{"id":62635,"date":"2025-12-26T18:42:11","date_gmt":"2025-12-26T13:12:11","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=62635"},"modified":"2025-12-26T18:42:26","modified_gmt":"2025-12-26T13:12:26","slug":"manufacturing-sector-of-india","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/26-12-2025\/manufacturing-sector-of-india","title":{"rendered":"India\u2019s Manufacturing Sector\u00a0"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/Indian Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>India\u2019s manufacturing sector has long underperformed relative to its potential, constrained by structural inefficiencies, policy missteps, and a premature leap into services despite several policy pushes.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Background: India\u2019s Manufacturing Sector<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>It has evolved from a modest post-independence base to a strategic pillar of economic growth.\n<ul class=\"wp-block-list\">\n<li>India adopted a <strong>mixed economy model<\/strong> with a strong emphasis on public sector-led industrialization post-independence.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>The <strong>Second Five-Year Plan (1956\u201361)<\/strong> laid the foundation for heavy industries, steel plants, and public enterprises.\n<ul class=\"wp-block-list\">\n<li>It contributed around 15\u201317% to GDP by the 1990s.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>India\u2019s manufacturing sector has lagged behind despite starting from similar economic positions as <strong>China and South Korea<\/strong> in the early 20th century.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Current Status<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Manufacturing\u2019s contribution to India\u2019s GDP has broadly hovered in the mid-teens (around 13\u201317 percent in recent decades), compared to roughly <strong>25\u201329 percent in China, around 27 percent in South Korea, and about 24\u201325 percent in Vietnam<\/strong>.<\/li>\n\n\n\n<li>On employment, over<strong> 45 percent of India\u2019s workforce is still in agriculture<\/strong>, while only about 11.4 percent is employed in manufacturing and roughly 29 percent in services.<\/li>\n\n\n\n<li>A large share of manufacturing employment is informal, which constrains formal training, technology absorption, quality upgradation and stable industrial relations.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Why Manufacturing Has Lagged in India?<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Low Productivity and Fragmented Industry: <\/strong>Most Indian manufacturers are <strong>small-scale<\/strong> units with limited automation and poor economies of scale.\n<ul class=\"wp-block-list\">\n<li>According to CMIE data, the average productivity per worker in Indian manufacturing is <strong>less than 20% of China<\/strong>.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Infrastructural Deficiencies: <\/strong>Persistent issues in <strong>logistics, power reliability, and port connectivity<\/strong>, which increase costs by 14\u201318% of product value (compared to 8% in East Asia).\n<ul class=\"wp-block-list\">\n<li>Even after schemes like PM Gati Shakti, <strong>execution delays<\/strong> remain a major barrier.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Policy Instability and Regulatory Complexity: <\/strong>India\u2019s <strong>frequent policy reversals<\/strong>, overlapping compliance from Centre and States, and especially around import tariffs and Production-Linked Incentive (PLI) guidelines.<\/li>\n\n\n\n<li><strong>Weak Domestic Supply Chains: <\/strong>India imports a large share of intermediate goods stifling the growth of indigenous supply chains.<\/li>\n\n\n\n<li><strong>Skill Gaps: <\/strong>Only about <strong>5% of India\u2019s workforce is formally skilled<\/strong>, compared to <strong>24% in China<\/strong> and <strong>52% in the USA.<\/strong>\n<ul class=\"wp-block-list\">\n<li>Vocational programs like <em>Skill India<\/em> have limited industry linkage, leading to skill demand mismatches.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Land and Labour Market Rigidities: <\/strong>Land acquisition remains costly and time-consuming.\n<ul class=\"wp-block-list\">\n<li>Setting up an industrial plant can take <strong>3\u20135 years<\/strong>, versus 18 months in Vietnam.<\/li>\n\n\n\n<li>Labour laws still cause hesitation for large-scale manufacturing employment.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Weak R&amp;D and Innovation Culture: <\/strong>Manufacturing R&amp;D in India is less than <strong>0.7% of GDP<\/strong>, versus <strong>2.1% in China<\/strong>.\n<ul class=\"wp-block-list\">\n<li>Indian firms often \u2018assemble\u2019 rather than \u2018innovate\u2019, relying heavily on foreign designs.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Domestic Demand Constraints: Income inequality limits domestic demand<\/strong> for manufactured goods beyond basic products.\n<ul class=\"wp-block-list\">\n<li>The consumption base for durable goods is still narrow.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Policy Bias Toward Services: <\/strong>Government incentives, education, and infrastructure have historically favored IT and services over manufacturing.\n<ul class=\"wp-block-list\">\n<li>As a result, India <strong>\u2018skipped industrialization\u2019,<\/strong> <strong>jumping from agriculture to services.<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Does India Resemble Dutch Disease?<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Dutch Disease <\/strong>describes how the boom of one sector (often resource-based) crowds out others, particularly <strong>tradable sectors<\/strong> like manufacturing, through two main channels:\n<ul class=\"wp-block-list\">\n<li><strong>Wage Effect:<\/strong> Labour is pulled towards the booming sector, raising overall wages.<\/li>\n\n\n\n<li><strong>Exchange Rate Effect:<\/strong> Increased exports appreciate the real exchange rate, making other exports less competitive.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>In India, <strong>high government salaries<\/strong> in the public sector <strong>acted as the \u2018booming sector\u2019, <\/strong>drawing <strong>labour away from manufacturing<\/strong> and driving up wages across the economy. It had three major consequences:\n<ul class=\"wp-block-list\">\n<li><strong>Manufacturing lost competitiveness<\/strong> because firms couldn\u2019t match government pay scales.