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India’s manufacturing sector has shown remarkable signs of recovery and growth, thanks to strategic policy initiatives like the Production Linked Incentive (PLI) scheme. To fully capitalize on this momentum and become a global manufacturing hub, however, deeper reforms are needed.

The Success of the PLI Scheme: A Catalyst for Growth

The government’s PLI scheme has been instrumental in revitalizing key sectors like electronics, pharmaceuticals, automobiles, and textiles. It has not only boosted production but also increased exports and job creation. According to the Annual Survey of Industries (ASI) 2022-23, manufacturing output grew by an impressive 21.5%, while gross value added (GVA) increased by 7.3%. Sectors such as basic metals, refined petroleum products, food products, and motor vehicles, which are beneficiaries of the PLI scheme, contributed 58% of total manufacturing output, registering growth of 24.5%.

This success underlines the potential of India’s manufacturing sector, with the PLI scheme acting as a key enabler. However, while the recovery is promising, there are significant challenges to overcome to sustain long-term growth.

Expanding PLI Incentives to New Sectors

The PLI scheme has largely benefitted traditional industries like electronics and automotive manufacturing. To further accelerate growth, the scope of the scheme must be extended to labour-intensive sectors such as apparel, footwear, and furniture, which hold immense potential for job creation. Additionally, emerging sectors like aerospace, space technology, and maintenance, repair, and overhaul (MRO) services offer new avenues for growth. By diversifying the incentive structure to these sectors, India could establish a more robust and resilient manufacturing ecosystem.

In sectors like capital goods, where India is heavily import-dependent, the potential for reducing supply chain vulnerabilities is significant. Moreover, promoting green manufacturing and advanced technologies could further bolster India’s competitiveness in global markets.

Addressing the Divergence Between Output and Value Addition

Despite a surge in production, India’s gross value added (GVA) has not kept pace with output growth. The ASI data shows that input prices soared by 24.4% in 2022-23, indicating that while production volumes are up, industries are grappling with high input costs. A more streamlined import regime could mitigate these costs. Simplifying tariffs into a three-tier system (for raw materials, intermediates, and finished goods) would reduce input costs, enhance competitiveness, and improve integration into global value chains.

Regional Imbalance: A Barrier to Inclusive Growth

The manufacturing sector’s growth is heavily concentrated in a few states such as Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Uttar Pradesh, which account for over 54% of manufacturing GVA. This concentration not only restricts equitable development but also hampers the overall growth potential of the sector. To address this, it is crucial that states actively participate in India's manufacturing growth story by implementing market reforms in land, labour, and power. Additionally, infrastructure development and investment promotion in less industrialized regions could help balance growth and ensure that the benefits of manufacturing reach all corners of the country.

Fostering MSME Growth and Enhancing Female Workforce Participation

Micro, small, and medium enterprises (MSMEs) contribute about 45% of India’s manufacturing GDP and employ around 60 million people. To scale these businesses and integrate them into global value chains, PLIs should be tailored to accommodate their needs, such as lowering capital investment thresholds and reducing production targets.

Equally important is the enhancement of female workforce participation. Studies suggest that India’s manufacturing output could increase by 9% if more women enter the workforce. The development of supportive infrastructure, such as hostels and childcare facilities, can play a pivotal role in enabling women’s participation, thus driving inclusive growth.

Conclusion: The Path Forward

To transform into a developed economy by 2047, India must continue to focus on strengthening its manufacturing sector. According to industry estimates, manufacturing’s share in Gross Value Added (GVA) can rise from 17% to 25% by 2030 and further to 27% by 2047. Achieving this will require sustained efforts to enhance competitiveness through business reforms, cost reduction, and policy support. India is well-positioned to harness its manufacturing potential, but timely and focused interventions are necessary to turn this vision into reality.