Oiling a growth engine

Manufacturing holds great promise for India’s growth, but the current regulatory approach requires several tune-ups, writes Sanjit Kaur Batra, the legal head at engine manufacturer Cummins India

Alan Mulally, the former president and CEO of Ford Motor Company, once said: “No country is ever successful in the long term … without a really strong and vibrant manufacturing base.” Manufacturing is the cornerstone of the global economy and has driven economic transformation since the first industrial revolution. It contributes directly to GDP through goods for domestic use and export, and also boosts infrastructure, logistics and services.

The global manufacturing market was valued at USD14 trillion in 2024, and is expected to grow at a compound annual growth rate of 4.9%. According to World Bank data gathered from the UN Statistics Division, India accounts for only 2.9% of global manufacturing output, with China and the US leading. Historically, India’s service sector has been its growth driver, while manufacturing has lagged.

India now plans to raise manufacturing’s share of GDP from 12% to 23% in the next two decades, driving economic growth and job creation. Foreign direct investment in India’s manufacturing sector has reached USD165.1 billion, a 69% increase in the past decade, and the sector is projected to reach USD1 trillion by the fiscal year 2026.

Government initiatives are reinforcing this shift. The Make in India initiative has attracted investment and boosted domestic manufacturing. The Production Linked Incentive schemes, launched in 2020, incentivise production in specific sectors. Local content requirement regulations also mandate a minimum percentage of domestically sourced materials, labour or manufacturing in goods and services procured by the government and public sector entities.

Another initiative is the Ministry for Heavy Industries and Public Enterprises’ SAMARTH Udyog Bharat 4.0 (Smart Advanced Manufacturing and Rapid Transformation Hubs), to increase competitiveness in the capital goods market.

Technological advances and data-driven decision making are driving a new wave of industrial change, termed the “fourth industrial revolution” or “Industrial Manufacturing 4.0”. Investment decisions now weigh geopolitical conditions, ESG (environmental, social and governance) factors, infrastructure, technology, workforce, and fiscal and regulatory environment.

The government’s focus, incentives and trade agreements are positioning India as a global manufacturing and trade partner.

Opportunity in crisis

With the current uncertainty in the global geopolitical environment, India’s initiatives not only reduce import dependencies but also enhance its potential to be seen as a manufacturing hub and a country that can build a reliable, competitive global supply chain. These efforts are starting to reflect in enhanced investor confidence and have led to companies including Foxconn, Tesla and Apple to set up bases in India. These initiatives have also helped with reliance on domestic sourcing of components and benefitted the country’s manufacturing capabilities.