<\/li>\n\n\n\n<li><strong>Domestic prices rose<\/strong>, making imports cheaper and domestic goods relatively expensive.<\/li>\n\n\n\n<li><strong>Real exchange rate appreciation<\/strong> occurred, even without a change in nominal currency value, further hurting exports.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>In essence, India experienced a <strong>policy-induced Dutch disease<\/strong>, where the expansion of a high-wage public sector distorted incentives against industrial growth.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Policy Reforms Fueling Growth<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Production-Linked Incentive (PLI) Schemes:<\/strong> Targeting 14 key sectors, including electronics, automotive, and pharmaceuticals, the PLI schemes aim to boost domestic production, attract FDI, and create jobs.<\/li>\n\n\n\n<li><strong>PM MITRA Parks:<\/strong> These integrated textile parks are designed to enhance scale and efficiency in the textile value chain, promoting exports and employment.<\/li>\n\n\n\n<li><strong>National Manufacturing Mission: <\/strong>It was announced in the Union Budget 2025\u201326, as a long-term strategic roadmap that integrates policy, execution, and governance into a single, unified vision.\n<ul class=\"wp-block-list\">\n<li>It prioritizes <strong>clean-tech manufacturing<\/strong> from solar PV modules and EV batteries to green hydrogen and wind turbines ensuring India\u2019s rise in global supply chains aligns with its <strong>net-zero 2070 commitment.<\/strong><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large is-resized\"><img data-dominant-color=\"d3dce5\" data-has-transparency=\"false\" loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"747\" src=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/image-137-1024x747.png\" alt=\"\" class=\"not-transparent wp-image-62636\" style=\"--dominant-color: #d3dce5; aspect-ratio:1.3708340770584186;width:570px;height:auto\" srcset=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/image-137-1024x747.png 1024w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/image-137-300x219.png 300w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/image-137-768x560.png 768w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/image-137.png 1184w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<h2 class=\"wp-block-heading\"><strong>Building Industrial Ecosystems<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Skill India Mission:<\/strong> Trains youth in industry-relevant skills, with a focus on Industry 4.0 technologies like AI, robotics, and additive manufacturing.<\/li>\n\n\n\n<li><strong>Gati Shakti Master Plan:<\/strong> Integrates transport and logistics infrastructure to reduce costs and improve supply chain efficiency.<\/li>\n\n\n\n<li><strong>Digital India and Startup India:<\/strong> Encourage innovation and MSME participation in advanced manufacturing.\n<ul class=\"wp-block-list\">\n<li>These efforts aim to create industrial clusters that mirror the success of hubs like Tamil Nadu (automobiles), Gujarat (chemicals), and Karnataka (electronics).<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Way Forward: Toward Global Manufacturing Leadership<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>India\u2019s vision is to become a global manufacturing hub by 2047. The NITI Aayog\u2019s Roadmap to Global Leadership in Advanced Manufacturing outlines key strategies:\n<ul class=\"wp-block-list\">\n<li><strong>Digital Transformation:<\/strong> Embracing Industry 4.0 technologies like AI, IoT, and robotics to modernize production.<\/li>\n\n\n\n<li><strong>Green Manufacturing:<\/strong> Integrating sustainability and circular economy principles to reduce environmental impact.<\/li>\n\n\n\n<li><strong>Cluster Development:<\/strong> Building industrial ecosystems in states like Tamil Nadu, Gujarat, and Maharashtra to foster innovation and scale.<\/li>\n\n\n\n<li><strong>R&amp;D Investment:<\/strong> Increasing public-private collaboration in research to drive product innovation and quality.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>The goal is to raise manufacturing\u2019s share in GDP to 25% and generate 100 million jobs<strong> (National Manufacturing Policy),<\/strong> positioning India as a resilient and inclusive industrial economy.<\/li>\n<\/ul>\n\n\n\n<p><a href=\"https:\/\/www.thehindu.com\/business\/Economy\/why-manufacturing-has-lagged-in-india\/article70433540.ece\" target=\"_blank\" rel=\"noopener\">Source: TH<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p><strong>Context<\/strong><\/p>\n<li class=\"ms-5\">India\u2019s manufacturing sector has long underperformed relative to its potential, constrained by structural inefficiencies, policy missteps, and a premature leap into services despite several policy pushes.<\/li>\n<p><\/p>\n<p><strong>Background: India\u2019s Manufacturing Sector<\/strong><\/p>\n<li class=\"ms-5\">It has evolved from a modest post-independence base to a strategic pillar of economic growth.<\/li>\n<li class=\"ms-5\">The Second Five-Year Plan (1956\u201361) laid the foundation for heavy industries, steel plants, and public enterprises.<\/li>\n<li class=\"ms-5\">It contributed around 15\u201317% to GDP by the 1990s.<\/li>\n<li class=\"ms-5\">India\u2019s manufacturing sector has lagged behind despite starting from similar economic positions as China and South Korea in the early 20th century.<\/li>\n<p><a href=\"https:\/\/www.nextias.com\/ca\/current-affairs\/26-12-2025\/manufacturing-sector-of-india\" class=\"btn btn-primary btn-sm float-end\">Read\u00a0More<\/a><\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-62635","post","type-post","status-publish","format-standard","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/62635","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=62635"}],"version-history":[{"count":2,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/62635\/revisions"}],"predecessor-version":[{"id":62650,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/62635\/revisions\/62650"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=62635"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=62635"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=62635"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}