Inside India’s Manufacturing Ambitions: A Complex Journey
India has long dreamed of establishing itself as a manufacturing powerhouse. The government has implemented various initiatives aimed at invigorating the sector, with mixed results. The flagship production-linked incentive (PLI) scheme, launched in 2020, aimed to attract domestic and foreign businesses to set up operations in India and contribute to the “Make in India” initiative. With an ambitious outlay of ₹1.97 trillion (approximately $23 billion), this scheme targeted 14 key industries including aerospace, automotive, electronics, pharmaceuticals, and textiles. However, despite lofty aspirations, the results have been disappointing.
The Reality of Manufacturing Metrics
The PLI scheme had set an ambitious target to elevate manufacturing’s contribution to GDP to 25% by 2025. Yet, as reported in early 2025, manufacturing’s share fell to 14%, a decline from over 15% when the scheme was first introduced. Furthermore, the projected production value of ₹15.52 trillion stood at only about ₹14 trillion as of November 2024. Such figures have prompted speculation about the possible lapse of the PLI scheme, reflecting the skepticism surrounding its effectiveness.
While some companies benefitted from the subsidies, others faced delays in payouts or were unable to kickstart production altogether. The Indian Ministry of Commerce and Industry has characterized the PLI program as a success, highlighting job creation and boosted exports, but these claims contrast sharply with the stark statistics.
Systemic Challenges in Manufacturing
The challenges facing India’s manufacturing aspirations are intertwined with deeper, systemic issues beyond the immediate outcomes of the PLI scheme. Experts emphasize that the problems extend into policy shortcomings that have historically shielded domestic industry from competition, ultimately stunting growth.
Regulatory burdens, outdated labor laws, and complex business operation procedures have created a landscape that is less favorable for manufacturing. Additionally, India’s economy has largely evolved into a service-oriented model, resulting in a labor force that is not adequately trained for manufacturing roles. This skills gap, particularly evident in sectors like textiles, further complicates India’s efforts to keep pace with rivals such as Vietnam and Bangladesh, which benefit from cheaper labor and favorable trade conditions.
Potential Assets: A Young Consumer Base
Despite these challenges, India possesses significant advantages, particularly its young and increasingly urban population. With rising disposable incomes, there is a growing demand for quality products, which attracts global manufacturers looking to establish a foothold in the market.
Companies like Apple’s supplier Foxconn and major Indian conglomerates such as Reliance Industries and Mahindra and Mahindra have expressed commitment to investing in India through the PLI initiative. This burgeoning market creates an attractive environment for businesses, prompting interest even from former players like Ford Motors, who are now reconsidering their exit strategy.
It’s not just demographic advantages that are at play. Geopolitical shifts, notably trade tensions between the U.S. and China, position India as a strategic manufacturing location. The growing uncertainty around tariffs makes India an appealing alternative for companies that wish to maintain their manufacturing capacities while minimizing risks.
Navigating Tariff Risks and Opportunities
However, India’s journey towards becoming a manufacturing hub is not without its risks. An anticipated increase in U.S. tariffs poses a potential threat to India’s appeal as a manufacturing destination. This could erode the competitive edge that India hopes to establish in the international market.
Despite these challenges, the Indian government is actively seeking trade agreements and measures to bolster its export-capable sectors, with an eye on achieving ambitious export targets. Commerce and Industry Minister Piyush Goyal has set a vision for India’s overall exports, aiming for $2 trillion by 2030, which will include goods and services.
Future Directions and Free Trade Initiatives
Strengthening Free Trade Agreements (FTAs) could significantly influence India’s manufacturing landscape, making it easier for local businesses to compete globally. Currently, India has 13 FTAs, which is fewer than markets like Vietnam, further emphasizing the necessity for the country to enhance its trading relationships.
Lowering trade barriers will facilitate more favorable conditions for both domestic firms and foreign investors, propelling growth within the sector. As industry experts argue, successful trade agreements can reduce costs and enhance candidacy for foreign companies contemplating entry into the Indian market.
What’s on the Horizon?
Amidst this complex backdrop, economic indicators such as the Purchasing Managers’ Index (PMI) and consumer sentiment will provide critical insights into the resilience of India’s manufacturing sector. Upcoming reports from key economies will also shed light on global trade dynamics, shaping investor sentiment and market strategies to match an ever-evolving landscape.
As India continues to navigate these turbulent waters, its commitment to becoming a manufacturing heavyweight remains strong, yet the path is fraught with both opportunities and challenges that will demand careful navigation in the years to come.