Manufacturing Mission: Need of Right Policy Intervention

Manufacturing Mission: A Structural Overhaul or Stopgap Fix?

India’s proposed National Manufacturing Mission, announced as part of the Union Budget 2025-26, underscores a palpable urgency to reposition the manufacturing sector as a cornerstone of economic growth. However, this mission risks becoming another paper tiger unless it addresses the entrenched structural shortcomings, including fragmented policies, skill deficits, and uneven state-level alignment.

The Institutional Landscape

The manufacturing sector accounts for just 17% of India’s GDP—far below the targeted 23% outlined over the next two decades. Policies like the National Manufacturing Policy (2011) and flagship initiatives such as Make in India (2014) and its updated Make in India 2.0 have yielded limited success. Meanwhile, the recently announced Production-Linked Incentive (PLI) scheme offers promise, driving ₹1.5 lakh crore in investments and generating a production value of ₹13 lakh crore across 14 key sectors. Yet, therein lies the problem: these initiatives disproportionately favor large industries and overlook MSMEs that contribute approximately 30% of the GDP and employ over 110 million workers.

India's logistical inefficiencies exacerbate the problem. The World Bank’s Logistics Performance Index ranked India 44th globally in 2023, despite industrial corridor and smart city initiatives under schemes like the National Infrastructure Pipeline (NIP). Furthermore, skill development programs, including PMKVY, remain quantitatively robust but qualitatively inadequate, with vocational training mismatched with contemporary industry requirements.

Structural Failures in Manufacturing

Three recurring concerns plague India's manufacturing aspirations:

• Policy Discontinuity: The ambition of national priorities fails to integrate effectively with state-level industrial policies, creating uneven growth across regions. Maharashtra and Gujarat are industrial behemoths, but states like Bihar remain on the periphery of manufacturing development.
• MSME Neglect: MSMEs face crippling issues of access to credit and cumbersome compliance mechanisms. Even with schemes like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), disbursement and uptake remain abysmally low.
• Low Technological Adoption: India struggles to scale up high-tech manufacturing sectors like semiconductors and EV batteries. Consider that Vietnam’s SEZ model offers strategic port access and tax incentives, pushing it ahead in export value propositions.

The Argument with Evidence

The existing policy framework reveals systemic gaps. For example, consider the high logistics cost of 14% of GDP versus the global average of approximately 8%. This disparity significantly hampers India’s ability to compete on global supply chains, affecting exports for structurally weak sectors like apparel and electronics. While Make in India 2.0 emphasizes re-skilling, an NSSO survey from 2023 indicates that over 70% of India's labor force remains locked in informal employment—a stark reminder of the inadequacy in workforce formalization.

Another glaring limitation lies in the sustainability narrative. Clean-tech efforts such as scaling solar PV and EV battery manufacturing often hit resource bottlenecks and high carbon footprints, undermining broader climate goals under Paris Agreement commitments. Until green incentives are economically viable for manufacturers, environmental policy risks stagnating in aspirational rhetoric.

Counter-Narrative: Scaling Large Industries

The strongest rejoinder against the critique of the National Manufacturing Mission is the argument that focusing on sunrise industries such as semiconductors, medical devices, and batteries will create a trickle-down effect benefiting smaller firms and intermediaries. This "lead sector strategy" aligns with examples such as South Korea’s dominance in advanced manufacturing, where chaebol-led industrialization catalyzed smaller supplier networks.

While enticing, this model has consistently struggled in the Indian context. Unlike South Korea, India's MSMEs face structural gradations in terms of access to technology, capital, and skills, which limits the flow-through effects. Without complementary sectoral skill-building initiatives and credit reforms, this narrative remains optimistic at best.

Lessons from Germany's Mittelstand Strategy

If India seeks effective policy intervention, Germany’s Mittelstand strategy offers valuable lessons. Mittelstand refers to Germany’s strong network of small and medium enterprises (SMEs), backed by targeted subsidies for innovation, easy export financing, and sector-specific upskilling programs. Critical to its success is the principle of regional decentralization, which aligns local policies with national goals. In stark contrast, India’s central initiatives often ignore state-specific variances, resulting in implementation paralysis.

What Germany understands—and India fails to—is the necessity of treating MSMEs not as subordinate entities but as partners in innovation. For instance, Germany’s dual vocational training system ensures that SMEs remain a breeding ground for cutting-edge technologies and regional development.

Assessment: Next Steps in Policy Design

A successful National Manufacturing Mission must abandon one-size-fits-all approaches and embrace diversified, sector-specific policies. Critical action points include:

• MSME Empowerment: Introduce customized credit instruments such as higher-limit MSME cards and digitized single-window clearance systems to reduce compliance burdens.
• Clean-tech Transformation: Expand green manufacturing incentives, linked to carbon neutrality targets and circular economy practices.
• Educational Realignment: Align vocational training initiatives with next-generation manufacturing technologies, including automation and AI.

What India needs is not another lofty mission but grounded action—tempered by realism and bolstered by lessons from global peers. Whether the inter-ministerial panel delivers such structural breakthroughs remains to be seen.

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