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The sceptics often assert that India has “failed to develop a robust manufacturing sector”, citing the fact that manufacturing’s share of GDP has stagnated. That share has failed to rise primarily because of the dynamism of India’s services sector, which has grown at an average annual pace of 8.6 per cent in real terms over the past quarter-century (excluding the Covid year). Manufacturing has failed to grow as rapidly as services (which account for over half of GDP), but India is the world’s second-largest producer of steel, aluminium and cement, the world’s largest producer of tractors and two-wheelers, the fourth-largest producer of motor vehicles and refined oil, and the seventh-largest producer of pharmaceuticals.
And despite its failure in textiles and garments relative to China, India is the world’s fourth-largest textile and garment exporting nation. Across a widely diversified swathe of industry, India is among the world’s leading producers, with the relatively small electronics sector being a conspicuous (and rare) case of past non-success in manufacturing. Overall, India’s industrial output is the fifth-largest globally, behind only China, the US, Germany and Japan. If India is a manufacturing failure, long live failures!
Nonetheless, there are two areas of industry in which India has the potential to do vastly better. The labour-intensive manufacturing sectors — textiles, garments, shoes, toys and processed food — and electronics are two enormous segments of manufacturing in which India has previously under-performed. India’s electronics exports have leapt from $6.19 bn in 2017 (calendar year) to $34.96 bn in 2024 — despite the 5.25 per cent decline in the Covid year. Like Singapore (where disk drives dominated exports in the 1995–2005 period), India’s electronics exports are dominated by a single category (smartphones and their components), but the rapidity of electronics export growth is akin to the East Asian experience.
Despite the recent ramp-up, there remains ample scope for India’s electronics exports to grow, not least through gaining market share in producing smartphones for Apple and Samsung, and components for Foxconn (Hon Hai of Taiwan) and its competitors (including Tata, which has bought the Indian operations of two of them). In 2023-24, 14 per cent of Apple’s iPhones were made in India (the other 86 per cent made in China), and India’s shipments of iPhones jumped by another 33 per cent in April-December 2024. By January 2025, reports emerged of China desperately seeking to restrict the movement of technicians and specialised equipment in a bid to stop the rapid shift of smartphone manufacturing to India.
China had successfully displaced ASEAN as the manufacturer of choice in global value chains from 1998 onwards. The aftermath of the Asian Financial Crisis crippled financial systems in Indonesia, Thailand, South Korea and Malaysia, creating an opening for manufacturers to move to China despite the sharply depreciated currencies in those countries (which should have restored the competitiveness they had lost to China after the latter’s own devaluation at the start of 1994, from RMB 5.8 per US dollar to RMB 8.7 per US dollar). Thereafter, industrial subsidies and near-unlimited supplies of credit enabled China to steadily displace ASEAN as the key destination for outsourced manufacturing. Indonesia, for instance, consequently saw manufacturing decline from 32 per cent of GDP in 2002 to 18.33 per cent in 2022.
China’s toolbox of industrial competition includes the use of media to badmouth competitors and leftist unions in competitor countries to disrupt production. Sure enough, a strike led by leftist unions nearly crippled Foxconn’s key manufacturing plant in Tamil Nadu in 2022, and there was a similar 37-day strike at a Samsung Electronics plant in October 2024 led by CITU (the union arm of the China-aligned CPI-M, which ironically was part of the ruling coalition in that state!). Samsung produces televisions, refrigerators and washing machines at that facility, small proportions of which are exported.
Semiconductors were the one area of electronics manufacturing in which India had no presence until 2023 — tragic, considering that Vinod Dham (the NRI engineer who designed Intel’s famed Pentium microprocessor) had started his career in 1971 at a semiconductor company in New Delhi. Micron established India’s first semiconductor packaging and testing facility in Gujarat in 2024, and work began on two other similar projects (one of them in Assam).
A fourth, most ambitious, semiconductor project entailed an investment of $11 bn in a wafer fab being built jointly by Tata Electronics and Taiwan’s PSMC (Power Semiconductor Manufacturing Corp.); this would mass-manufacture 28 nm (nanometre) chips for a wide diversity of uses, with a large proportion being for exports. TSMC, the world’s leading semiconductor company, currently makes 3 nm chips and will start 2 nm chip manufacturing in 2025, but the first Indian wafer fab will produce what amounts to commodity semiconductors, albeit ones with numerous useful applications. Intel (the company where Vinod Dham later made his reputation) first established testing and packaging facilities in Penang in the early 1970s (while Dham was exploring semiconductors in Delhi), and by 1997 was testing and packaging the vast majority of its chips in Malaysia.
