Analyse the current trends in India’s manufacturing sector. Despite various initiatives, what are the structural constraints still hindering its growth? (15M, 250 Words)

Manufacturing is the backbone of structural transformation, enabling economies to shift labour from low-productivity agriculture to high-productivity industry. For India, manufacturing is critical to job creation, export competitiveness, technological self-reliance and macroeconomic stability.

Current trends in India’s Manufacturing sector:

1. Sub-Optimal GDP Share: Manufacturing contributes around 16–17% of GDP, with a medium-term policy goal of raising this to 25%.
2. Output and Capacity Recovery:
3. Manufacturing GVA growth accelerated in FY25, supported by automobiles, electronics, and capital goods.
4. Capacity utilisation rose to 76.8% in March 2024 from 74.7% in Dec 2023 as per RBI OBICUS.
5. Industrial Production Momentum: The Index of Industrial Production (IIP) recorded 6.7% YoY growth in Nov 2025, driven by 8% growth in manufacturing.
6. Strong PMI Signals: Manufacturing PMI remained in expansionary territory, rising from 58.4 in June 2025 to 59.1 July 2025, the fastest improvement in over 17 years.
7. Export Upgradation: Electronics exports increased eight-fold from ₹38,000 crore to ₹3.27 lakh crore in FY25, led by mobile phone clusters in Tamil Nadu and Uttar Pradesh.

Major reforms shaping Manufacturing growth:

1. Make in India & PLI Schemes: PLI catalysed nearly ₹2 lakh crore in realised investments across 14 sectors.
2. National Manufacturing Mission (2025–26): Aims to align infrastructure, skilling, technology, MSMEs and industrial clusters under a single strategic framework.
3. Labour Market Rationalisation: Operationalisation of four Labour Codes (2025) reduced compliance complexity and enabled Fixed Term Employment, easing firm-level scaling.
4. FDI Liberalisation: Manufacturing FDI equity inflows rose 69%, from $97.7 bn (2004–14) to $165.1 bn (2014–24).
5. Logistics Transformation: PM Gati Shakti reduced logistics costs from 13–14% to 7.97% of GDP, with 118 cargo terminals being commissioned.

Key structural challenges:

1. Low Global Manufacturing Share: India accounts for only 2.8% of global manufacturing, compared to China’s 28.8%, despite demographic advantage.
2. High Import Dependence: Electronics component imports touched $34.4 bn (FY24); semiconductor imports exceeded ₹1 lakh crore, exposing value-chain vulnerability.
3. The MSME ‘Missing Middle’: Over 95% of firms are micro or small, limiting scale economies, innovation and supplier depth.
4. Employment Paradox: Manufacturing employs only 11–12% of the workforce, while agriculture still absorbs 42–45% with low productivity.
5. Skill and Productivity Gaps: Less than 5% of workers receive formal vocational training, compared to 50%+ in East Asian economies.
6. Regulatory Uncertainty: Press Note-3 FDI approvals often take 6–12 months, delaying investments in electronics and renewables.

Measures Required for revamping Manufacturing:

1. Deepen Domestic Value Chains: Shift from assembly to upstream capabilities such as components, materials, tooling, capital goods.
2. Rebuild the Missing Middle: Enable MSMEs to scale via patient finance, cluster-based common facilities, and anchor-firm linkages.
3. Restore Manufacturing’s Job Role: Prioritise labour-intensive and medium-skill segments (components, food processing, light engineering).
4. Close Skill & Productivity Gaps Emphasise apprenticeship-based learning, shop-floor training and continuous upskilling.
5. Raise Industrial R&D Intensity: Increase R&D spending from 0.7% to 1.5–2% of GDP, supported by industry–academia collaboration.
6. Ensure Policy Predictability: National security screening must be transparent, time-bound and risk-based to avoid investment chilling effects.

Conclusion:

India’s ambition of becoming a $5-trillion economy requires that manufacturing must emerge as the engine of productive employment, export expansion and technological capability, raising its GDP share toward 25% and absorbing surplus labour.

‘+1’ value-addition:

• A ₹1 lakh crore rise in manufacturing output can generate 1.5–2 million jobs directly and indirectly as per ILO.
• At comparable income levels, manufacturing employed 25–30% of the workforce in South Korea and China, compared to 11–12% in India.
• India accounts for 3% of global manufacturing patents, compared to 45% for China.
• Top 10 manufacturing products contribute over 60% of India’s exports, highlighting export concentration.

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