India can leap from cost competitiveness to innovation-led manufacturing
- The country is at the cusp of a transition that could turn its low-cost production base into a technology-driven industrial force of high value. Here’s how we can accelerate this transformation.
India is currently on a decisive path to establishing itself as a global manufacturing powerhouse. Moving beyond cost competitiveness, the country is evolving into an innovation-driven industrial hub. The foundation for this transformation is being laid through technology advancements, a fast-maturing startup ecosystem and strategic policy interventions, as highlighted in the budget for 2025-26.
With global supply chains shifting and industries transitioning to smarter and more sustainable methods of production, India has an opportunity to move from the traditional ‘build to print’ model to attaining leadership with ‘build to design’ at its core.
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Modern manufacturing focuses more on intelligence than mere scale. The transition underway from labour-intensive assembly lines to connected, automated and AI-driven factories marks the dawn of a new industrial era. India’s push for Industry 4.0 (and in some cases 5.0), supported by progressive policy measures, is enabling enterprises to integrate automation, Internet-of-Things (IoT) and data analytics into production systems.
The government’s focus on semiconductor making, deep-tech research and development (R&D) and electronics has already begun to attract major investments. Targeted schemes for critical materials such as lithium, with a focus on high-value tech applications, will also be crucial in reducing India’s import dependency and positioning the country as a key player in global supply chains.
India has already benefited from the global diversification of supply chains. However, capturing long-term value requires more than just a geopolitical advantage. Countries that consistently lead in manufacturing are those that prioritize cutting-edge research and innovation.
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For instance, South Korea invests over 4% of GDP in R&D, a key reason why it dominates sectors like consumer electronics and automotive technology. In contrast, India’s current R&D spending is around 0.7% of GDP. Closing this gap will require a more aggressive push towards industry-led research in areas such as deep-tech, AI-driven manufacturing and other enablers of the digital age. In general, we must move beyond government-supported projects to private sector-driven innovation.
However, innovation does not thrive in isolation. A robust manufacturing ecosystem demands the collaboration of industry, academia and startups. Moreover, competitiveness is not just a function of technology, but also of infrastructure and logistics.
India has made significant progress with projects like Gati Shakti and Bharat Mala. Even so, bottlenecks persist. Logistical costs in India still account for about 14% of GDP, significantly higher than the global benchmark of 8–10%. Addressing this disparity requires not only road and port development, but also technology-led optimization of supply chains with the help of AI, industrial IoT and 5G telecom networks.
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Countries such as South Korea have developed specialized clusters to drive innovation. India’s existing industrial corridors, like the Delhi-Mumbai Industrial Corridor, can provide a strong foundation, but more sector- specific hubs for high-tech and green industries need to be developed.
The wide adoption of 5G-enabled smart factories will be a defining moment for Indian manufacturing. Countries like Germany and China have demonstrated how ultra-reliable, low-latency communication can transform shop floors, enabling real-time machine coordination, predictive maintenance and smooth human-machine collaboration.
Several Indian auto component makers are integrating sensor-enabled precision machining to enhance efficiency, reduce waste and cut down-time. Scaling such technologies across industries will be crucial in elevating India’s manufacturing competitiveness.
An often overlooked yet fundamental factor in driving innovation is the degree to which one can easily access critical raw materials. Ensuring a steady supply of key materials like lithium, rare earth minerals and specialized alloys is paramount as India deepens its footprint in high-tech manufacturing. The budget has signalled a policy intent in this direction, with significant duty cuts on select critical minerals to strengthen global procurement networks.
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However, achieving true self-reliance will require more than duty adjustments; it calls for investment in domestic exploration and processing, apart from the creation of strategic reserves. Public-private partnerships should play a decisive role in mitigating supply-chain vulnerabilities and ensuring material security.
Ultimately, India’s manufacturing future hinges not just on making finished goods, but on a fundamental shift in how it innovates across policies, processes and partnerships. Turning a low-cost production base into a high-value, technology-driven industrial force that achieves leadership will demand bold investments, a sharper focus on R&D and a steadfast commitment to competitiveness.
If India aligns its industrial ambitions with its entrepreneurial agility, vast talent pool and flourishing digital economy, it will not just compete but set new global manufacturing benchmarks over the decade ahead.
The author is chairman, Confederation of Indian Industry, northern region, and chairman, Sona Comstar.
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