India’s manufacturing sector needs a significant boost to achieve its long-term goals, according to economists from Bank of America. They highlight various challenges that are preventing the country from becoming a key global manufacturing hub.
The economists, led by Rahul Bajoria, suggest that India must increase its manufacturing growth by at least 10% annually over the next 15 years. This growth is essential to raise the manufacturing sector’s share of the economy to 25%, assuming a general GDP growth of around 7% each year.
If India can maintain this growth rate, its manufacturing industry could reach nearly $2.3 trillion by 2040, up from approximately $500 billion in 2024. Additionally, its share of global manufacturing could more than double to 6.3%.
India’s economic development has taken a unique path compared to many other developed countries. While the service sector has been the primary driver of growth, manufacturing has yet to become a significant source of employment, leaving many people reliant on agriculture. Boosting manufacturing is crucial for transitioning workers from farms into better-paying jobs.
This goal is also a vital part of Prime Minister Narendra Modi’s vision of transforming India into a developed economy by the year 2047. Modi has shown optimism about reaching this target, claiming that India’s economy grew at an impressive rate of 7.8% in the last quarter, exceeding forecasts, with the manufacturing sector expanding by 9.2%. He celebrated this progress on social media, calling it a remarkable achievement.
In their recent analysis, Bank of America pointed out that India is not fully leveraging its available resources and workforce. They cautioned that if the manufacturing sector does not grow significantly to support both domestic needs and exports, the vision of a developed India by 2047 could be jeopardized.
Over the last ten years, India has introduced more than $26 billion in incentives aimed at attracting manufacturers and developing domestic supply chains. This effort has brought in major companies like Apple and Samsung, leading to increased production and exports, particularly of iPhones.
However, the manufacturing sector has not seen similar growth in its share of GDP, which has stagnated at approximately 17%. The economists noted that regulatory challenges and high energy costs are significant obstacles. Despite India being home to 92.6 million small enterprises, there are only about 40,000 medium-sized firms, creating challenges for productivity and job quality.
Manufacturing small and medium-sized enterprises (MSMEs) can face up to 1,400 compliance requirements each year, making growth difficult for smaller businesses. In addition, industrial users in India pay 10% to 25% more for electricity compared to their counterparts in Vietnam, where costs are lower.
