India has moved from being an agrarian economy to being a services-dominated one. But the lack of manufacturing development has been a constraint for higher investment, employment creation and productivity improvement in India. A report by Citibank says the share of manufacturing in GDP in India has stayed in a narrow range of 14-16% over the last 40 years. It broke out of this range only recently, to 18%.
Prime Minister Narendra Modi has reasserted India’s ambition to raise the contribution of manufacturing-to-GDP to 25% by 2025, by making India a global manufacturing hub. Opening up the economy to more FDI inflows, easing the regulatory barriers, and infrastructure development have all been key components of the Make-in-India strategy, with a particular focus on export-led growth.
The report underlines that if India’s share of manufacturing has to rise to 25% of GDP from the current levels of 17-18%, then the growth rate of manufacturing has to be much higher than the GDP growth over this period. If manufacturing has to lead the next phase of growth, then India needs to find leaders within that sector urgently. It is important that the leading manufacturing sectors also become more productive.