Unlocking India’s Industrial Potential

• 30 Apr 2025

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)

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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)