Mains Practice Questions

Introduction:

Manufacturing, the backbone of economic development, contributes nearly 17% of India’s GDP. The sector showed 4.26% growth in FY 2024–25, with manufacturing exports rising 2.52% YoY to USD 184.13 billion and FDI inflows reaching USD 81.04 billion (14% YoY growth). Despite these gains, the sector faces structural bottlenecks that limit its full potential.

Body :

Key Challenges Facing India’s Manufacturing Sector

• Infrastructure Deficiencies: India’s logistics costs have fallen to 7.97% of GDP, showing notable efficiency gains.
  • Yet, gaps in multimodal connectivity continue to hinder seamless integration of road, rail, and ports.
  • Frequent power outages, inadequate water supply, and poor transport networks disrupt manufacturing efficiency.
• Regulatory and Policy Bottlenecks: Complex regulations and multiple clearances increase transaction costs.
  • India’s manufacturing MSMEs face over 1,450 regulatory obligations annually across labour, environment, taxation, and corporate laws, making compliance complex and time-consuming.
• Skill Gap: Only 4.7% of India’s workforce has formal skill training versus 96% in South Korea.
  • Lack of trained manpower restricts productivity, quality control, and adoption of advanced technologies.
• Access to Finance: MSMEs struggle with limited access to affordable credit and face working capital shortages.
  • As of March 2025, the total commercial credit exposure to MSMEs in India reached ₹35.2 lakh crore (USD 4.3 trillion), growing by 13% year-on-year. Yet, a significant credit gap remains, limiting many MSMEs’ growth and modernization.
• Global Competition and Innovation Deficit: Indian manufacturers face stiff competition from low-cost producers like China and Vietnam.
  • Limited investment in R&D, weak design capabilities, and dependence on imported technology reduce competitiveness.
• Environmental and Sustainability Pressures: Manufacturing is resource-intensive, straining water, land, and energy.
  • Pressure to decarbonize and meet net-zero 2070 targets adds compliance costs.
• Trade & Market Access Barriers: Non-tariff barriers in developed countries limit exports.
  • Developed countries impose NTBs such as stringent product standards, carbon taxes, deforestation regulations, and certification requirements that restrict Indian exports.
    • For example, the European Union’s carbon border adjustment tax and forestry regulations have become hurdles for Indian goods.
• Slow Technological Adoption: India’s Industry 4.0 market size was valued at around USD 5.5 billion in 2024 and is projected to grow to nearly USD 27 billion by 2033, at a CAGR of 19.2%.
  • Despite this rapid growth, adoption remains uneven and comparatively slow among MSMEs and traditional manufacturers.

Measures to Strengthen Manufacturing Momentum in India

• Simplify Regulatory Frameworks: Fast-track land acquisition, rationalize taxes, and improve contract enforcement, as per Parliamentary Standing Committee on Industry recommendations.
• Augment R&D Investment: Allocate more funds for innovation and promote industry-academia collaboration in emerging sectors, following Korean and German innovation clusters.
• Expand Credit to MSMEs: Implement specialized financing schemes and Credit Guarantee Funds for MSMEs and startups.
• Accelerate Infrastructure Build-Out: Ensure reliable power, transport, water, and digital connectivity by completing pending industrial corridor projects and expanding dedicated freight corridors.
• Promote Export Competitiveness: Lower logistics costs, negotiate trade agreements for better market access, and incentivize standards certification for global markets.
• Integrate Sustainability: Launch Green Manufacturing Missions to align with SDGs and global requirements, and incentivize energy-efficient technologies.

Conclusion:

India’s manufacturing sector is set for robust expansion, driven by policy pushes, global demand shifts, and technology adoption. Achieving a 25% GDP share and global leadership in manufacturing requires visionary reforms, sustained investment, and collaborative efforts across stakeholders and sectors.