India, the seventh-largest economy in the world, has long struggled to significantly increase its manufacturing sector’s contribution to the GDP. Despite ambitious targets and numerous initiatives, manufacturing remains around 16% of the GDP, far from the desired 25%. The need for greater self-reliance and a robust manufacturing base has become increasingly evident, especially in light of global crises.
Prime Minister Narendra Modi has emphasized the importance of advancing the manufacturing sector, advocating for India to become a trusted hub in the global supply chain. This vision encompasses the entire value chain, from design to manufacturing, for both small components and large-scale products.
Challenges Hindering Growth
The path to scaling up manufacturing in India is fraught with challenges. Experts point to a lack of research and development, inadequate land reforms, delays in clearances, and insufficient innovation as major obstacles. Sanjay Kathuria, Visiting Senior Fellow at the Centre for Social and Economic Progress, highlights that India has not addressed core issues related to land, labour, regulations, and skills.
“The main issue remains whether we have changed the disincentives against firms to gain scale,” Kathuria notes. “While there have been serious attempts by the government at deregulation, we are yet to see a turnaround in private investments.” He also points out that India has been reluctant to liberalize trade policies, which has further hindered progress.
The Role of Land Reforms
N.R. Bhanumurthy, Director of the Madras School of Economics, emphasizes the need for land reforms to improve competitiveness. “We have done capital market and labour reforms, but land reforms are still in the nascent stage,” he says. The complexity of land acquisition and regulatory hurdles has made it difficult for entrepreneurs to set up factories.
Initiatives and Progress
Despite these challenges, the Indian government has launched several initiatives to boost manufacturing. The Make in India campaign, initiated in 2014, aims to turn the country into a global manufacturing hub. Over the years, various measures have been introduced, including Production Linked Incentives, Employment Linked Incentives, and a Rs 1 lakh crore Research Development and Innovation Fund.
Recently, Finance Minister Nirmala Sitharaman announced tax sops to boost contract manufacturing, electronics, and data centres. These sectors are seen as new growth and employment drivers. The government has also approved 12 semiconductor projects across six states, indicating progress in the semiconductor supply chain.
Success Stories
Some of these measures have already shown positive results. India is now the world’s second-largest mobile phone manufacturer, with over one in four devices being made in the country. Electronics production has increased seven-fold, and mobile phone production has seen a 32-fold increase over the last 11 years. These successes highlight the potential for growth in the manufacturing sector.
The Unique Advantage of Indian Manufacturing
India’s manufacturing sector is unique in its evolution alongside services and technology. Vishal Sharma, Executive Director and CEO of Godrej Industries, points out that India’s model is more plural, combining strong information technology and engineering talent with capabilities in complex chemistry and pharmaceuticals. This convergence accelerates competitiveness across sectors.
“Our model is more plural. We have strong information technology and engineering talent sitting well with genuine capabilities in complex chemistry and pharmaceuticals,” Sharma says. This diversity gives Indian companies access to digital capabilities, engineering talent, scientific expertise, and research and development strengths.
Moving Up the Value Chain
Indian manufacturers are increasingly focusing on moving up the value chain. This means creating greater value through design, innovation, knowledge, sustainability, consistency, and service. Abhijit Roy, MD & CEO of Berger Paints India, emphasizes that customers are buying complete solutions rather than just products.
“Increasingly, customers are buying complete solutions rather than just products,” Roy says. “That is an area where Indian companies can differentiate themselves.” This shift towards value-added, innovation-driven manufacturing is better equipped to compete globally.
The journey to transforming India’s manufacturing sector is complex and multifaceted. While challenges remain, the initiatives and successes highlight the potential for India to become a global manufacturing leader. With continued efforts in land reforms, innovation, and policy deregulation, India can overcome these hurdles and achieve its manufacturing ambitions.
