India’s Manufacturing Sector: Aiming for Global Competitiveness
India’s commitment to enhancing its manufacturing sector is evident as the nation seeks to diversify production, elevate traditional industries such as automobiles, and foster a robust, globally competitive supply chain ecosystem. This strategic shift is part of broader national goals outlined in key programs such as the Production-Linked Incentive (PLI) scheme, aimed at bolstering manufacturing across 14 critical sectors.
Government Initiatives and Programs
The Indian government is determined to increase the manufacturing sector’s contribution to the national economy. The PLI scheme is pivotal in this transformation, incentivizing manufacturers to invest in specified sectors. Complementing this are various state-level industrial policies that cater to local manufacturing needs.
Recent years have seen a steady expansion of the manufacturing sector, yet India has not fully harnessed its potential workforce and vast domestic market. However, the landscape is changing, driven by an influx of foreign investments and multinational corporations realigning their supply chains to move away from reliance on China.
Manufacturing Output Growth
In the fiscal year 2024-2025, India experienced significant growth in manufacturing output, registering a rate of 4.26 percent, up from 1.4 percent in 2023-24. This upward trend presents a promising trajectory as the country adapts to the evolving global economic environment.
Purchasing Managers’ Index (PMI)
The PMI is a key economic indicator providing insights into manufacturing activity. Based on monthly surveys, it measures new orders, production, employment, delivery times, and inventory levels. For instance, in August 2025, the PMI stood at an impressive 59.3, signifying robust expansion in business conditions well above the neutral mark of 50.
How PMI is Calculated
The PMI calculation involves a survey sent to manufacturing firms, focusing on factual elements rather than subjective opinions. The components contributing to PMI include new orders (30%), output (25%), and employment (20%), among others. Each month’s figure provides valuable insights into business sentiment and economic health.
Index of Industrial Production (IIP)
The IIP is another essential indicator that tracks growth in key sectors—mining, manufacturing, and electricity. Manufacturing dominates this index, responsible for approximately 77.63 percent of total industrial production. Recent data indicates steady growth, with significant contributions from basic metals and electrical equipment.
Monthly IIP Growth Rates
- August 2025: 4.0%
- July 2025: 3.5%
- June 2025: 1.5%
The IIP data reflects that manufacturing has shown resilience, with many industry sectors reporting positive growth against the challenges posed by global economic fluctuations.
GDP Growth and Sector Contributions
India’s GDP growth rate remains a focal point for the industrial landscape. As of September 2025, real GDP growth for 2025-26 is estimated at 6.5%, reflecting strong economic fundamentals. The sectoral contributions depict services leading at 54.93%, followed by industry at 27.13%, with manufacturing specifically accounting for about 14% of the GDP.
Employment in Manufacturing
The manufacturing sector also plays a crucial role in employment generation. Data indicates a gradual recovery post-pandemic, with employment in manufacturing increasing from 16.6 million in 2020 to 18.49 million in 2023. This rebound highlights the sector’s potential to drive job creation further.
Production-Linked Incentives: A Catalyst for Growth
The PLI scheme, launched in 2020, has expanded to include 14 sectors, with cumulative investments reaching an impressive INR 1.46 trillion (approximately US$16.06 billion) by 2024. Expected future investments could breach INR 2 trillion as more companies engage with India’s manufacturing landscape.
FDI and Foreign Investment Landscape
Foreign Direct Investment (FDI) plays a critical role in modernizing and expanding India’s manufacturing capabilities. The FDI policy permits up to 100% foreign investment in most sectors under the automatic route. The increased FDI inflows speak to rising global confidence in India’s market, with significant investments flowing into electronics, automotive, and consumer goods sectors.
Policy Reforms and Global Positioning
India’s policies, such as the “Make in India” initiative, have significantly repositioned the country as an appealing destination for manufacturing investments. Reforms aimed at improving ease of doing business, coupled with reduced corporate tax rates and simplified compliance procedures, strengthen India’s posture as a global manufacturing hub.
State-Level Policies and Initiatives
State governments play an essential role in promoting manufacturing through localized policies. Each Indian state possesses unique initiatives tailored to enhance sector-specific growth. These range from textile and electronics manufacturing to the promotion of sustainable practices in rural and urban settings.
Sectoral Opportunities and Challenges Ahead
As India works towards a balanced economic structure that includes both services and manufacturing, the focus on sectors with high growth potential is crucial. Areas like electronics, chemicals, and automation represent burgeoning opportunities that can attract further investment, catalyzing sustained economic growth.
By continuing to streamline policies and enhance manufacturing capabilities, India aims to solidify its role as a vital player in the global manufacturing ecosystem while simultaneously fostering economic resilience and job creation.