How India can build stronger manufacturing economy
India has built competitive strengths in sectors like electrical equipment, automobiles, pharmaceuticals, and engineering goods. But much of its manufacturing success remains assembly-led, while China dominates the broader industrial ecosystem. What measures can help Delhi build deeper manufacturing capabilities? See infographics.
India has built competitive manufacturing strengths in sectors like electrical equipment, automobiles, pharmaceuticals, and engineering goods. (Representational image) — Pushpendra Singh and Archana Singh
The government has approved a joint venture between Dixon Technologies and Vivo Mobile, a company based in China, for manufacturing electronic devices and smartphones in India, and granted a waiver of customs duty on 85 goods used in manufacturing batteries, display assemblies, and others. These approvals come only days after four Chinese power equipment manufacturing companies were reportedly allowed to take part in government tenders for critical power projects.
The government’s decisions have drawn attention to India’s manufacturing ambition, and the usual comparison with China. Industrial debate in India is often trapped between two extremes: One side believes China is too far ahead and India cannot realistically compete; the other side argues that India must replicate the Chinese manufacturing model. Both perspectives overlook a more practical possibility: India need not replicate China to become a major manufacturing power; its challenge is to build a large, competitive, and distinctly Indian manufacturing ecosystem.
But what are the specific strengths of the two countries, and where does India have comparative advantages? How can India build a competitive, employment-intensive, and distinctly Indian manufacturing ecosystem, rather than engaging in the India vs China debate?
India vs China: Who Wins the Manufacturing Race?
China’s manufacturing advantage
The scale of the present manufacturing gap between Indian and China cannot be ignored. China’s manufacturing value-added or output in 2025 was USD 4.82 trillion, against India’s USD 532.92 billion, according to the World Bank. While China’s overall economy was nearly five times larger than India’s, its manufacturing sector is around nine times larger. This shows manufacturing occupies a much deeper place within China’s larger economic structure.
The gap is equally evident at the global level. According to United Nations Industrial Development Organization (UNIDO) statistics for 2025, China accounted for 27.4 per cent of global manufacturing value addition, compared with 3 per cent for India. This ninefold disparity is not merely quantitative, but it reflects structural differences in technology adoption, supply chain integration, and policy continuity.
These figures reveal the true nature of China’s advantage. Its industrial strength does not come only from goods leaving factory gates. It rests on dense networks of component producers, machine manufacturers, logistics firms, industrial parks, ports, testing facilities, and technically skilled workers. China no longer merely assembles products. It controls large parts of the industrial ecosystem that makes large-scale production possible.
Controlling the production ecosystem
A mobile phone assembled in India may carry the label “Made in India”. But the machinery, components, tools and technologies used to produce it may still come from elsewhere. This difference between assembling a product and controlling its production ecosystem lies at the heart of the India -China manufacturing gap.
Electronics offers a clearer example. China has long moved beyond its earlier role as the world’s workshop for low-cost consumer goods. Electronics accounted for 24 per cent of its exports in 2020, up from less than 9 per cent in 1995. Over the same period, the share of textiles declined from 20 per cent to 10 per cent. This was not simply a change in exports. It reflected China’s movement towards more advanced and technology-intensive manufacturing.
The shift continues. In 2025, China’s equipment manufacturing grew by 9.2 per cent, high-technology manufacturing by 9.4 per cent, industrial robot output by 28 per cent and new energy vehicle production by 25.1 per cent. Equipment manufacturing alone now accounts for 36.8 per cent of total industry.
India’s notable progress
India has also made notable progress. Electronics production increased from around Rs 1.9 lakh crore in 2014-15 to approximately Rs 11.3 lakh crore in 2024-25. During the same period, electronics exports rose from Rs 38,000 crore to about Rs 3.3 lakh crore, while mobile phone exports increased from roughly Rs 1500 crore to Rs 2 lakh crore. India is now the world’s second-largest mobile phone manufacturer.
These gains are significant. But much of India’s electronics success remains assembly-led. China, by contrast, dominates the broader manufacturing ecosystem. India has shown that it can assemble at scale, and its next challenge is to expand industrial depth.
