India’s manufacturing landscape is evolving rapidly. It’s moving ahead in capital-intensive sectors, while labour-intensive industries remain largely untapped. This dual growth offers a chance to create inclusive and job-rich economic development.
Historically, countries that transformed their economies—like those in East Asia and Western Europe—did so by shifting workers from low-productivity jobs to high-productivity ones. Manufacturing plays a crucial role in this shift. As India aims for its Viksit Bharat 2047 vision, successfully moving workers into productive sectors, particularly manufacturing, is essential. The key question is whether manufacturing can provide widespread, sustainable jobs.
Currently, about 45% of India’s workforce, over 220 million people, works in agriculture. This sector, however, contributes only 15% to the GDP. To achieve its growth goals, India needs to transition these workers into more productive sectors. Failing to do so risks falling into the middle-income trap—a challenge that has stalled several Latin American countries.
The urgency is even greater now. India’s demographic dividend will peak in the next decade, and global supply chains are shifting due to geopolitical tensions and rising labour costs in East Asia. This is a pivotal moment for India.
The government has made strides in boosting manufacturing through various initiatives like Make in India and Production-Linked Incentives (PLI). These efforts have shown promising results. For example, the electronics manufacturing sector has grown sixfold, with mobile phone production moving from almost complete reliance on imports to a thriving domestic market with nearly 300 manufacturing units. In pharmaceuticals, India supplies about 20% of global generics and more than half of the world’s vaccines. The automotive sector is also gearing up for leadership in electric vehicles.
However, not all areas are thriving. While capital-intensive industries flourish, labour-intensive sectors like textiles, apparel, and leather have stagnated. Apparel exports fell nearly 30% from 2015 to 2023. Despite a global market of nearly $1.5 trillion for these products, India captures only around 2% of it. Countries like Vietnam and Bangladesh have outpaced India by enhancing logistics, attracting foreign investment, and aligning vocational training with market needs.
India possesses a natural advantage for labour-intensive manufacturing. Its young workforce and rich artisanal traditions provide a solid foundation. But this sector’s underperformance isn’t just an economic issue; it’s a developmental hurdle. Labour-intensive industries are key for mass employment, especially for women, and vital for increasing household incomes.
Challenges such as high input costs, elevated import tariffs on intermediate goods, and low participation in global value chains hinder these industries. Currently, India’s participation stands at just 40.3%, lagging behind competitors like Vietnam. Furthermore, India invests only 0.64% of its GDP in research and development—notably less than China and other advanced economies. Compounding these issues are bureaucratic delays in land acquisition, environmental approvals, and compliance challenges.
To tackle these hurdles, India needs a two-pronged approach. It should continue to foster high-tech, capital-intensive sectors while revitalizing labour-intensive industries. This revival requires clear, actionable reforms. The country needs to establish well-serviced industrial clusters with infrastructure that allows small firms to grow rapidly. Simplifying compliance and lowering the cost of formalization will help smaller manufacturers integrate into supply chains. Reducing input costs through smarter tariff policies and enhancing logistics can further boost competitiveness.
With these reforms, India can create an ecosystem conducive to job creation and economic growth. The progress in manufacturing capabilities is promising, but the challenge remains to ensure this growth is inclusive and employment-rich for all.
For more on India’s manufacturing landscape and economic strategies, you can refer to [NITI AAYOG](https://www.niti.gov.in/home) and [Make in India](https://www.makeinindia.com/home).
