Can India increase mfg sector to 25% of GDP?

Prime Minister Narendra Modi launched the ‘Make in India’ initiative on September 25, 2014, with the vision of transforming India into a global manufacturing hub. This year, this programme has completed its 10th year. The moot question is how India can boost Make in India and meet its initial targets.

One of the key objectives of the 'Make in India' scheme was to increase the share of the manufacturing sector in the GDP to 25 per cent from 16 per cent by 2025 (the target was supposed to be achieved by 2022 but was later revised and extended to 2025).

The manufacturing sector contributed to 16-17 per cent of the GDP in the 1990s. And years later, despite the elaborate and expensive 'Make in India' scheme, the sector's contribution was still stagnant at 17.7 per cent in 2023. This brings into question whether it is even reasonable to expect that we will reach the 25 per cent target by 2025 in just one year.

Since the launch of the scheme nearly 10 years ago, the contribution of manufacturing increased by only 2.7 percentage points. To achieve the remaining 7 per cent in just one year seems highly unlikely.

Despite its ambitious goals, the Make in India initiative faces several challenges Although significant investments are being made in infrastructure, existing gaps in transportation, logistics, and energy supply continue to hinder manufacturing growth.

While the initiative aims to reduce red tape, bureaucratic hurdles and complex regulations still pose challenges for businesses trying to establish and operate in India.

There is a mismatch between the skills acquired by the workforce and the requirements of the industry. Bridging this gap is crucial for the success of the initiative.

India faces stiff competition from other emerging markets like Vietnam, Bangladesh, and China, which have established themselves as favorable manufacturing hubs.

Fluctuations in the global economy, trade tensions, and geopolitical factors can impact foreign investments and overall economic growth.

India must aim at investment-led growth and technological catching up. They must be supported by domestic R&D to promote adaptive research and the indigenisation of imported technology.

Publicly funded development finance institutions or "policy banks" are needed to provide affordable long-term credit. It will be beneficial for socialising the risks of learning and catching up with the technological frontier.

India needs to build backward linkages in manufacturing sectors such as electronics and automotive by promoting domestic production of key components and raw materials.

Greater emphasis is needed on research and development (R&D), especially in areas like semiconductors, electric vehicles, and clean energy. Establishing R&D hubs and offering greater tax incentives for innovation will help.

Expanding the scope and depth of skill development programs, with a focus on digital and high-tech skills, will enable India's workforce to better align with the demands of modern industries.

Small and medium enterprises (SMEs) should be provided targeted support through financial incentives, easier credit access, and technological support to help them integrate into global supply chains. With increasing focus on sustainable development, promoting green manufacturing practices by incentivizing renewable energy use, energy-efficient technologies, and eco-friendly production methods can boost India's standing in the global market.