The same contrast appears in machinery and capital goods. China’s strength lies not only in producing more manufactured goods. Its factories produce machine tools, industrial robots, electrical equipment, and production system. China’s manufacturing robot density has reached 470 units per 10,000 workers, while industrial internet applications cover all 41 major industrial sectors.
Where Delhi has advantages
Yet, the story does not end there. India is growing faster. In 2025, India’s GDP grew by 7.6 per cent, compared with an estimated growth of 4.9 per cent for China. UNIDO’s quarterly manufacturing report for Q1 2026 shows Indian manufacturing output expanding by 2.5 per cent quarter-on-quarter, compared with 1.8 per cent for China.
However, speed should not be confused with scale. A smaller industrial base can grow rapidly without closing the structural gap. India has momentum. China has scale, depth, and integration. Even so, India possesses significant competitive strengths in sectors, including electrical equipment, railway systems, engineering goods, and infrastructure-related industries. The country also enjoys clear advantages in automobiles, pharmaceuticals and textiles.
Automobiles
India produced more than 3.10 crore vehicles in 2024-25 and is the world’s fourth-largest automobile producer. While China leads in electric vehicles and batteries, India has an advantage in small cars, two/three-wheelers, auto components and affordable mobility.
Pharmaceuticals
Pharmaceuticals are an even stronger area. India is the world’s third-largest producer by volume, supplies more than half of global vaccine demand, and accounts for nearly 40 per cent of generic medicines used in the US. It can further strengthen its position in active pharmaceutical ingredients, biosimilars, medical devices, and contract manufacturing.
Textiles
Textiles also remain vital. The sector contributes 2.3 per cent of GDP, 13 per cent of industrial production, and 12 per cent of exports, while employing more than 45 million people. Further modernisation through technical textiles, man-made fibres, better machinery, and integrated manufacturing clusters would make it more competitive.
However, India’s capabilities largely remain fragmented. It has not yet effectively evolved into a comparable capital goods ecosystem. Therefore, its next challenge is to deepen domestic capabilities in capital goods, components, machinery, supplier networks, and technology so that manufacturing moves beyond assembly and becomes more deeply embedded in the economy.
A different manufacturing future
A few measures may help India achieve its realistic goal. Delhi needs to reduce logistics costs, improve ports and customs, ensure reliable power, and make industrial land easier to acquire and develop. It also needs to expand technical education and apprenticeships, especially for shop-floor manufacturing.
At the same time, MSMEs need better credit, technology, testing facilities, and linkages with larger firms. More importantly, there’s a need to shift the focus of the Industrial policy from isolated factories to integrated manufacturing clusters. Similarly, export policy needs to focus more on domestic value-addition rather than assembly alone.
To sum up, India cannot replicate China’s industrial structure, nor should it try. China is likely to remain dominant where manufacturing depends on deep supply chains, capital goods, automation and scale. India can succeed through labour-intensive production, affordable engineering, domestic demand, and selective technological upgrading.
The real choice is not between India and China but between shallow and deep manufacturing. Shallow manufacturing imports most components and assembles final products. Deep manufacturing builds domestic suppliers, skills, machines and technology. India may not become the next China. But it can still become a much stronger, more employment-intensive and more export-capable manufacturing economy. That is not a lesser ambition. It is the more realistic one.
Post read questions
1. India has emerged as a major electronics manufacturing hub, yet much of its success remains assembly-led. Examine the challenges in increasing domestic value addition and suggest measures to build deeper manufacturing capabilities.
2. The real challenge before Indian manufacturing is to transition from assembly-led production to deep manufacturing. Examine the structural constraints and suggest reforms.
3. Evaluate the role of supply-chain integration, capital goods industries, and technology adoption in determining manufacturing competitiveness. Illustrate with reference to India and China.
4. Explain the concept of “industrial depth.” How is it essential for India’s long-term manufacturing competitiveness?
(Pushpendra Singh is an Assistant Professor of Economics at Somaiya Vidyavihar University, Mumbai, and Archana Singh is an Assistant Professor of Gender and Economics at the International Institute for Population Sciences, Mumbai.)
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