As India and the U.S. work to finalize a trade agreement, the spotlight turns to India's industrial muscle. Understanding the nation's manufacturing competitiveness is key to grasping the dynamics of this crucial economic partnership.
The 'Make in India' Overhaul
For over a decade,
India has been on a mission to transform itself into a global manufacturing powerhouse. Initiatives like 'Make in India' and performance-based Production Linked Incentive (PLI) schemes have been central to this effort, aiming to attract investment, boost domestic production, and reduce import dependency. The PLI schemes, first introduced in 2020 and now covering 14 sectors, are designed to reward companies for increasing sales of products made in India. These policies have helped India move beyond simply substituting imports to building deeper capabilities for global competition. Key sectors like large-scale electronics, pharmaceuticals, solar modules, and auto components have been the focus of this strategic push.
A Story of Strengths and Successes
The policy push has yielded significant results, particularly in electronics. India now manufactures over 99% of the mobile phones used domestically, a dramatic shift from previous years. Mobile phone exports have surged, and the success has attracted major global players and their supply chains to set up shop in the country. The PLI schemes have attracted substantial investment, generating lakhs of jobs and boosting exports across targeted sectors. For instance, as of March 2026, the schemes had led to cumulative exports of over ₹15.2 lakh crore. India is also becoming a hub for semiconductor manufacturing, with the government's 'Semicon India' program attracting major investments from global firms. This progress is complemented by a large, young workforce and a massive domestic market that makes India an attractive alternative for companies looking to diversify their supply chains away from China.
Persistent Hurdles to Overcome
Despite the impressive growth, India's manufacturing sector still faces considerable challenges. The sector's contribution to GDP remains below the government's long-standing target of 25%. Businesses grapple with inadequate infrastructure, including poor roads and unreliable power supplies, which increases operational costs. A complex regulatory environment, often referred to as 'red tape', can stifle growth and delay projects. Furthermore, there is a significant skill gap, where many workers lack the advanced technical training required for modern manufacturing jobs. Other persistent issues include high input costs, dependency on imported raw materials for certain industries, and intense global competition, particularly from China.
The US Trade Negotiation Angle
These strengths and weaknesses form the backdrop of trade negotiations with the United States. Recent reports indicate that both countries are close to finalizing a bilateral trade agreement after years of talks. For the U.S., India's growing manufacturing base presents a 'China-plus-one' opportunity—a reliable, democratic partner for diversifying supply chains in critical sectors like electronics, defense, and pharmaceuticals. The U.S. is aiming to more than double its bilateral trade with India to over $500 billion within three years. However, negotiations are complex. The U.S. seeks greater market access and lower tariffs on its goods, while India aims to secure a competitive edge for its key export sectors like textiles, pharmaceuticals, and engineering goods. Thorny issues around agricultural protections, intellectual property, and regulatory standards remain part of the fine tuning process.
