Opinion India’s next manufacturing leap is about what it produces

Countries that command critical technologies, complex manufacturing processes, and trusted production capabilities enjoy greater  bargaining power. For India, this implies that the next phase of industrialisation must prioritise strategically important and technology-intensive sectors, while scaling up traditional manufacturing, even if this entails higher experimentation and more tolerance for firm-level failures.

India’s manufacturing profile is beginning to move up the value chain, with gains visible in sectors that combine higher technology content, value addition, and export potential. In electronics, for instance, production has expanded roughly six-fold, and exports have grown nearly eight-fold in the last 11 years. Similarly, India’s pharmaceutical industry is among the world’s largest by volume, supplying over half of global vaccine demand and a significant share of generic medicines. These sectors combine scale, technology intensity, and tradability. Extending the transition across a broader set of industries will require improved private participation, stronger R&D based innovations, deeper industry–academia linkages, faster absorption of advanced technologies by firms, and more robust skilling systems.

As manufacturing capabilities deepen, the spatial organisation of industry becomes increasingly important. India needs to intensify its approach to industrial clusters, particularly by addressing issues of scale. While clusters remain an important organising principle, many are too small or fragmented to deliver meaningful productivity and capability gains. The focus should therefore shift from simply creating clusters to enabling larger, deeper, and more integrated industrial ecosystems. The next generation of industrial clusters is likely to be anchored increasingly in Tier-2 and Tier-3 cities. They offer several advantages, including more affordable land and real estate, lower operating and wage costs, large labour pools, improved infrastructure, and better liveability compared to congested metros.

Competitiveness also depends critically on the quality of infrastructure and logistics that connect firms to markets. India has made steady progress on this front. Logistics costs have been declining and were estimated at around 7.97 per cent of GDP in FY 2023–24, broadly comparable with global benchmarks. Port efficiency has improved, with several Indian ports featuring among the top 100 in the World Bank’s Container Port Performance Index 2024. Initiatives such as PM Gati Shakti and the National Logistics Policy, combined with an accelerated pace of highway construction, are improving connectivity and coordination across transport modes. There is scope to further reduce logistics costs by rebalancing the freight mix. Road transport continues to carry a dominant share of freight, while rail and coastal shipping — more cost-effective for long-distance and bulk movement— remain underutilised. Greater multimodal integration, with a higher share of freight shifting towards rail and waterways, can unlock the next round of efficiency gains.

Quality Control Orders can also play a constructive role in strengthening manufacturing competitiveness, particularly in strategic and safety-critical sectors by progressively aligning with the international standards. By enforcing minimum quality and standards compliance, they can incentivise domestic firms to upgrade capabilities and build credibility in global markets. Their efficacy hinges on careful calibration — phased implementation, adequate testing infrastructure, and close consultation with industry. This would ensure they enhance competitiveness, and not constrain scale or raise input costs.

MSMEs are the backbone of India’s manufacturing ecosystem, contributing significantly to employment, output, and exports. However, they face a finance gap. Recent gains in formalisation, improved access to finance, and deeper supply-chain integration have strengthened their role in industrial growth. The next opportunity lies in deeper MSME participation in strategic value chains — as suppliers of components and specialised services — supported by efforts to bridge credit gaps, strengthening skilling, accelerating technology adoption, and expanding quality infrastructure at the ecosystem level.

While regulatory reforms have improved formal ease-of-doing-business conditions, manufacturing firms respond most strongly to speed, predictability, and consistency. Delays in land acquisition, utilities, regulatory approvals, and dispute resolution affect investment decisions and scale outcomes. As manufacturing becomes more spatially concentrated, the role of state and local governments will be decisive. Stable regulatory regimes, functional single-window systems, and time-bound approvals can significantly improve project execution and encourage investments. Ease of doing business, in this sense, is defined less by rankings and more by the daily experience of firms on the factory floor.

India’s next manufacturing leap will be defined not just by how much it produces, but by what it produces and how strategically indispensable it becomes. The proposed National Manufacturing Mission offers a platform to align reforms, skilling, infrastructure and innovation under a long-term industrial strategy. While these enablers are essential, the ultimate objective must be deeper technological capability, stronger R&D systems, and globally competitive firms embedded in strategic sectors.

Nageswaran is chief economic adviser, Government of India, Sarkar is economic adviser, Department of Economic Affairs and Sethi is joint director, Department of Economic Affairs.

Views are personal