India’s Manufacturing Leap: From Scale to Global Hub

Context

New Manufacturing Roadmap: NITI Aayog’s report “Key Sectors to Position India as a Global Manufacturing Hub” identifies chemicals, textiles, telecom and networking equipment, and solar PV manufacturing as four pathways to global manufacturing leadership, within a wider exercise covering 12 priority sectors.
Its central emphasis is on value-chain upgrading, advanced manufacturing, competitive enterprises and global value-chain (GVC) integration.
Mobile Manufacturing Transition: The ₹62,500-crore Mobile Phone Manufacturing Scheme (MPMS), approved for FY2026–27 to FY2030–31, seeks to deepen domestic value addition, supply-chain resilience and Indian design and R&D capabilities.
It marks a shift from the earlier emphasis on scale towards greater technological and value-chain depth.

What Is the Current Status of India’s Manufacturing Sector?

Growth Momentum: Manufacturing GVA grew 7.72% in Q1 and 9.13% in Q2 FY2025–26, indicating strengthening activity.
Technology Upgrading: Medium- and high-technology activities account for 46.3% of manufacturing value added.
Industrial Scale: India remains the second-largest global producer of steel and cement, while automotive production grew nearly 33% during FY2015–FY2025.
Export Dynamism: Electronics rose from the 7th- to the 3rd-largest export category between FY2022 and FY2025.
Structural Position: Under the revised 2022–23-base national accounts, manufacturing accounted for 14.8% of total GVA in FY2025–26.

What Policies and Schemes Support Manufacturing?

Mission-Led Industrial Architecture: The National Manufacturing Mission (NMM), announced in Union Budget 2025–26, provides an overarching framework for manufacturing competitiveness, with emphasis on ease and cost of doing business, future-ready workforce, MSME dynamism, technology availability and quality products.
Its clean-tech component covers solar PV cells, EV batteries, electrolyzers, wind turbines and grid-scale batteries, thereby linking manufacturing expansion with emerging technology-intensive industries.
The Mission seeks to raise manufacturing’s contribution to 25% of GDP by 2035 and strengthen India’s integration with global value chains.
Production-Linked Scale: The PLI framework covers 14 strategic sectors with an approved outlay of ₹1.91 lakh crore.
By December 2025, it had attracted more than ₹2.16 lakh crore of investment, generated incremental production/sales exceeding ₹20.41 lakh crore and created over 14.39 lakh jobs.
Its sectoral coverage spans electronics, pharmaceuticals, automobiles and auto components, advanced chemistry-cell batteries, solar PV, telecom and networking products, textiles, specialty steel and other strategic industries, creating a production-scale mechanism across diverse manufacturing value chains.
Upstream Value-Chain Deepening: The Electronics Components Manufacturing Scheme (ECMS) targets the critical gap between final assembly and component production.
By August 2026, 106 applications across 15 States had been approved, involving proposed investments of ₹69,548 crore and expected production of ₹5.34 lakh crore.
In semiconductors, Semicon India 1.0 had an original outlay of ₹76,000 crore, while Semicon 2.0, approved in July 2026, raises the overall commitment to ₹1,27,500 crore; by July 2026, 12 manufacturing units had been approved under the first programme with investments exceeding ₹1.64 lakh crore.
Sector-Specific Manufacturing Ecosystems: Policy support extends beyond generic production incentives.
In solar PV, the ₹24,000-crore PLI targets high-efficiency manufacturing across polysilicon-to-module stages, while the Approved List of Models and Manufacturers (ALMM) creates a defined domestic demand framework.
In textiles, PLI for Textiles, PM MITRA Parks, National Technical Textiles Mission, National Fibre Mission and Mission for Cotton Productivity address different stages of the textile value chain.
Integrated Manufacturing Hubs: India is increasingly moving towards cluster- and hub-based industrial development, where manufacturing is supported by common infrastructure, logistics, testing facilities and supplier networks.
Initiatives such as PM MITRA textile parks, Chemical Parks, industrial corridors and sector-specific clusters aim to create integrated ecosystems rather than isolated production units. This can reduce logistics costs, promote economies of scale and help MSMEs integrate into global value chains.
Budget 2026–27 Manufacturing Push: The Budget further strengthened India's manufacturing strategy by focusing on strategic and frontier sectors such as semiconductors, electronics components, biopharmaceuticals, rare-earth permanent magnets, chemicals, capital goods and textiles.
Key measures include Biopharma SHAKTI, enhancement of the ECMS outlay, a Rare Earth Permanent Magnets Scheme, Chemical Parks, high-tech tool rooms and support for container manufacturing.
Together, these measures aim to deepen domestic value addition, reduce critical import dependence and build resilient manufacturing ecosystems.
MSME and Industrial-Finance Support: The Economic Survey 2025–26 identifies MSMEs as accounting for 35.4% of manufacturing, 48.58% of exports and 31.1% of GDP, making their integration essential to manufacturing expansion.
The Self-Reliant India (SRI) Fund, designed with a ₹50,000-crore equity-support framework, had assisted 682 MSMEs with investments of ₹15,442 crore by November 2025.
This complements credit and equity channels needed by smaller enterprises to participate in industrial supply chains.
Trade-Facilitation and Production Flexibility: The DGFT’s Special Export Obligation Discharge Certificates (EODC) Drive addressed pending Export Obligation Discharge Certificates under the Advance Authorisation and EPCG schemes.
While the eligible SEZ-DTA concessional-duty framework permits specified domestic sales up to 30% of peak export value, subject to a minimum 20% value addition and other safeguards.
Together, these measures address different points in the manufacturing-trade interface: one reduces procedural friction for exporters, while the other gives eligible export-oriented manufacturing capacity greater flexibility to serve domestic demand.

