Make in India 2.0: Can Manufacturing Really Replace Services as the Growth Engine?
India’s economic growth story has long been told through services and software exports, not factories. Renewed government incentives and a global supply chain rethink are now putting manufacturing back in focus.
Kanav Bajaj
5/31/20261 min read
Why Manufacturing Is Back on the Agenda
Production-linked incentive schemes across electronics, semiconductors, pharmaceuticals, and other sectors are designed to pull global supply chains toward India, at a moment when global manufacturers are actively looking to diversify away from concentration in any single country.
Domestic consumption growth strengthens the case independently of exports: India’s own market is now large enough to justify scale manufacturing investment even before a single unit is shipped abroad.
Where the Momentum Is Real
Electronics assembly has shown the most visible early traction, with several large contract manufacturers expanding capacity substantially. Pharmaceuticals and specialty chemicals benefit from process expertise and regulatory track record built up over decades, giving India a genuine head start there.
Defense and capital goods manufacturing, meanwhile, is being deliberately built up through policy preference for domestic sourcing, a more directly state-driven push than the market-led growth seen in electronics.
The Structural Constraints That Remain
Logistics costs as a share of GDP remain higher than in competing manufacturing hubs, even after years of infrastructure investment. Land acquisition and labor law complexity, though steadily improving, still slow down large greenfield projects relative to more centralized regulatory regimes elsewhere.
A skills gap persists between what vocational training currently produces and what precision manufacturing actually requires, particularly in semiconductor-adjacent and advanced electronics roles. And component-level supplier ecosystems remain thin in several sectors, meaning a great deal of high-value input still gets imported even when final assembly happens domestically.
What It Will Take to Sustain the Shift
Moving from assembly to genuine value-added manufacturing requires deliberate investment in component-level supplier ecosystems, not just incentives aimed at final assembly. Policy predictability (tariff stability, continuity of incentive programs) matters as much as the size of any single incentive for the kind of long-horizon capital commitments manufacturing requires.
Manufacturing’s success as a genuine second growth engine is likely to be sector-specific rather than economy-wide: some sectors will build durable, self-sustaining competitive advantage, while others remain dependent on continued policy support without ever developing it.