without manufacturing prowess. For India to maintain its status as the world's fastest-growing major economy over the medium term, it is imperative for India to become a global manufacturing hub. India's next phase of growth will come from startups within the B2B manufacturing ecosystem.

The share of manufacturing as a percentage of India's GDP is now likely to grow at an accelerated pace.

Manufacturing Boom Coming

We have structural tailwinds and a firm desire and commitment from policymakers to bolster business and entrepreneurial sentiment within manufacturing. Our favourable demographics, a digitally skilled workforce, a supportive credit cycle, and key policy initiatives paint a bullish picture.

Furthermore, the market opportunity for Indian manufacturers is increasing due to the prevailing "China +1" trend globally. Apple setting up its assembly line unit via Foxconn is a signal to global players that India is a serious alternative to China. Indian customers also prefer localisation over importing for certain categories, such as consumer electronics, which is leading to manufacturing growth.

Additionally, production-linked incentives introduced since 2020, in the form of tax rebates, subsidies based on achieving certain targets, and lower import and export duties, have helped Indian manufacturers become globally competitive.

Historically, similar schemes have accelerated the growth trajectories of other economies, such as Taiwan's Industrial Transformation and Upgrade Action Plan and South Korea's Manufacturing Innovation 3.0 programme.

At another level, Indian government reforms on GST and UPI have also enhanced operational efficiencies and streamlined transactions and financial management.

As public and private expenditures on capital and infrastructure increase, gains in logistics, connectivity, and transportation networks will make manufacturing operations increasingly attractive. According to a report by Morgan Stanley, the manufacturing sector in India could reach $1.6 trillion by 2031.

Startups And Manufacturing

Indian startup founders have a history of success in navigating ambiguous markets, notably in e-commerce. We foresee multiple new founders and startups emerging in India's manufacturing sector, innovating and creating unique strategies for both domestic and international markets.

Innovation driven by new technologies will catapult manufacturing into the next phase of growth. Startups will lead the way in driving innovation. B2B manufacturing marketplaces that can help traditional outfits become more efficient in their operations have seen tremendous success.

These companies can assist businesses with custom manufacturing, quality assurance, and streamlining supply chains by integrating tech platforms to accelerate growth. In short, they can help produce quality in a timely and organised manner and introduce systems and processes into a fragmented space.

Private capital has played a critical role in enabling these businesses to grow, as evidenced by funding of up to US $8.5 billion in the last eight years.

B2B Marketplaces Show Promise

Accel has invested in B2B marketplaces like Zetwerk, which uses a digital platform to connect businesses with suppliers, facilitating efficient procurement and supply chain management, and Fashinza, which connects apparel brands to factories. Zetwerk's "China + 1" revenue has grown from 0 to 30 percent of total revenue in the last two years. Zetwerk was able to turn a negative NPS (net promoter score) into a positive one by successfully implementing its B2B solution.

Inframarket is another example: It operates as a one-stop solution for construction requirements and operates on an asset-light manufacturing model, featuring private-labelled brands that supplement construction (paint, chemicals, tiles). It is now the second-largest concrete manufacturer without having fixed assets.

By leasing out 10-20 percent capacity of suppliers in geographies across the country, Inframarket is able to increase economies of scale, while not being tied to fixed costs concentrated in one area. No matter where the demand is, one of Inframarket’s 400 manufacturers is able to meet it, using this model.

Captain Fresh, a freshwater fish and seafood supply chain platform, seeks to create a marketplace in an unorganised space. The supply chain for animal protein is complex, given the many suppliers and the limited shelf life of inventory. Therein lies the opportunity for the company.

When AI, Big Data Meets Manufacturing

While B2B marketplaces are set to mature, other spaces are emerging within Industry 5.0, whose foundation rests on AI and data and will accelerate the process of manufacturing growth by providing massive efficiency gains.

Moglix, a prominent B2B startup, is revolutionising the manufacturing ecosystem by providing a comprehensive digital platform for procurement and supply chain management. It streamlines and optimises the B2B manufacturing process, empowering businesses to achieve greater efficiency and cost savings while ensuring a seamless flow of industrial supplies. With its innovative solutions, Moglix is at the forefront of transforming how businesses operate within the manufacturing sector.

Bizongo is an AI-driven company that provides insights and predictive intelligence to optimise supply chains at the right time. The platform enables customers to manage multiple vendors and standardise the way they work with them, thereby reducing risk and improving materials procurement.

Detect is an intelligence platform provider for industries that offers AI and Cloud enabled digital products for preventive monitoring and automation across people, product and processes such as workforce safety and asset inspection.

These are a few examples of businesses innovating in the 5.0 space. These may well be the players that help the country make up for lost time when it comes to becoming a manufacturing powerhouse.

As India seeks to diversify its economic portfolio, B2B manufacturing startups that leverage tech will not only organise but also align a fragmented sector of suppliers with the demand side. These companies create trust and solve the incentive gap by creating transparency.

Disruption enabled by tech will accelerate growth across people, processes, and performance in manufacturing and make the PM's vision of Aatmanirbhar Bharat a not-so-distant reality.

Prashanth Prakash is Co-Founder and Partner, Accel India. Views are personal, and do not represent the stand of this publication.