Can Indian manufacturing touch 25% share of GDP? The government has a new plan

The NMM—first announced in the Union Budget for fiscal year 2026 (FY26) with a modest ₹100 crore allocation, per government data—will channel these funds into greenfield projects and help scale up high-value sectors across seven regional clusters, the people cited above said on condition of anonymity.

An inter-ministerial committee comprising the ministries of electronics, steel, heavy industries, and renewable energy, among others, as well as federal think-tank NITI Aayog, and the department of promotion of industry and internal trade (DPIIT), has proposed viability gap funding (VGF)—a government grant that bridges the shortfall between a project’s cost and private financing— to spur investment in priority sectors and niche manufacturing areas, according to the draft proposal reviewed by Mint.

In terms of specific sectors, finance minister Nirmala Sitharaman, had pointed to solar PV cells, electric vehicle (EV) batteries, motors and controllers, electrolyzers, wind turbines, high-voltage transmission equipment, and grid-scale batteries, among others, as the ones for which the NMM will provide support to central ministries and states.

The current proposal says that the NMM will set clear output and export targets, and ensure ministries stay aligned. Importantly, the mission will not alter the mandates of existing departments but will act as a coordinating body.

Data from the World Bank cited in the draft proposal showed that India’s share in global manufacturing output is 2.9%, compared with China’s 31.6%. The proposal noted that this low contribution partly reflects the faster growth of India’s services sector, but also the manufacturing sector’s own underperformance.

By identifying 15 key sectors and strengthening 66 million micro, small, and medium enterprises (MSMEs), the NMM seeks to close this gap, enhance domestic value addition, and embed India more deeply into global value chains.

Queries emailed on 22 October to the DPIIT, ministry of electronics and IT, ministry of heavy industries, ministry of new and renewable energy, ministry of steel and the NITI Aayog remained unanswered till press time.

While experts have lauded the cluster approach, they highlight challenges such as land acquisition and the value of the allocated amount to NMM.

Pointing out that India’s aim to increase manufacturing’s share in GDP has been around for a long time, N.R. Bhanumurthy, director at Madras School of Economics said the proposed ₹10,000 crore may not be an adequate policy intervention, further adding that land reforms will be key to success.

The 25% goal

The new plan seeks to lift the share of manufacturing in GDP to 25% by 2035 from around 13% now, while aligning with a proposed US-India trade deal expected to ease tariff barriers. The US had earlier slapped a 50% tariff on Indian goods — 25% reciprocal tariffs announced in April and an additional punitive 25% in August as a penalty for importing Russian crude oil.

However, Mint reported on 22 October that an India-US trade deal is close to being finalised, which will likely reduce total tariffs to about 15-16%. That would make Indian exports competitive vis-à-vis other Asian economies such as Japan (15% tariff), Vietnam (20%), and Indonesia (19%).

Cluster advantage

To make India’s industrial expansion more regionally balanced, the government plans to map and monitor manufacturing activity across seven regional clusters, each with distinct sectoral strengths.

• Southwest (in and around Bengaluru and Chennai): high-tech sectors such as semiconductors and aerospace.
• Northwest (Delhi-NCR, Punjab, Haryana): food products, consumer durables, and EVs.
• North Central (Agra, Prayagraj): automotive spare parts, leather, and non-metallic products.
• Northeast (Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, and Tripura): pharmaceuticals and botanical products.
• West (Gujarat, Maharashtra): capital goods, electronics, and pharma.
• East (West Bengal): basic metals including iron and steel.
• South (Tiruppur, Hosur): automotive components, capital goods, and electronics.

Experts say the cluster-based approach is crucial to cutting costs and boosting competitiveness.

“India has a few clusters like Tirupur for garments and Ludhiana for bicycles which have been successful, that too with a global footprint," said Vinod Kumar, president, India SME Forum, adding that clusters should be developed to ensure proximity to essential raw materials, or to attract raw material manufacturers to set up within the cluster.

"Further, infrastructure like ports and transport should be easy to access given the export requirement," Kumar said. “All machinery, quality testing and IP (intellectual property) formalities should be carried out within the cluster, offering enterprises ease of doing business."

Amit Kumar, partner and climate ecosystem leader at Grant Thornton Bharat stressed the need for global partnerships for technology transfer and knowledge sharing, and a focus on the international market apart from catering to domestic demand.

“Enterprises, including smaller businesses, need to eye the global market and focus on quality of the products," Kumar said. “Further, as in countries like Germany, global tie-ups for technology and knowhow by Indian businesses would go a long way to boost manufacturing."

Land reforms key

However, experts warn that policy ambition alone may not deliver results without parallel reforms in land and labour — two long-standing bottlenecks for manufacturing growth.

“Actual growth is likely to come in by land and labour reforms; the government is now trying to bring in reforms in these sectors," said Bhanumurthy of Madras School of Economics. “If you look at the extent of land records and investments, it is seen that states with better land records and an enhanced land market received higher investments."

The committee has suggested a national land policy to ensure transparent acquisition and global-standard industrial parks, supported by pre-cleared land banks, to address land and infrastructure challenges. Land, however, remains a tricky issue as it is under the jurisdiction of state governments.

Bhanumurthy further added that production-linked incentive (PLI) schemes were brought in during covid-19 to revive industry, “but I don't think they need to be continued for long".

In 2020, amid supply chain challenges from the pandemic and to give a push to manufacturing, the Centre had rolled out PLI schemes for sectors ranging from textiles, solar, automotives and drones to incentivise companies based on their sales. However, several of these schemes have not been successful in attracting investments; some projects are likely to be completed beyond their mandated timelines.