India's Manufacturing Evolution: From Capacity to Strategic Capability
India's manufacturing sector has regained significant momentum at a crucial juncture when global production networks are undergoing substantial reconfiguration amid geopolitical uncertainties. Worldwide, supply chains are diversifying, companies are actively seeking alternatives to single-country dependence, and industrial policy has returned to the forefront of economic strategy. Against this dynamic backdrop, India's manufacturing revival has established a robust foundation for the next phase of industrial growth.
As highlighted in the Economic Survey, sustaining this positive momentum will critically depend on strengthening competitiveness and augmenting manufacturing capabilities through deeper integration into global value chains. Over recent years, India's manufacturing policy has increasingly focused on lowering entry barriers through targeted incentives, substantial infrastructure investment, and systematic improvements in ease of doing business. These concerted efforts have successfully attracted investment and strengthened business confidence across multiple sectors.
The Strategic Imperative: Technology-Intensive Sectors
The task ahead involves complementing existing schemes with stronger industrial ecosystems and transitioning from mere capacity creation toward deeper capability building. Countries that command critical technologies, complex manufacturing processes, and trusted production capabilities enjoy significantly greater bargaining power in global markets. For India, this reality implies that the next phase of industrialisation must prioritize strategically important and technology-intensive sectors while simultaneously scaling up traditional manufacturing.
This strategic shift may entail higher experimentation and greater tolerance for firm-level failures as India builds its technological prowess. Already, India's manufacturing profile is beginning to move up the value chain, with visible gains in sectors that combine higher technology content, substantial value addition, and strong export potential. In electronics manufacturing, for instance, production has expanded approximately six-fold, while exports have grown nearly eight-fold over the past eleven years.
Similarly, India's pharmaceutical industry ranks among the world's largest by volume, supplying over half of global vaccine demand and a significant share of generic medicines worldwide. These sectors successfully combine scale, technology intensity, and tradability. Extending this transition across a broader set of industries will require improved private participation, stronger R&D-based innovations, deeper industry-academia linkages, faster absorption of advanced technologies by firms, and more robust skilling systems.
Spatial Organization and Industrial Clusters
As manufacturing capabilities deepen, the spatial organization of industry becomes increasingly important. India needs to intensify its approach to industrial clusters, particularly by addressing critical issues of scale. While clusters remain an important organizing principle, many existing clusters are too small or fragmented to deliver meaningful productivity and capability gains. The focus should therefore shift from simply creating clusters to enabling larger, deeper, and more integrated industrial ecosystems.
The next generation of industrial clusters is likely to be anchored increasingly in Tier-2 and Tier-3 cities. These locations offer several distinct advantages, including more affordable land and real estate, lower operating and wage costs, large labour pools, improved infrastructure, and better liveability compared to congested metropolitan areas.
Infrastructure, Logistics, and Quality Standards
Manufacturing competitiveness depends critically on the quality of infrastructure and logistics that connect firms to domestic and international markets. India has made steady progress on this front, with logistics costs declining and estimated at around 7.97 percent of GDP in FY 2023-24, broadly comparable with global benchmarks. Port efficiency has improved significantly, with several Indian ports featuring among the top 100 in the World Bank's Container Port Performance Index 2024.
Major initiatives such as PM Gati Shakti and the National Logistics Policy, combined with an accelerated pace of highway construction, are improving connectivity and coordination across transport modes. There remains substantial scope to further reduce logistics costs by rebalancing the freight mix. Road transport continues to carry a dominant share of freight, while rail and coastal shipping—more cost-effective for long-distance and bulk movement—remain underutilized.
Greater multimodal integration, with a higher share of freight shifting toward rail and waterways, can unlock the next round of efficiency gains. Quality Control Orders can also play a constructive role in strengthening manufacturing competitiveness, particularly in strategic and safety-critical sectors by progressively aligning with international standards. By enforcing minimum quality and standards compliance, they can incentivize domestic firms to upgrade capabilities and build credibility in global markets.
MSMEs and Regulatory Environment
Micro, Small, and Medium Enterprises (MSMEs) form the backbone of India's manufacturing ecosystem, contributing significantly to employment, output, and exports. However, they continue to face a substantial finance gap. Recent gains in formalization, improved access to finance, and deeper supply-chain integration have strengthened their role in industrial growth.
The next significant opportunity lies in deeper MSME participation in strategic value chains—as suppliers of components and specialized services—supported by concerted efforts to bridge credit gaps, strengthen skilling initiatives, accelerate technology adoption, and expand quality infrastructure at the ecosystem level.
While regulatory reforms have improved formal ease-of-doing-business conditions, manufacturing firms respond most strongly to speed, predictability, and consistency in operations. Delays in land acquisition, utilities provisioning, regulatory approvals, and dispute resolution significantly affect investment decisions and scale outcomes. As manufacturing becomes more spatially concentrated, the role of state and local governments will be decisive.
Stable regulatory regimes, functional single-window systems, and time-bound approvals can substantially improve project execution and encourage long-term investments. Ease of doing business, in this context, is defined less by international rankings and more by the daily experience of firms on the factory floor.
The Path Forward: National Manufacturing Mission
India's next manufacturing leap will be defined not just by how much it produces, but by what it produces and how strategically indispensable it becomes in global value chains. The proposed National Manufacturing Mission offers a comprehensive platform to align reforms, skilling initiatives, infrastructure development, and innovation under a coherent long-term industrial strategy.
While these enablers are essential, the ultimate objective must be developing deeper technological capability, establishing stronger R&D systems, and nurturing globally competitive firms embedded in strategic sectors. This requires sustained policy focus, substantial investment in research and development, and collaborative efforts between government, industry, and academic institutions.
The transformation of India's manufacturing sector represents a critical opportunity to enhance economic resilience, create high-quality employment, and establish the country as a global manufacturing powerhouse with advanced technological capabilities across strategic industries.
