Unlocking India’s Industrial Potential

This editorial is based on “ Growth pangs: On industrial activity” which was published in The
Hindu on 30/04/2025. The article brings into picture the sharp slowdown in India’s industrial
growth to 4% in FY25, highlighting weak manufacturing, tepid exports, and rising pressure on
MSMEs, stressing the need to revive domestic demand for sustainable recovery.

For Prelims: India's industrial growth, Industrial Corridors, MSMEs , Production-Linked

Incentives, PM Gati Shakti, Economic Survey, India's R&D spending, Industry 4.0, India’s
merchandise exports trends, PM Gati Shakti, National Logistics Policy, PM E-DRIVE.

For Mains: Key Factors Driving Industrial Growth in India, Key Roadblocks in Sustained Growth of India's
Industrial Sector.

India's industrial growth has slowed to a four-year low of 4% in 2025, with mining and
manufacturing sectors showing significant deceleration amid global economic uncertainties and tepid
exports. The flat growth in goods exports further highlights the strain on India's MSME sector,
which contributes nearly half of all exports and has quadrupled in size since FY21. As India
navigates trade negotiations with the United States, protecting its 60 million MSMEs that provide
over 250 million jobs must remain a priority for sustainable industrial growth.

What are the Key Factors Driving Industrial Growth in India?

Government Initiatives and Policy Support: India’s industrial growth is increasingly supported
by strategic government initiatives such as the Make in India and PLI (Production-Linked
Incentive) schemes.
These initiatives are fostering industrial expansion by enhancing production capacity and
making India an attractive destination for foreign investments.
The PLI scheme alone has attracted significant investments, with FDI in
manufacturing growing by 69% over the last decade, reaching Rs. 14,45,781 crore (US$
165.1 billion).
Additionally, the National Manufacturing Mission is set to support MSMEs and
innovation, aiming to boost manufacturing’s share of GDP to 25% by 2025.
Rise in Domestic and Foreign Investments: The surge in domestic investment, notably
reaching Rs. 37 lakh crore (US$ 428.04 billion) in FY 23-24, signals a strong recovery in
industrial activity.
This growth is accompanied by a marked increase in FDI, particularly in key sectors
like automobiles, electronics, and pharmaceuticals, reflecting investor confidence.
As per data, FDI inflows in manufacturing reached Rs. 14,45,781 crore (US$ 165.1
billion), underpinned by production-linked incentives (PLIs).
 Technological Advancements and Automation: The increasing adoption of Industry
4.0 technologies, including automation, AI, and digital transformation, is reshaping India’s
industrial landscape.
These technologies are significantly improving production efficiency and competitiveness,
especially in sectors like electronics and automobiles.
As an example, the HSBC Manufacturing PMI surged to 59.1 in March 2024, its highest
in 16 years, driven by innovation and technology integration.
India’s manufacturing industry has also seen a CAGR of 17.5% from FY15 to FY24
in electronics production.
Robust Consumer Demand and Growing Middle-Class Consumption: India’s expanding
middle class, projected to have the second-largest share in global consumption by 2030, is fueling
demand in consumer-focused sectors like automobiles, electronics,
and pharmaceuticals.
The consumer durable sector alone grew from 3.6% in FY24 to 8% in FY25, indicating a
clear uptick in urban consumption.
Alongside this, India’s merchandise exports surged 6% YoY during April-December
2024, driven by robust growth in non-petroleum goods.
Infrastructure Development and Urbanization: Infrastructure development, driven by projects
like smart cities, road networks, and housing schemes, is creating a favorable environment
for industrial expansion.
The government’s push for urban and rural infrastructure is a critical factor driving demand
for steel, cement, and construction materials.
The steel sector witnessed a growth of 3.3% in crude steel production during April-
November FY25, supported by infrastructure projects.
Additionally, the cement industry is benefiting from the government’s focus on
mega projects like highways and railways, further boosting industrial output.
Strategic Location and Export Potential: India’s strategic geographic position and access to
global markets play a key role in positioning it as a manufacturing hub, especially in sectors
like electronics and automobiles.
With initiatives like the PM Gati Shakti and National Logistics Policy, the country is
improving its logistics and supply chain infrastructure.
India’s mobile phone exports reached US$ 5 billion by August FY24, marking a 92%
surge, which underscores its growing role in global trade.
Sustainability and CleanTech Manufacturing: The growing emphasis on green
manufacturing and clean technologies is propelling industries towards sustainable practices.
India’s focus on renewable energy projects, including wind and solar, and the push
for electric vehicles (EVs) are important growth drivers.
The Union Budget 2025-26 allocated Rs. 20,000 crore for nuclear energy and solar
power projects, reinforcing the shift towards sustainable manufacturing.
Additionally, the EV sector is seeing rapid growth with PM E-DRIVE.

