India’s Manufacturing Momentum: Performance and Policy

Manufacturing’s Moment: July’s Numbers Show Promise, but Policy Gaps Remain

July 2025 marked an unexpected high for India’s manufacturing sector, with manufacturing growth recorded at 5.4% year-on-year, according to the Index of Industrial Production (IIP). Electronics manufacturing led the surge, benefitting from scaled-up production capacities and export growth. Similarly, total exports rose 6.18% year-on-year, reaching $349.35 billion between April and August 2025. This momentum is critical as India works toward achieving its ambitious goal of $1 trillion in manufacturing exports by FY26.

Breaking Patterns: Sectoral Champions and Underlying Shifts

The July figures reflect more than incremental progress. Electronics manufacturing has emerged as a standout success story, transformed under the Production Linked Incentive (PLI) Scheme. From 2 units a decade ago to over 300 active mobile manufacturing plants today, India is now the second-largest mobile phone manufacturer globally, exporting 127 times more devices in 2025 compared to 2014. Value addition has expanded dramatically, with electronics achieving 70% local production, up from just 30% eleven years ago.

Pharmaceuticals stand equally tall. With exports feeding over 50% of global vaccine demand and nearly 40% of generic drugs to the US, India’s $50 billion pharma sector is projected to grow to $130 billion by 2030. Government allocations like ₹15,000 crore under PLI and ₹500 crore for SPI schemes have created structural backing for this growth.

Automobiles and textiles also showcase India’s growing stature, with the former contributing 7.1% of GDP and bolstered by the emergence of India as the world’s fourth-largest producer of vehicles. In textiles, investments in PM MITRA Parks, such as the recent park opened in Dhar, aim to expand India’s capacity for global competitiveness and job creation.

The Institutional Architecture Supporting Momentum

The machinery behind this surge rests on significant policy innovations. The Union Budget 2025-26 extended ₹8,800 crore under the Skill India programme, integrating fragmented skilling schemes to supply industry-ready workers. Meanwhile, the National Manufacturing Mission (NMM), launched in the same Budget, builds cross-ministerial cooperation to align manufacturing growth with net-zero climate objectives.

The PLI Scheme’s ₹1.97 lakh crore outlay remains the cornerstone of manufacturing policy, targeting 14 high-growth sectors from electronics to pharmaceuticals. The National Logistics Policy (NLP) complements this framework by reducing logistics costs through integrated digital systems and better connectivity under the PM GatiShakti master plan.

Other initiatives like the Startup India program and the Industrial Corridor Development Programme have fostered long-term capacity building. The latter’s ₹28,602 crore budget for new industrial smart cities signifies an intent to strengthen manufacturing urbanization.

Dissecting the Data: Claims Versus Realities

The headline numbers sound promising, but deeper scrutiny reveals uneven patterns. While export growth reached 6.18% overall, merchandise exports climbed slower at 2.52%, illustrating sector-specific dependency. Electronics outperform other manufacturing categories dramatically, but industries like textiles and apparel still face global competitiveness challenges despite funding like ₹4,445 crore for PM MITRA Parks.

Job creation data also deserves a cautious view. While the Worker Population Ratio rose to 52.2%, the female workforce participation rate remains anchored below 25%, undermining broader claims of inclusive employment growth.

Additionally, while state-level FDI inflows position Maharashtra as a dominant recipient (39%), the disparity in investment distribution among states raises concerns. Resource-poor states like Bihar remain excluded from manufacturing-driven economic growth, suggesting systemic policy neglect.

Unpacking the Risks: Funding, Capacity, and International Pressure

The achievements come with uncomfortable questions. Can schemes like PLI sustain momentum beyond initial subsidies? The ₹15,000 crore allocation for pharmaceuticals appears generous, but scaling to the projected $130 billion industry by 2030 requires sustained infrastructure capacity—something India’s fragmented drug regulatory ecosystem may struggle to assist.

Similarly, state-level implementation of manufacturing-linked projects is uneven. While Karnataka leads high-tech manufacturing under attractive policies, smaller states struggle to align local governance with national missions. The Dhar PM MITRA Park exemplifies an anomaly rather than a repeatable pattern across industrial clusters.

Export aspirations may also face geopolitical hurdles. India’s integration into global supply chains carries risks of international regulatory clashes. For instance, tighter green manufacturing norms under EU Free Trade Agreement negotiations will test sectors like textiles known for water-intensive practices.

Comparative Context: Lessons from Vietnam

Vietnam, often hailed as a manufacturing dynamo, offers pointed contrasts. Burgeoning apparel industries there succeeded through aggressive Free Trade Agreements (FTAs) with the US, EU, and China. India’s PM MITRA scheme, while significant, struggles to match Vietnam's focus on export-specific free-market agreements. India’s domestically focused strategies, like GST reforms, cannot compensate for faster external trade linkages that Vietnam strategically prioritized early.

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