What Is Holding India’s Manufacturing Ambition Back?

Demand Visibility and Measurement Uncertainty: Manufacturing faces a difficult combination of softening demand and uncertainty over the strength of measured real activity.
The seasonally adjusted manufacturing PMI fell to 53.5 in July 2026, its lowest level since August 2021, while core-sector growth eased to 5.4%; part of the latter reflected favourable base effects rather than broad-based momentum.
Simultaneously, the revised national-accounts series shows manufacturing real GVA growing much faster than IIP, with the divergence reaching about 15% points in 2025–26.
The weakening historical correlation between the two measures complicates assessment of underlying industrial dynamism.
Scale Without Sufficient Industrial Depth: India’s manufacturing value added was about $532.92 billion in 2025, against $4.82 trillion in China. NITI Aayog finds that India’s share of global manufacturing value added increased from 1.5% in 1995 to 3.2% in 2023, but remains far below China’s nearly 32%.
More importantly, manufacturing’s share in India’s GVA has remained broadly range-bound at 16–18% for two decades.
The underlying challenge is industrial depth: insufficiently dense networks of component producers, machinery suppliers and specialised manufacturing ecosystems limit the domestic capture of value beyond final assembly.
Capital–Productivity and Infrastructure Frictions: Manufacturing has experienced a widening gap between capital intensity and capital efficiency–capital intensity reached 29.8 times in FY24, while capital efficiency has stabilised only around 15 times after a prolonged decline.
Labour-productivity growth also fell from 25.29% in FY22 to 13.09% in FY23 and –0.35% in FY24.
These efficiency constraints are compounded by logistics costs of around 8% of GDP, multimodal-connectivity gaps and power reliability problems, raising the cost of maintaining globally competitive production.
Fragmented Supplier and Firm Structure: Over 95% of manufacturing units are MSMEs, but many operate below efficient scale, with constraints in technology adoption, capital, productivity and GVC integration.
This fragmentation is particularly consequential in textiles, where weaving and processing remain dispersed and employee productivity is only 0.50 of the overall industry benchmark.
The weak progression from smaller firms to capable medium-scale suppliers restricts consistency, scale economies and the emergence of globally competitive production networks.
Upstream Dependence and Market-Access Vulnerability: Sectoral value chains remain exposed to critical imported inputs.
In solar PV, polysilicon import dependence is close to 100%, wafer dependence exceeds 90%, and cell dependence exceeds 60%; in chemicals, inadequate feedstock availability and import dependence constrain downstream value addition.
Textiles face limited availability and higher costs of PTA and MEG, while telecom equipment has low localisation in high-value 4G/5G components and nearly 98% of equipment demand originates from private telecom providers, creating a difficult scale-and-market-access environment for domestic manufacturers.

What Must India Do to Move from Scale to Manufacturing Depth?

