In order to understand why India’s industrial take-off has yet to happen, one must look beyond desire and into the machinery of the economy.
In order to understand why India’s industrial take-off has yet to happen, one must look beyond desire and into the machinery of the economy.
By Mehmet Enes Beşer
India is at the cusp of its economic journey. Its population surpassing China’s and with a median age close to 29, the country has huge potential to harvest its demographic dividend. Government parlance is bold: “Make in India,” “Atmanirbhar Bharat,” and the desire to become the world’s next manufacturing hub. And sure enough, on the surface, the narrative makes sense—rising Chinese labor costs, revamping supply chains, and a desire by Western economies to diversify increasingly mean that India is a desirable alternative.
But even with these helper winds, India’s manufacturing base still trails. As a share of GDP, manufacturing plateaued at 17%, a figure stubbornly stuck over the last decade. Unlike in East Asia’s industrial trajectories—where manufacturing had led the early waves of pulling millions out of poverty—India’s growth has been skewed, reliant disproportionately on services. The dream of mass industrialization is still more dream than reality, held back by deep-seated structural inefficiencies.
In order to understand why India’s industrial take-off has yet to happen, one must look beyond desire and into the machinery of the economy.
First off, infrastructure is still a bottleneck. While it is obvious that many developments have been made in terms of expressways, ports, and industrial corridors, the logistics side of things is still inefficient. India is lagging behind several of its peers in the emerging world. Freight is slowed down because of old rail systems and port congestion, as well as issues in last-mile delivery. For global manufacturers looking for reliability and speed, these issues cannot be ignored.
Secondly, land and labor reforms are politically sensitive and administratively unlevelled. Land purchase by factories is nevertheless a complicated activity, involving jurisdictions and community resistances. Labor laws have been streamlined on paper by consolidating different laws into a single code, but on the ground, they are not equally enforced across states. Many businesses, especially in labor-intensive industries such as textiles and electronics, remain informal or are small-scale, keeping themselves below a threshold that would prompt more rigorous regulation.
And then there is the government, both at the Center and states: a bottleneck. Clearances are slow, guidelines are lacking, and at the local level, there is scope for corruption to creep into well-intentioned plans. Ultimately, it is not the number of regulations that matters, but how good our governance is. The quality of governance will determine if we create an ecosystem that enables manufacturing or stifles it.
Of similar concern is the matter of human capital. While India produces a great many engineers, there is an unsettling disconnect between education and employment. Vocational training remains underfunded, and the overwhelming majority of entrants into the manufacturing sector have poor technical competencies for the jobs of modern industrial production. The government’s Skill India program is ambitious but has been implemented unevenly and with weak industry linkages.
Apart from these domestic considerations, India must also be pragmatic about its place in the world value chain. The notion of it replicating China’s industrial miracle is a fantasy. China experienced a specific phase of globalization liberalization that enabled it to industrialize during a period of massive state expenditure, export-oriented discipline, and a world seeking cheap goods. The global climate today is unique: automation reduces the demand for cheap labor, and advanced manufacturing ever more strongly requires close affiliation with international R&D networks.
All that being said, India need not try to copy China in order to succeed. It can do its own thing based on its democratic values, entrepreneurial spirit, and enormous domestic market. Consider drugs, auto parts, and green energy, for instance. India has already shown significant potential in these areas. These industries, if nurtured with smart policy and consistent investment, can be both job creators and export engines.
But it will require patient capital, stable policy, and a stronger push for industrial clusters. India’s new Special Economic Zones (SEZs) and new production-linked incentive (PLI) schemes are on the right track, but these should be supplemented by improved contract enforcement, environmental clearances, and dispute settlement mechanisms. Predictability—instead of incentives—is what increases investor confidence.
Further, the focus on self-reliance (Atmanirbhar Bharat) needs to be read in a nuanced way. Autarky is neither possible nor optimal in the highly integrated global economy of today. Instead, the objective for India should be strategic integration—augmenting indigenous capacity in strategic sectors while leaving the door open to foreign capital, technology, and markets. Protectionist policies can provide short-term comfort, but in the long run can end up depriving Indian companies of global competition and innovation.
Lastly, the state governments bear a greater responsibility. The federal system gives them enormous control over land, labor, and law and order—all significant levers of industrial policy. Tamil Nadu and Gujarat have done quite well in inducing investment. Others are far behind. A real national industrialization strategy must embrace this diversity and promote healthy state competition, and regional convergence.
India’s industrial future is not destined. It will be shaped not by slogans or subsidies, but by the willingness of the nation to confront difficult realities and adopt difficult reforms. Infrastructure must become seamless, governance must become smart, and the state must become a trusted ally for entrepreneurs, not a constraint.
The demographic dividend that people point to is a window of opportunity—it will not be open indefinitely. With millions becoming available for work every year, India requires labor-intensive sectors that can take this energy and make it productive. The cost of doing nothing is not simply economic—it is social and political.
India has the raw material of industrial success: a vast market, youthful population, entrepreneurial base in good health. It lacks only an enabling environment where these ingredients can fly. The hour for visionary, collective action is here. Otherwise, the nation risks being an assembly line of missed opportunities.