India's Manufacturing Ambition: From Service Economy to Factory Floor
For decades, India's economic success story was built primarily on services — software, IT outsourcing, financial services, and business process management. Manufacturing's share of GDP languished around 14-16%, well below the 25-30% seen in manufacturing powerhouse economies like China, South Korea, and Germany. The Modi government's Make in India initiative, launched in 2014, articulated the ambition to raise manufacturing to 25% of GDP and create 100 million jobs. A decade later, the results are mixed but increasingly promising.
The Production Linked Incentive (PLI) scheme — launched across 14 sectors in 2020-21 with a total outlay of ₹1.97 lakh crore over five years — has emerged as the most substantive policy initiative backing this manufacturing push. By the end of FY25, PLI-linked investments of approximately ₹1.28 lakh crore had been made, generating incremental sales of ₹11.5 lakh crore and direct employment for approximately 8.5 lakh workers — below targets but demonstrating real traction.
The Electronics Story: India's Manufacturing Transformation in Action
The most dramatic PLI success story is in electronics and semiconductor assembly. India's smartphone production surged from ₹18,900 crore in FY14-15 to ₹4.1 lakh crore in FY25-26 — more than a 20-fold increase in a decade. This transformation is largely attributable to Apple's decision to significantly expand iPhone manufacturing in India.
Apple's India Manufacturing Bet
Foxconn, Pegatron, and Tata Electronics (which acquired Wistron's India facility in 2023) now manufacture iPhones across two primary hubs: Chennai (Foxconn's Sriperumbudur plant) and Hosur (Tata Electronics). Apple exported approximately $17 billion worth of iPhones from India in FY25-26 — representing about 16% of Apple's total iPhone production — a figure that was near-zero just four years ago.
This shift is strategic for Apple: reducing dependence on China given US-China geopolitical tensions, accessing India's rapidly growing domestic smartphone market (which Apple is now targeting aggressively with more affordable models), and benefiting from India's lower labour costs relative to China's rapidly rising wages.
Semiconductor Assembly: The Next Frontier
India has approved its first semiconductor fabrication and assembly facilities under the India Semiconductor Mission. Micron Technology has broken ground on a $2.75 billion Outsourced Semiconductor Assembly and Test (OSAT) facility in Sanand, Gujarat — India's first major chip assembly plant, expected to be operational by late 2026. Tata Electronics and Powerchip Semiconductor (from Taiwan) have also announced a ₹91,000 crore semiconductor fab in Dholera, Gujarat — India's first true chip fabrication plant, targeting 28nm and below chips. Full production is expected by 2027.
These investments, if successful, mark India's entry into the global semiconductor supply chain at a time when governments worldwide are desperate to diversify away from TSMC's Taiwan and Samsung's South Korea for chip manufacturing.
The China+1 Opportunity: Multinational Relocation Wave
The China+1 strategy — where multinational companies diversify manufacturing away from sole dependence on China — has been India's biggest manufacturing opportunity since the 2008 financial crisis. Accelerated by US-China trade tensions, COVID-19 supply chain disruptions, and China's regulatory unpredictability, many global companies are actively seeking alternative production bases.
India's positioning as a China+1 destination has improved significantly. Labour costs remain competitive — a factory worker earns $200-400 per month versus $600-900 in coastal China. India's large English-speaking technical workforce provides an advantage over Vietnam and Bangladesh in complex manufacturing. And unlike some competing destinations, India offers a massive domestic market of 1.4 billion consumers — allowing manufacturers to simultaneously serve the local market and export.
Notable India wins in the China+1 competition include: Samsung's display module plant in Noida (the world's largest mobile display facility), Boeing's supplier development program targeting ₹20,000 crore in Indian aerospace components by 2028, and multiple European medical device companies establishing Indian manufacturing hubs in Ahmedabad and Pune's pharma corridors.
Defence Manufacturing: Aatmanirbhar Bharat's Star Performer
India's defence manufacturing is perhaps the PLI's most strategically significant transformation. India was historically the world's largest arms importer — spending tens of billions of dollars annually on Russian, American, French, and Israeli defence equipment. The Aatmanirbhar Bharat (self-reliant India) initiative in defence has reversed this trajectory dramatically.
India's domestic defence production reached ₹1.27 lakh crore in FY25 — more than doubling the FY14 figure of ₹46,400 crore. Defence exports touched ₹21,083 crore in FY25 — a 32-fold increase from ₹686 crore in FY14 — with India now exporting Brahmos supersonic cruise missiles, advanced light helicopters (Dhruv ALH), radar systems, and a range of ammunition to 85 countries.
Hindustan Aeronautics Limited (HAL) delivered 18 Tejas Mk-1 fighters to the Indian Air Force in FY25, and has received orders for 97 Tejas Mk-1A aircraft along with 156 Prachand light combat helicopters. DRL-managed Defence Corridors in Tamil Nadu and Uttar Pradesh have attracted over ₹50,000 crore in investment commitments from both private and public sector defence companies.
Challenges Holding India Back
Despite progress, India's manufacturing aspirations face significant structural challenges:
- Infrastructure Gaps: Logistics costs in India average 14% of GDP vs 8-10% in China — high freight, port inefficiencies and inadequate cold chains add costs for manufacturers
- Labour Law Reform Incomplete: Despite the 2020 Labour Codes consolidating 29 laws into 4, most states have not yet notified implementation rules, leaving employers in regulatory uncertainty
- Land Acquisition Complexity: The 2013 Land Acquisition Act makes acquiring industrial land expensive and time-consuming — a major deterrent for large greenfield projects
- Power Reliability: While India's power generation has expanded dramatically, industrial power quality (voltage stability, uninterrupted supply) in many manufacturing clusters still lags international standards
- Components Import Dependence: Even as assembly grows, critical electronic components — semiconductors, displays, batteries — are still largely imported, limiting the depth of domestic value creation
The Road to 25% Manufacturing GDP
India's manufacturing sector represented approximately 16.3% of GDP in FY25 — modest progress toward the 25% target. Achieving 25% by 2030 would require manufacturing output to grow significantly faster than the overall economy — a tall order given the structural challenges outlined above.
The more realistic near-term ambition, according to NITI Aayog's analysis, is achieving 20% manufacturing GDP by 2030 while dramatically increasing the sophistication and value-addition of Indian manufacturing — moving up from assembly to component manufacturing to design-led production. The semiconductor and defence trajectories offer evidence that this is achievable. The question is whether the political will, regulatory consistency, and infrastructure investment can be sustained through multiple election cycles to deliver the industrial transformation India's workers and economy urgently need.