7- Industry: Business Reforms and India’s Manufacturing Growth
Introduction
The global manufacturing landscape has undergone significant transformations in recent years, driven by geopolitical tensions, aggressive industrial policies, supply chain disruptions, and evolving trade regulations. India has emerged as one of the most dynamic economies in this space, gaining a larger share of global manufacturing while strengthening domestic industry.
Key industries such as steel, cement, chemicals, petrochemicals, electronics, and pharmaceuticals have played a critical role in stabilizing industrial growth, while consumer-driven sectors such as automobiles and textiles have contributed to expansion. However, export demand volatility, domestic regulatory challenges, and global economic uncertainty continue to pose risks to India’s industrial sector.
This chapter explores India’s industrial landscape, covering:
- Global trends in manufacturing and India’s position
- Recent developments in the industrial sector
- Performance of core industrial sectors
- Growth of capital and consumer goods industries
- The role of Research & Development (R&D) and innovation
- State-wise analysis of industrialization and business reforms
India’s ambition of becoming a global manufacturing powerhouse requires coordinated efforts between the government, private sector, R&D institutions, and regulatory bodies. The way forward demands business deregulation, enhanced R&D investments, and technology-driven industrialization.
1. India’s Position in Global Manufacturing
1.1 Global Manufacturing Trends
- High-income countries have lost their manufacturing dominance over the last decade, with China and emerging economies gaining ground.
- India’s share in global manufacturing stands at 2.8%, significantly lower than China’s 28.8% share.
- The International Monetary Fund (IMF) predicts further manufacturing shifts toward India and other emerging economies, driven by supply chain diversification.
Challenges to Global Manufacturing
- Persistent geopolitical tensions (US-China trade war, EU regulations).
- Supply chain disruptions due to extreme weather, pandemics, and logistics constraints.
- Rising industrial and trade policy protectionism affecting export competitiveness.
- Shift in global consumption patterns toward services over manufactured goods.
2. Industrial Growth Trends in India
2.1 Industrial Performance in FY25
- India’s industrial sector grew by 6.2% in FY25, higher than the five-year average.
- Growth was driven by electricity, construction, and consumer goods demand.
- Challenges included export slowdowns, monsoon disruptions, and global economic uncertainty.
Quarterly Slowdown in Industrial Growth
- Q2 FY25 industrial growth slowed to 3.6% due to:
- Declining exports in key manufacturing sectors.
- Extreme monsoon conditions affecting mining and construction.
- Shift in festival season timing, impacting consumer spending.
Optimism for Future Growth
- Purchasing Managers’ Index (PMI) for manufacturing remained above 56, signaling business confidence.
- Business Expectation Index (BEI) showed rising optimism about industrial expansion.
3. Core Industrial Sectors
3.1 Cement Industry
- India is the world’s second-largest cement producer, with an installed capacity of 639 million tonnes.
- Production in FY24 was 427 million tonnes, concentrated in Rajasthan, Andhra Pradesh, Telangana, and Karnataka.
- Government infrastructure projects (highways, housing, rural development) drive demand.
- Per capita cement consumption is 290 kg, below the global average of 540 kg.
3.2 Steel Industry
- India’s crude steel production grew by 3.3% in FY25, driven by infrastructure investments.
- Construction and infrastructure accounted for 68% of steel consumption.
- Despite high domestic demand, India remained a net importer of steel, affected by global price fluctuations.
3.3 Chemical and Petrochemical Industry
- India is a net importer of chemicals, with 45% dependence on petrochemical intermediates.
- Production reached 30 million metric tonnes in FY24, with demand expected to rise.
- New PLI (Production-Linked Incentive) schemes aim to enhance domestic production.
4. Capital and Consumer Goods Industry
4.1 Capital Goods Sector
- Growth in capital goods production remains volatile, with high reliance on imports.
- Phase II of the Competitiveness Scheme for Capital Goods aims to enhance domestic manufacturing.
- Smart Advanced Manufacturing and Rapid Transformation Hub (SAMARTH) supports automation and Industry 4.0 adoption.
4.2 Automobile Industry
- Domestic automobile sales grew by 12.5% in FY24.
- The government extended the PLI scheme to enhance electric vehicle production.
- Passenger vehicles and two-wheelers showed strong demand, while commercial vehicle growth remained moderate.
4.3 Electronics Industry
- India’s electronics production grew at a CAGR of 17.5% from FY15 to FY24.
- Mobile phone exports reached ₹88,726 crore in FY23, up from zero in FY16.
- 99% of smartphones sold in India are domestically produced.
- PLI schemes have boosted component manufacturing, reducing import dependency.
4.4 Textile Industry
- Textiles contribute 11% to India’s manufacturing Gross Value Added (GVA).
- India is the second-largest producer of cotton and silk.
- Textile exports stood at USD 35.87 billion in FY24, with growth in technical textiles.
4.5 Pharmaceutical Industry
- India is the world’s third-largest pharmaceutical producer by volume.
- Annual pharmaceutical turnover reached ₹4.17 lakh crore in FY24.
- PLI schemes focus on reducing import dependence on Active Pharmaceutical Ingredients (APIs).
- India’s first indigenously developed CAR-T cell therapy was approved in 2023.
5. Research and Development (R&D) and Innovation
5.1 Intellectual Property Growth
- Patent filings in India have doubled since 2014.
- India ranks 6th globally in patent applications.
- Trademark and copyright filings have also increased significantly.
5.2 Challenges in R&D Spending
- India’s R&D spending is only 0.64% of GDP, compared to China’s 2.1% and the USA’s 2.8%.
- Private sector contribution to R&D is low, with pharmaceuticals and IT leading.
- Government incentives such as tax breaks and research credits need expansion.
6. State-Wise Industrialization and Business Reforms
6.1 Variations in Industrial Growth
- Western states (Gujarat, Maharashtra) and southern states (Tamil Nadu, Karnataka) account for 43% of India’s industrial GVA.
- Northeastern states contribute only 0.7% to total industrial output.
- States with strong business reforms show higher industrial growth.
6.2 Business Reform Action Plan (BRAP)
- States ranked in four categories: Top Achievers, Achievers, Aspirers, and Emerging Business Ecosystems.
- Ease of Doing Business rankings correlate with industrial success.
- Tamil Nadu’s footwear and leather manufacturing success showcases the impact of targeted industrial policies.
Conclusion and Future Outlook
India’s industrial sector is poised for long-term growth, but challenges remain in export competitiveness, R&D investment, and business regulatory hurdles. The focus must be on deregulation, skilling, and infrastructure improvements to drive manufacturing expansion.
Key Policy Priorities
- Expand R&D spending to 1.5% of GDP and enhance private sector participation.
- Strengthen PLI schemes for capital goods and electronics to reduce import reliance.
- Enhance state-level business reforms to attract investments.
- Develop logistics and industrial corridors for seamless supply chain integration.
- Focus on sustainability in cement, steel, and chemical industries.
India’s journey toward becoming a global manufacturing leader depends on long-term policy commitment and collaboration across stakeholders.