While India has a considerable ecosystem in chip design, the glaring lack of any semiconductor manufacturing in the country was exposed during the post-Covid period of chip shortages. The emergence of an incipient semiconductor manufacturing cluster redresses this weakness, although semiconductor manufacturing is extremely capital-intensive. Once chip manufacturing hubs sprout, however, India’s expertise in chip design will hold the potential of eventually developing other capabilities — DRAMs, more advanced wafer fabs, foundries (pure manufacturing, based on others’ designs) — demand for which will be a natural upshot of the growth of a more diversified electronics manufacturing sector.
As India finally utilises its hitherto untapped potential in the most labour- and capital-intensive segments of manufacturing, while continuing to build on its existing capabilities across the sector, industrial growth should accelerate sustainably toward 10 per cent annually. While China grapples with a deflationary downward spiral caused by its industrial and real-estate overcapacity, its industrial investments will be increasingly constrained. India alone has the breadth of industrial capabilities and labour potential to gain global market share across a vast swathe of industries in which China will lose competitiveness as its labour costs rise more sharply and productivity growth slackens. (In steel, for instance, world production in 2023 was just 1.4 per cent higher than in 2020; China’s production declined 3.4 per cent in 2023 from its 2020 level, while India’s increased 40.3 per cent; similar patterns will recur across much of manufacturing over time, as India’s demographic advantage plays out.)
The Modi decade has delivered the basics of a civilised existence to all Indians, particularly lifting the hitherto destitute half of the population from deprivation through the universalised provision of bank accounts, toilets, cooking gas, free foodgrain and proper homes. The Vajpayee focus on universal, free and compulsory education up to age 14 has largely eliminated abject illiteracy among the new cohorts entering the labour force. The rural elderly still lack the wherewithal to benefit fully from bank accounts because of their lack of financial literacy, which can only be slowly overcome. Better employment opportunities require specific skills for which diverse skills-development programmes have been honed and deployed.
The Modi government’s new National Education Policy (NEP 2020) has begun arming the citizens of the future with the creativity, critical thinking and digital dexterity they will need in an era of rapid technological change and widening opportunity. Emphasising mother-tongue instruction in imparting critical skills between the ages of three and eight, the NEP provides vocational training from the sixth year, incorporates technology in both instruction and student-skilling, and encourages flexibility and freedom in choice of subjects. The inclusive, adaptable, germane and flexible approach holds the promise of preparing citizens for the high middle-income economy they will encounter upon reaching adulthood.
As with other social programmes, however, education too is a state subject, so implementation of NEP 2020 could be patchy outside the NDA-ruled states. Training and motivating teachers remain a critical challenge, but the near-ubiquity of Internet and mobile phone access in the country provides ample avenues for technology to help overcome several of the hurdles. Although the benefits of NEP will take a decade or two to fully fructify, the policy itself is well-timed to move away from the rote-learning of the basic-needs past to infusing critical thinking and creativity into the curriculum in time for the Viksit Bharat leap.
Middle-income nations also require better governance, particularly of cities, which must remain liveable as inhabitants become more prosperous amid rapid urbanisation. India’s cities have no autonomy in governance and depend on state governments for their finances.
Rapidly growing Tier-2 and Tier-3 cities are often little more than overgrown villages with a veneer of planned modernity slapped on. From sewerage to garbage removal, sanitation to transportation and clean air, India’s cities need to develop a core of urban professionals with the expertise to deal efficiently with the needs of prosperity and demographic growth; and those professionals (including police) need to acquire relative autonomy from politicians for governance to be optimised. The US, for instance, only acquired professional city governance in the post-Tammany Hall era about a century ago.
Better-governed and more liveable cities will also contribute crucially to bolstering international tourism, with its attendant potential for generating millions of additional jobs. As manufacturing diversifies and grows, and tourist inflows multiply over the decade ahead, India’s current account balance will move into a structural surplus, thereby stabilising the rupee and helping to accelerate India’s per capita incomes, enabling them to surpass $20,000 by 2047.
(The article is an extract from Prasenjit K. Basu’s book, ‘India Reborn’, published by BluOne Ink. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect News18’s views.)
