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Why Manufacturing Has Lagged in India: Structural Challenges 2025
Many economists argue that why manufacturing has lagged in India can be explained by weak infrastructure, regulatory delays and low productivity growth.
To understand why manufacturing has lagged in India, it is essential to examine labour skills, technology adoption and policy execution.
🚧 Introduction
why manufacturing has lagged in India
India is one of the world’s fastest-growing economies and a global services powerhouse, but when it comes to industrial and manufacturing growth, India has struggled to keep pace. Despite several government programs like Make in India and large incentives such as PLI schemes, the share of manufacturing in India’s GDP remains low compared to other major economies.
Manufacturing is crucial for jobs, exports, and long-term economic growth, yet the sector’s performance has been uneven and lagging. Let’s delve into the key reasons behind this trend and explore solutions.
🧱 1. Structural and Policy Bottlenecks Hindering Growth
One major reason manufacturing has lagged in India is the presence of deep structural barriers. These include:
🏗 Poor Infrastructure
Manufacturing relies heavily on quality infrastructure such as roads, ports, logistics networks, power supply, and industrial corridors. In India:
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Logistics costs are higher than in competitor countries.
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Power outages and inadequate transport networks elevate production costs.
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Industrial land is hard to acquire and often delayed by bureaucratic approval.
🧾 Complex Regulations
India has a stringent regulatory environment. Multiple compliance requirements and bureaucratic processes slow approvals and add to operating costs. Compliance burdens often discourage small and foreign investors.
📉 Weak Ease of Doing Business Impact
Despite improvements in rankings, India’s ease of doing business remains less competitive than leading manufacturing destinations, adding to the regulatory and cost barriers for firms.
👷 2. Labour Dynamics and Productivity Challenges
India’s labour market has its own unique challenges:
🧑🔧 Large but Low-Skill Workforce
India has a large workforce, but only a small percentage is formally skilled for advanced industrial production. This limits productivity and quality compared to manufacturing hubs like China, Vietnam or South Korea.
🤝 Labour-Intensive Instead of Tech-Intensive
Indian manufacturing has been more labour-absorbing than technology-driven. This lowers productivity because firms do not invest in automation and modern technology at scale.
📉 Shortage of Skilled Technicians
Many sectors face a shortage of trained technicians, causing production slowdown. For example, the sewing machine industry in Ludhiana is seeing output decline due to lack of skilled workers.
💸 3. Insufficient Investment and Global Competitiveness
📊 Limited Foreign Direct Investment
Although FDI has flowed into sectors like electronics, manufacturing still trails countries like China and Vietnam in foreign investment scale, especially in high-value industries.
🏭 Lack of High-Tech Manufacturing
India struggles in high-tech segments such as semiconductors, aerospace, EV components, and robotics due to low automation and limited investment in R&D.
📉 Service-Sector Priority
Unlike East Asian economies that industrialised before focusing on services, India’s growth has been driven significantly by services, leading to less emphasis on manufacturing expansion.
📉 4. External and Global Challenges
🌍 Strong Competition from China & ASEAN
China remains the largest manufacturing hub globally, with better infrastructure, supply chain integration, and scale advantages. India faces stiff competition in electronics, garments and machinery.
📦 Trade Barriers & Tariffs
Recent global tariff changes, especially higher U.S. tariffs on Indian exports, have slowed factory growth, weakened demand and affected export competitiveness.
⚙ Global Supply Chain Shifts
Although some brands are diversifying away from China, few strong shifts are funnelled into Indian manufacturing due to remaining barriers and investment deterrents.
📊 5. Policy Efforts vs Execution Gaps
The Indian government has introduced significant schemes such as:
✔ Make in India aiming to raise manufacturing’s GDP share to 25%.
✔ Production Linked Incentive (PLI) schemes to boost domestic manufacturing and exports.
However, these policies have not fully translated into the expected industrial growth due to execution gaps, infrastructure delays and long bureaucratic processes.
💡 Solutions to Boost Manufacturing
🚀 Improve Infrastructure
Building better logistics networks, efficient industrial corridors, ports and power grids is essential.
👨🔧 Skills & Technology Focus
Greater emphasis on vocational training, modern automation and digital manufacturing can rapidly increase productivity.
📊 Simplify Business Environment
Easy industrial land access, reduced compliance and single-window approvals can attract more manufacturing investments.
🌎 Promote Foreign Investment
Enhancing incentives for global firms and aligning regulatory frameworks with global standards can improve competitiveness.
🧾 Conclusion
The story of India’s manufacturing lag is not about potential — the country has huge market size, young workforce and long-term growth prospects. However, to convert potential into reality, structural reforms, infrastructure upgrades, technology adoption, skill development and better ease of doing business must go together.
Addressing why manufacturing has lagged in India will be crucial for long-term job creation and economic stability.
While progress has been made, the sector’s contribution to GDP and global output remains below expectations. With targeted reforms and efficient execution, India still has the opportunity to become a major global manufacturing player in the decades ahead.
Why Manufacturing Has Lagged in India – FAQs
Q: Why manufacturing has lagged in India?
A: Manufacturing has lagged in India due to infrastructure gaps, regulatory complexity, low labour productivity and limited technology adoption.
Q: What are the main challenges faced by manufacturing in India?
A: Key challenges include high logistics costs, complex compliance, skill shortages and limited global competitiveness.
Q: Can India revive its manufacturing sector?
A: Yes. With infrastructure upgrades, skill development, simplified policies and technology adoption, India can strengthen manufacturing growth.
