Introduction
Despite flagship initiatives such as Make in India, the manufacturing sector's share in India's GDP has remained stagnated at around 17%. Achieving the national target of elevating manufacturing to 25% of GDP necessitates eliminating deep-rooted structural impediments while actively pivoting towards technology-intensive sunrise industries.
Structural Bottlenecks in India's Manufacturing
Several enduring structural constraints hinder India's competitiveness relative to peer manufacturing economies:
- Factor Market Rigidities: Complex land acquisition procedures, restrictive labour laws, and disproportionately high logistics costs undermine cost-competitiveness against manufacturing alternatives such as Vietnam.
- The 'Missing Middle' Phenomenon: Over 99% of India's Micro, Small, and Medium Enterprises (MSMEs) remain micro-enterprises. Their lack of scale, limited access to formal credit, and low technological adoption prevent them from successfully integrating into Global Value Chains (GVCs).
- Upstream Import Dependencies: Indian manufacturing remains heavily exposed to external raw material supplies, notably Active Pharmaceutical Ingredients (APIs) in pharmaceuticals, and rare earths and critical minerals for battery storage.
- Low Domestic Value Addition: In sectors like consumer electronics, domestic operations are predominantly skewed toward basic assembly rather than component fabrication, driven by historical R&D deficits and weak industry-academia linkages.
Sunrise Sectors as Drivers of a Global Manufacturing Hub
Emerging sunrise sectors—such as electric vehicles, semiconductors, green hydrogen, and advanced electronics—provide a pivotal leapfrog opportunity for Indian industry:
- Deepening the Ecosystem via PLI: Targeted Production-Linked Incentive (PLI) schemes have propelled India to become the second-largest mobile phone manufacturer globally. Broadening this strategy to upstream components through schemes like the Electronic Component Manufacturing Scheme transitions domestic industry from mere assembly to high-value creation.
- Strategic Autonomy in Clean Technologies: Leveraging programs like the National Green Hydrogen Mission alongside domestic content mandates (such as the Approved List of Models and Manufacturers) enables domestic manufacturing to cater to India's expanding renewable capacity, substantially reducing solar cell import reliance.
- Global Value Chain Integration and Trade: Maximizing operational trade agreements—such as the UAE CEPA and Australia ECTA—is expanding high-tech exports. The emergence of smartphones among India's top export categories validates this targeted export orientation.
- Fostering R&D and Skilling: Leveraging institutions like the Anusandhan National Research Foundation (ANRF) builds robust industry-academia linkages to nurture homegrown capabilities in frontier domains like artificial intelligence and semiconductor design.
Conclusion
By combining comprehensive factor-market reforms with aggressive investments in sunrise sectors through targeted industrial policy, India can successfully transition from low-margin assembly to an innovation-led, value-creating manufacturing hub.