India’s goal of becoming Viksit Bharat by 2047 will hinge on its ability to achieve high economic growth and job creation over the next two decades. The share of manufacturing in India’s GDP has been growing in the past ten years but is still below the 25 percent that was set over a decade ago.

Speaking in 2023 about India’s manufacturing aspirations, Shri Hardeep Singh Puri said that the manufacturing sector comprised 17% of the nation’s GDP and over 27.3 million workers. He said that the Prime Minister’s call for ‘Make in India, Make for the World’ at the World Economic Forum was a signal that India was ready to increase the share of manufacturing to 25% by 2025.

Indian Industrial Development Report 2025

The Indian Industrial Development Report 2025, prepared by the Institute for Studies in Industrial Development (ISID) takes a deep dive into the prospects of becoming a manufacturing hub. It has made several recommendations. I would like to congratulate team ISID and Dr Nagesh Kumar for a bringing out a well-researched and through report on a key subject.

By launching Make in India and PLI (Production Linked Incentive) schemes, improving logistics, and the ease of doing business, focussing on sectors such as electronics, toys, auto, pharma, semiconductors, the government has given a fillip to manufacturing. The report is sanguine that India can leverage its advantage of demography, market, diverse industrial base, and policy reform to become a global manufacturing hub and increase its share in global manufacturing.

Policy reform is critical to India’s industrial growth. The report recommends enunciation of a New Industrial Policy. Such a policy should set ambitious targets such as doubling the share in global manufacturing, identifying specific sectors for global leadership, incentivizing MSMEs and start-ups, leveraging the MNCs, strengthening innovation, maintaining a competitive exchange rate, developing corporate bond market, improving industrial infrastructure, logistics, cross border connectivity, trade facilitation, skill ecosystem, managing the demand side, concluding multilateral trade negotiations and setting up high powered institutional architecture for coordination.

US-China trade war could lead to diversion of trade. China has excess manufacturing capacity. There is a risk of China dumping its goods in the Indian market. This will damage Indian manufacturing.

The report comes at a time when the external environment is becoming unfavourable. Trump’s tariff policies have damaged the rule based international trading and unleashed unprecedented trade and technology wars. India would be impacted but it could also gain from the current turbulence if it is able to diversify its markets and conclude important trade Agreements.

The economic survey 2025, had noted, that persistent geopolitical tensions, aggressive industrial and trade policies, supply chain disruptions, and global trade slowdown pose a challenge to export demand for India’s manufactured products. However, with a mere 2.8 per cent of the global share in manufacturing, compared to China’s 28.8 per cent, India has an opportunity to climb up the ladder.

Research and Development (R&D) has been India’s Achilles heel. At a level less than 1 percent of GDP, India cannot hope to catch up or remain in lead in hi-tech manufacturing. The presence of a large number of Global Capability Centres run by the MNCs is no guarantee for India’s manufacturing becoming top of the line. The private sector’s contribution to R&D is very low. R&D is inherently risky. The government needs to have a policy to incentivise R&D expenditure. The dependence on coal and fossil fuels is likely to continue in the India’s favourable future. The imposition of carbon tax (e.g. CBAM) on Indian manufacturing can make these products uncompetitive.

Energy transition is going to play an important role in economic growth. Our dependence on energy imports is a huge vulnerability. India’s transition to clean and green energy will depend upon import of critical minerals, rare earths, solar panels and other equipment from China and other countries. We need to pay a greater transition greater attention to nuclear energy which forms only a small part of our energy mix. Perhaps we need to Build suitable industrial missions around nuclear energy and space technologies.

National Security

Manufacturing capabilities are vital to India’s national security needs. This aspect needs to be discussed in detail. Why is that even after so many decades, we still rely on import of defence equipment platforms? This creates huge national security vulnerabilities. Why is that we still cannot make aircraft engines of our own? Our satellite surveillance capabilities are still inadequate. We have not yet reaped the benefits of the AI, Quantum and semiconductor technologies. Our defence start-ups are vulnerable to foreign predators. Our industrial policy must pay heed to the needs of national security.

There is a brief mention of strategic and defence industry in the report. It needs to be considered whether fighter aircrafts, satellites, artificial intelligence surveillance etc could help make India’s a global manufacturing hub and also address national security issues. We need to build synergy in civil and defence manufacturing as has been done in China. Export control measures on hi-tech dual control items can disrupt India’s manufacturing. This aspect needs to be studied carefully.

This is a useful report with a positive outlook. For India to become a manufacturing hub policy support will be needed in abundance.