What are the Key Roadblocks in Sustained Growth of India's

Industrial Sector?
Global Economic Uncertainty: The ongoing global economic slowdown, marked
by inflationary pressures, supply chain disruptions, and geopolitical tensions (tariff wars),
poses a significant threat to India’s industrial growth.
For instance, the IMF recently downgraded India's growth forecast to 6.2% for
FY2025-26, citing these external factors as significant contributors.
Also, India could incur direct export losses of about $14 billion, or 0.38% of GDP,
owing to reciprocal tariffs imposed by the US.
Rural Consumption Slump: Despite India's thriving urban economy, rural consumption
remains sluggish, affecting industries reliant on non-durable goods and agricultural
products.
In December 2024, rural food inflation was 8.65%, higher than the urban rate of 7.90%,
indicating a greater strain on rural purchasing power.
This financial stress has led to increased household caution and reduced
discretionary spending—a classic case of the paradox of thrift.
Inadequate Infrastructure and Logistics Bottlenecks: Although India has made strides in
improving infrastructure, challenges persist in logistics, transport, and industrial connectivity,
which hinder industrial efficiency and cost competitiveness.
The National Logistics Policy and PM Gati Shakti are steps in the right direction, but
the overall logistics costs in India still stand at 14-18% of GDP (Economic Survey
2022-23), compared to 8-10% in developed nations.
Despite significant investments in smart cities and transport corridors,
India's infrastructure gaps limit the sector's ability to scale efficiently, raising costs and
reducing competitiveness on the global stage.
Regulatory Hurdles and Complex Business Environment: While India has made progress
in ease of doing business, regulatory complexities and compliance burden continue to obstruct
industrial growth.
Many sectors, particularly MSMEs, face difficulties in obtaining clearances, access to
finance, and regulatory compliance.
The Economic Survey 2024-25 calls for urgent deregulation to boost MSME
growth, stressing that excessive regulatory burdens hinder business efficiency and
innovation.
Skilled Labor Shortage: Despite the growth in employment, a skills gap remains a major
roadblock for India’s industrial sector.
The National Skill Development Corporation's 2022 report highlights a shortfall of 29
million skilled workers in India's manufacturing and engineering sectors
The PMKVY program has trained over 1.4 crore individuals since its inception, yet
India's skill development programs have not kept pace with the rapidly evolving
industrial demands.
This skill mismatch results in inefficiencies, high training costs, and slower
adaptation to global manufacturing standards, affecting overall productivity.
Environmental and Sustainability Challenges: Industrial growth in India faces increasing
pressure to adopt sustainable practices amid rising concerns over climate change and
environmental degradation.
The country's heavy reliance on coal for electricity generation, which still fuels over 55%
of its electricity, impedes its transition toward net-zero emissions.
Also, the clean tech push under initiatives like the PLI scheme for green energy is
constrained by high capital investment requirements and slow adaptation in key
industries.
Competition from Global Manufacturing Hubs: While India aims to become a global
manufacturing hub, it faces stiff competition from established manufacturing centers
like China and other players like Vietnam, which offer lower labor costs and efficient supply
chains.
India's share in global manufacturing remains low at 2.8%, which reflects its
challenge in competing globally.
India, despite possessing one of the world’s largest iron ore reserves, continues to export
low-value raw materials like iron ore—particularly to countries like China—while
importing higher-value finished products.
This trade imbalance stems primarily from structural challenges in the domestic
steel industry, including limited capacity, operational inefficiencies, elevated input
costs, and persistent logistical constraints.
Furthermore, India’s steel production growth in FY25 has been modest at 3.3%, and
its electronics exports lag behind China’s, signaling challenges in scaling to meet global
demand, especially in key industries like electronics and automobiles.
Limited Focus of Indian Startups on High-Impact Sectors: Indian startups often face
criticism for focusing on low-impact, consumer-driven sectors like fancy foods and 10-minute
deliveries, which, while innovative, do not contribute significantly to long-term industrial
growth (as highlighted recently by the Commerce minister).
Instead, there is a need for a stronger emphasis on transformative sectors such as
semiconductors, robotics, artificial intelligence (AI), 3D manufacturing, and other advanced
technology-driven industries.
These sectors have the potential to drive India's industrial growth, innovation, and
global competitiveness.
//