Supplier Graduation: Large manufacturers should move beyond transactional vendor expansion towards structured supplier-development compacts with MSMEs, covering process engineering, statistical quality control, lean production, delivery reliability and component certification.
Supplier performance should be assessed through measurable milestones, defect rates, rejection levels, lead times, productivity and value addition, allowing capable firms to graduate from subcontracting to Tier-1/Tier-2 suppliers.
This would strengthen domestic value addition, improve MSME productivity and create durable linkages with global production networks.
NITI Aayog’s analysis of MSME competitiveness similarly identifies stronger supply-chain integration, technology adoption and GVC participation as critical to competitiveness.
Capability-Linked Technology Transfer: Foreign investment should be evaluated not merely by capital inflows or installed capacity, but by the depth of capability created within India.
Investment agreements and post-investment assessment should track local engineering teams, process know-how, domestic supplier development, design capability, patent co-development and higher-value R&D functions.
This would shift the objective from assembly-led FDI towards technology absorption and endogenous technological capability, helping Indian firms progressively occupy higher-value segments of GVCs.
Productivity Frontier: India needs a firm-level manufacturing benchmarking system that enables MSMEs to compare labour productivity, machine utilisation, energy intensity, rejection rates, downtime and delivery performance with relevant sectoral and international benchmarks.
Rather than imposing uniform targets, the system should identify each firm's binding productivity constraint, whether technology, skills, process design, quality management or resource utilisation, and prescribe improvement pathways accordingly.
This is particularly important because recent ASI evidence shows that manufacturing GVA can expand even while labour productivity weakens.
Cluster–Freight Integration: New industrial clusters should be planned around the physical characteristics of their output and supply chains, rather than treating logistics as a downstream infrastructure issue.
Bulk industries such as steel, cement and chemicals require rail, port and coastal-shipping connectivity, whereas electronics and precision engineering require reliable, time-sensitive multimodal logistics.
Pre-production logistics assessment should therefore examine freight intensity, inventory costs, turnaround time, port connectivity and multimodal reliability.
This would reduce logistics-induced competitiveness gaps and improve the predictability demanded by GVCs.
Green Export Capability: Exporters should build firm-level capacity for product carbon accounting, lifecycle assessment, traceability, eco-design, recycled-content verification and internationally recognised testing.
Instead of treating environmental requirements as a compliance cost, manufacturers should use them to redesign products and processes around resource efficiency, lower embodied carbon and circularity.
Low-carbon production is increasingly relevant across manufacturing value chains as global buyers incorporate sustainability requirements into sourcing decisions.
This can convert green compliance into product differentiation, protect market access and enable movement towards higher-value exports.

Concluding Insight

India’s manufacturing opportunity now lies in converting scale into depth, capacity into capability and assembly into innovation. The decisive shift must be towards productive firms, deeper value chains, technological absorption and green competitiveness. If these dimensions reinforce one another, India can move from a manufacturing destination to a globally integrated manufacturing powerhouse.

UPSC Prelims Connect

Q. In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight? (2015)

(a) Coal production

(b) Electricity generation

(d) Steel production

Ans: (b)

UPSC Mains Connect

Q. “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product(GDP) in the post-reform period” Give reasons. How far are the recent changes in Industrial Policy capable of increasing the industrial growth rate? (2017)

Q. Normally countries shift from agriculture to industry and then later to services, but India shifted directly from agriculture to services. What are the reasons for the huge growth of services vis-a-vis the industry in the country? Can India become a developed country without a strong industrial base? (2014)

QuestlinkIAS Practice Question

Prelims:

Q. With reference to the policy framework for promoting manufacturing in India, consider the following statements:

The National Manufacturing Mission encompasses both manufacturing competitiveness and clean-technology manufacturing.
The Production Linked Incentive (PLI) framework extends across multiple sectors rather than being confined to electronics manufacturing.
The Electronics Components Manufacturing Scheme seeks to strengthen domestic production beyond the final-assembly stage.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(d) 1, 2 and 3

Ans: (d)

Mains:

Q. India’s manufacturing strategy is increasingly shifting from production expansion towards value-chain deepening. Examine the significance of this shift for India’s aspiration to emerge as a globally competitive manufacturing hub.

Source Editorial- Measuring manufacturing growth afresh: Three questions | The Indian Express