India’s Manufacturing Revival: From Capacity Creation to Global Capability

Syllabus: GS3/Economy

Context

• India’s manufacturing sector is regaining momentum amid geopolitical shifts that are reshaping global production networks and  offers a solid foundation for the next phase of industrial growth.
• As the Economic Survey notes, sustaining this revival will require stronger competitiveness and deeper integration into global value chains.

About India’s Manufacturing Sector

• India’s manufacturing industry is a critical pillar of the economy, contributing significantly to employment, exports, and overall growth. 
• In recent years, the sector has regained momentum as global supply chains diversify and countries seek alternatives to concentrated production hubs. 
• It has created an opportunity for India to position itself as a reliable and competitive manufacturing destination.

Sectoral Progress and Value Chain Upgrading

• Electronics and Semiconductors: Electronics manufacturing has expanded rapidly, with production increasing nearly six-fold and exports almost eight-fold over the past decade.
• Pharmaceuticals and Medical Devices: It has established India as one of the world’s largest suppliers of generic medicines and vaccines, combining scale with technology intensity, with India supplying over half of global vaccine demand and a large share of generic medicines.
• Automobiles and Auto Components: India is a major producer of two-wheelers, passenger vehicles, and commercial vehicles, supported by a strong auto-component ecosystem.
  • The sector is undergoing a transition towards electric mobility, advanced electronics, and cleaner technologies.
• Steel, Metals, and Heavy Industry: Steel and metals form the backbone of India’s industrial base, supporting infrastructure, construction, and capital goods manufacturing.
  • India ranks among the world’s largest steel producers, benefiting from domestic demand and resource availability.
• Textiles and Apparel: Textiles and apparel remain labour-intensive and export-oriented, providing employment to millions.
  • India has strengths across the value chain, from fibre and yarn to finished garments.
  • Recent policy support aims to improve scale, modernise production, and enhance competitiveness against low-cost global producers.
• Renewable Energy and Emerging Technologies: Manufacturing linked to renewable energy, such as solar modules, wind components, and energy storage systems is gaining momentum as India expands its clean energy capacity.
  • It aligns industrial growth with climate goals and offers opportunities for technology learning, scale, and export potential. 
  • Emerging areas such as green hydrogen equipment and advanced materials are beginning to attract investment.
• MSMEs Across Sectors: Micro, Small and Medium Enterprises (MSMEs) contribute substantially to employment and exports but face challenges related to finance, technology adoption, and skill development. 
  • Deeper integration of MSMEs into strategic value chains, as suppliers of components and specialised services will be essential for inclusive and sustainable industrial growth.

Concerns & Issues Around India’s Manufacturing Sector

• Limited Share in GDP and Employment: Manufacturing’s share in India’s GDP has remained around 15–17% for years, lower than that of many industrialised and emerging economies.
  • It has not generated employment at the scale needed to absorb India’s growing workforce, raising concerns about jobless or low-quality job growth.
• Incomplete Integration into Global Value Chains: India remains underrepresented in global manufacturing value chains, especially in high-technology and complex products.
  • India still relies heavily on imported intermediates, limiting domestic value addition and reducing resilience to global supply disruptions while exports have grown in sectors such as pharmaceuticals and electronics.
• Infrastructure and Logistics Bottlenecks: Although logistics efficiency has improved, costs remain high relative to some competitors.
  • Road transport continues to dominate freight movement, while railways and coastal shipping, more efficient for long-distance and bulk transport, are underutilised.
  • Congestion at ports, last-mile connectivity gaps, and uneven infrastructure quality across states add to operational inefficiencies.
• High Cost of Doing Business at the Firm Level: Formal ease-of-doing-business (EODB) reforms have improved regulations on paper, but firms often face delays in land acquisition, utility connections, environmental clearances, and local approvals.
  • Unpredictability in implementation and slow dispute resolution increase project timelines and discourage large-scale investments, particularly in capital-intensive manufacturing.
• Weak R&D and Technology Absorption: India’s manufacturing sector suffers from relatively low investment in research and development.
  • Industry–academia linkages remain limited, and many firms struggle to absorb advanced technologies.
  • It constrains productivity growth and makes it difficult to compete in technology-intensive and precision manufacturing segments.
• Skill Mismatches and Labour Constraints: While India has a large labour pool, skill mismatches persist.
  • Many manufacturing firms face shortages of trained technicians, engineers, and shop-floor supervisors
  • Existing skilling systems often lag behind industry needs, especially in advanced manufacturing, automation, and digital production technologies.
• Challenges Faced by Micro, Small and Medium Enterprises (MSMEs): Limited access to affordable credit, low technology adoption, inadequate quality infrastructure, and weak integration into large supply chains restrict their ability to scale and compete globally.
• Fragmented Industrial Clusters: Industrial clusters in India are often small and fragmented, limiting agglomeration benefits such as shared infrastructure, supplier networks, and knowledge spillovers.
  • Without scale and deeper integration, clusters struggle to deliver sustained productivity and capability gains.
• Regulatory Uncertainty and State-Level Variations: Manufacturing outcomes are increasingly shaped by state and local governments.
  • Differences in land policies, labour regulations, power tariffs, and compliance processes across states create uncertainty for investors.
  • Frequent policy changes or inconsistent enforcement further raise risk perceptions.
• Quality and Standards Compliance: While Quality Control Orders (QCO) and standards enforcement can strengthen competitiveness, poorly calibrated implementation risks increasing compliance costs, especially for MSMEs.
  • Inadequate testing and certification infrastructure can delay production and disrupt supply chains.

Policy Push & Efforts in India’s Manufacturing Sector

• Make in India: It sought to position India as a global manufacturing hub by encouraging domestic and foreign investment, improving ease of doing business, and identifying priority sectors.
  • It helped raise manufacturing’s visibility in policymaking and laid the groundwork for subsequent reforms and incentive-based schemes.
• Production Linked Incentive (PLI) Schemes: These schemes provide incentives linked directly to incremental production and sales, encouraging firms to scale up manufacturing in India.
  • PLI programmes cover sectors such as electronics, pharmaceuticals, automobiles, solar modules, textiles, and advanced chemistry cell batteries. 
  • PLIs aim to embed Indian firms more deeply into global value chains by rewarding scale, efficiency, and exports.
• Infrastructure-Led Industrial Growth: Programmes such as PM Gati Shakti and National Logistics Policy focus on integrated planning across railways, roads, ports, airports, and logistics parks.
  • Dedicated freight corridors, industrial corridors, and industrial parks are being developed to reduce logistics costs and improve connectivity between production centres and markets.
  • India has made steady progress, with logistics costs declining to around 7.97% of GDP in FY 2023–24, comparable with global benchmarks.
• Ease of Doing Business and Regulatory Reforms: These include simplification of company laws, rationalisation of labour codes, faster insolvency resolution, and digitisation of approvals and filings.
  • Policy efforts are increasingly focused on implementation quality—speed, predictability, and consistency at the state and local levels while formal regulations have improved.

Way Forward: Towards a Long-Term Manufacturing Strategy

• The proposed National Manufacturing Mission reflects an effort to align incentives, infrastructure, skilling, and innovation under a coherent long-term industrial strategy.

• The objective is not only to increase output, but to build deep technological capabilities, strengthen R&D ecosystems, and develop globally competitive firms in strategically important sectors.

Source: IE