Why in News?
Data released in September 2025 showed India’s Index of Industrial Production (IIP) growing 3.5 % year‑on‑year in July, with manufacturing output rising 5.4 %. The HSBC Manufacturing Purchasing Managers’ Index (PMI) hit 59.3, its highest level in sixteen months. These figures suggest that the post‑pandemic revival in India’s manufacturing sector is gaining momentum.
Current Data
- IIP growth: The index increased from 1.5 % in June to 3.5 % in July 2025.
- Exports: Merchandise exports rose by about 2.5 % year‑on‑year between April and August 2025, driven by electronics, pharmaceuticals and automotive goods.
- Employment: Unemployment fell to around 5 %, and the female worker participation rate climbed to 32 %, indicating more inclusive job growth.
- Foreign investment: Foreign direct investment (FDI) inflows reached US$ 81 billion in FY25, up 14 % from the previous year, with manufacturing FDI growing 18 %.
Drivers of Growth
- Production‑Linked Incentive (PLI) scheme: The ₹1.97 lakh‑crore scheme spans 14 sectors, offering subsidies and tax rebates to boost domestic production and exports.
- National Manufacturing Mission: Integrates multiple ministries to push clean‑tech manufacturing, including solar panels, electric vehicles and green hydrogen.
- Infrastructure push: Projects like PM GatiShakti, industrial corridors and dedicated freight lines are lowering logistics costs.
- Tax reforms: A simplified GST regime with two slabs and faster refunds has reduced compliance costs and stimulated demand.
- Electronics revolution: India’s mobile manufacturing units have multiplied from 2 to over 300 in a decade, with exports exceeding ₹2 lakh crore, reducing import dependence.
Impact on the Economy
- GDP contribution: Manufacturing currently accounts for about 17 % of GDP; the government aims to raise this to 25 % by 2030.
- Job creation: Over 17 crore jobs were created in the last decade, with manufacturing employment rising from 6 % to 15 % of the workforce.
- Export competitiveness: Diversification into electronics, pharmaceuticals and automobiles reduces current account pressures.
- Investment confidence: Growing FDI reflects global trust in India’s policy stability and industrial potential.
- Regional development: New manufacturing clusters, including PM MITRA textile parks and electronic manufacturing clusters, are emerging across states, spreading economic benefits.
Challenges
- Infrastructure gaps: Logistics costs remain high at around 13–14 % of GDP, compared with 8–9 % in developed economies.
- Skill mismatches: A shortage of Industry 4.0‑ready workers calls for vocational training and apprenticeship programmes.
- Regulatory hurdles: Land acquisition delays and complex compliance discourage micro, small and medium enterprises (MSMEs).
- External risks: Geopolitical tensions, protectionist policies and global supply‑chain disruptions could slow export growth.
- Environmental concerns: Manufacturing must become greener to align with India’s net‑zero target for 2070.
Way Forward
- Plug‑and‑play parks: Provide ready‑to‑use industrial spaces with common facilities to reduce start‑up time and costs.
- Skill India 4.0: Establish centres of excellence, update Industrial Training Institutes (ITIs) and align curricula with robotics, automation and digital manufacturing.
- Tariff rationalisation: Lower import duties on raw materials such as steel and aluminium to reduce input costs.
- Support MSMEs: Offer concessional credit, technology grants and digital marketplaces to integrate small firms into global value chains.
- Global integration: Fast‑track free‑trade agreements with the UK and EU and participate in supply‑chain alliances to secure access to markets and raw materials.
Conclusion: India’s manufacturing momentum is a structural shift rather than a short‑term uptick. Continued reforms, skills upgrading and green industrialisation could make India a US$ 1 trillion manufacturing economy by FY26, central to the vision of a developed India by 2047.