What Measures can India Adopt to Accelerate Industrial Growth

and Competitiveness?
Enhance Digitalization and Industry 4.0 Adoption: To remain competitive in the global
industrial landscape, India must push for broader adoption of Industry 4.0 technologies.
By integrating AI, IoT, big data analytics, and automation across manufacturing units,
India can significantly enhance productivity, reduce costs, and improve efficiency.
This will create a robust, future-ready industrial ecosystem that can quickly
adapt to evolving market demands.
Government incentives for digital transformation, including tax breaks for technology
investments, can accelerate this transition, especially in small and medium-sized
enterprises (SMEs).
Strengthening Logistics and Infrastructure Integration: One of the most effective ways to
reduce industrial costs and increase competitiveness is by focusing on the efficiency of logistics
and infrastructure.
This includes not just improving physical infrastructure like roads and ports, but also
streamlining the digital infrastructure to enable smart supply chains.
Public-private partnerships can be encouraged to build integrated logistics
hubs and smart industrial parks that facilitate seamless movement of goods, reduce
transport time, through multi modal logistics parks and dedicated freight corridors.
Targeted Skill Development for Emerging Technologies: India needs a more targeted
approach to skill development, focusing on emerging technologies like AI, robotics, cloud
computing, and cybersecurity to address the growing skills gap.
Establishing specialized training programs and certification courses in these sectors, in
 collaboration with both industry leaders and academic institutions, can bridge the
mismatch between market demand and workforce capabilities.
Additionally, integrating industry-driven curriculum into vocational training institutes
will ensure that graduates are well-prepared for industry needs.
Fostering Innovation through R&D and Startups: India can foster industrial competitiveness
by actively investing in research and development (at least 2% of GDP) and
promoting innovation ecosystems.
Strengthening public-private collaborations, offering grants and tax incentives for R&D
activities, and setting up dedicated innovation hubs can stimulate breakthroughs in high-
value sectors such as pharmaceuticals, electronics, and green technologies.
Recently, the Union Minister for Commerce urged Indian startups to move beyond low-
impact sectors like fancy foods and instant delivery. He emphasized the need to focus on
high-impact, future-ready domains such as semiconductor chips, robotics, machine
learning, 3D manufacturing, advanced factories, and AI models to make India globally
competitive.
Creating a Robust Domestic Demand through Policy Stimulus: India needs to
implement demand-stimulating policies that focus on boosting domestic consumption,
especially in sectors like consumer electronics, automobiles, and textiles.
To sustain rural demand, enhanced allocations to MGNREGA, direct benefit transfers to
small and marginal farmers, and investment in rural infrastructure (roads, cold chains)
are essential — echoing the grassroots needs (as highlighting in the famous
webseries Panchayat)
Promoting Sustainable and Green Manufacturing: Sustainability should be integrated into
industrial growth strategies through a green manufacturing framework.
India must promote energy-efficient technologies, incentivize waste reduction, and
invest in circular economy practices.
This shift will help industries reduce their carbon footprint, comply with
international regulations, and capitalize on the growing global demand for eco-
friendly products.
Improving Ease of Doing Business and Regulatory Reforms: Streamlining the regulatory
framework is essential for fostering industrial growth. India must continue simplifying the process
for obtaining licenses, permits, and clearances for industrial projects, particularly
for startups and MSMEs.
This involves digitizing and automating government processes, reducing bureaucratic
delays, and introducing one-stop-shop platforms for industrial permits.
Expanding Access to Finance for MSMEs: One of the biggest challenges faced
by MSMEs is access to affordable capital. India should promote innovative fintech
solutions and government-backed loan schemes to provide easy and low-interest loans to
MSMEs.
Additionally, enhancing the credit guarantee scheme for MSMEs through audit
mechanisms and offering tax incentives for investors in small businesses will enhance
the financial viability of these enterprises.
Programs such as MSME Samadhan and SFURTI need to be utilized effectively to
support MSMEs.
The SBI’s loan in 59 minutes initiative is another example of facilitating quicker
and more accessible financing, enabling faster business growth and resilience.
Leveraging Trade Agreements to Expand Market Access: India must actively
pursue bilateral trade agreements (like with European Free Trade Association) with key
economic partners to enhance access to global markets.
By focusing on agreements that reduce tariff barriers, address intellectual property
concerns, and improve market access for Indian-made goods, India can unlock
new growth avenues for its industrial sectors.
Enhancing Rural Industrialization and Agri-Processing: To balance industrial growth and
regional disparities, India should focus on rural industrialization (building upon the PURA
Model of Dr APJ Abdul Kalam) and the promotion of agri-processing industries.
Encouraging the establishment of food processing units and agricultural
manufacturing hubs in rural areas will not only boost local economies but also help to
diversify India's industrial base.
 Conclusion:
Accelerating industrial growth in India requires aligning efforts with the Sustainable Development
Goals (SDGs), especially SDG 8 (Decent Work & Economic Growth) and SDG 9 (Industry,
Innovation & Infrastructure). The National Manufacturing Policy and PLI schemes must be leveraged to
empower MSMEs, boost R&D, and foster sustainable, tech-driven industries.

Drishti Mains Question:

Despite ambitious initiatives like ‘Make in India’ and PLI schemes, India’s industrial sector continues to
face structural bottlenecks. Examine the key challenges impeding industrial growth in India and suggest
policy measures to make the sector globally competitive and inclusive

UPSC Civil Services Examination, Previous Year Questions (PYQs)

Prelims

Q. In the ‘Index of Eight Core Industries’, which one of the following is given the highest
weight? (2015)

(a) Coal production

(b) Electricity generation

(c) Fertilizer production

(d) Steel production

Ans: (b)

Mains

Q.1 “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product(GDP) in the
post-reform period” Give reasons. How far the recent changes in Industrial Policy capable of increasing the
industrial growth rate? (2017)

Q.2 Normally countries shift from agriculture to industry and then later to services, but India shifted
directly from agriculture to services. What are the reasons for the huge growth of services vis-a-vis the
industry in the country? Can India become a developed country without a strong industrial base? (2014)

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