India’s manufacturing is growing on two fronts, strong gains in capital-intensive sectors and vast untapped potential in labour-intensive industries, offering a unique opportunity to shape inclusive, job-rich growth.
Economic history is clear -- countries that achieved rapid economic growth, from East Asia to Western Europe, did so by reallocating labour from low-productivity sectors to high-productivity ones. Manufacturing, especially labour-intensive manufacturing, has been central to this transformation. As India pursues its Viksit Bharat 2047 vision and moves toward middle-income status, the same structural shift becomes essential. Ultimately, India’s long-term trajectory hinges on one crucial question -- can manufacturing generate broad-based, job-rich growth?
Nearly 45% of India’s workforce, or over 220 million people, remains engaged in agriculture, a sector that contributes barely 15% to GDP. To meet its development aspirations, India must facilitate large-scale movement of workers into more productive non-farm sectors, particularly manufacturing. This is not just desirable; it is foundational for achieving higher per capita income and avoiding the middle-income trap that stalled many Latin American economies.
This challenge is more urgent now because India’s demographic dividend will peak in the next decade, and global supply chains are being reshaped by geopolitical tensions, China+1 strategies, and rising labour costs in East Asia.
Uncomfortable truth
The government has recognised this imperative and has, over the past decade, pushed manufacturing through initiatives such as Make in India, Start-up India, Production-Linked Incentives (PLI), PM MITRA parks, investments in logistics and digital infrastructure, and targeted skilling programmes. These efforts have delivered strong results in several capital- and technology-intensive sectors, showing that when policy support, scale, and global demand align, India can build world-class manufacturing capabilities. Electronics, for instance, has experienced one of India’s most dramatic industrial transformations -- production has expanded sixfold, exports eightfold, and mobile phone manufacturing has moved from near-total import dependence to a flourishing domestic industry with nearly 300 production units. Pharmaceuticals now supply about 20% of global generics and more than half the world’s vaccines, while India’s automotive industry is increasingly positioning itself for global leadership in electric mobility.
Yet beneath this momentum lies an uncomfortable truth. India’s manufacturing is advancing at two sharply different speeds. While capital-intensive industries flourish, labour-intensive sectors like textiles, apparel, leather and footwear have stagnated or even contracted. Apparel exports fell nearly 30% between 2015 and 2023, leather exports declined by roughly the same margin, and textile exports remain stuck at around $40 billion. Globally, textiles, apparel, leather and footwear together make up a market of nearly $1.5 trillion, yet India currently captures only about 2% of this demand. Meanwhile, countries like Vietnam and Bangladesh, once seen as India’s natural competitors, have surged ahead by streamlining logistics, attracting FDI, and aligning vocational training with export requirements. Even as overall manufacturing exports continue to gain traction and projected to cross $$1 trillion by FY26 this momentum has been powered largely by capital- and technology-intensive sectors.
India has a natural comparative advantage in labour-intensive production. Its large, young workforce and deep artisanal traditions offer a foundation few countries can match. Labour-intensive manufacturing is not merely about low-value, high-volume production; it is equally about value addition and product differentiation.
Structural bottlenecks
The underperformance of labour-intensive sectors, therefore, is not just an industrial concern, it is a development challenge. These industries hold the greatest potential for mass employment, particularly for women, and are critical for raising household incomes and enabling upward mobility. Yet their growth remains constrained by structural bottlenecks. Input costs are high, and intermediate goods attract relatively elevated import tariffs, which in turn make Indian exports less competitive. Indian participation in global value chains stands at just 40.3%, far behind fast-growing exporters such as Vietnam or Malaysia. Innovation is another weak spot -- India invests only 0.64% of GDP in R&D, far below China or other advanced economies. India’s manufacturing exit rate is only 3.1%, compared with 9% in the United States, indicating how difficult it is for unviable firms to shut down. Land acquisition delays, complex environmental approvals, and high compliance burdens add further friction.
Addressing these challenges requires a dual strategy. India must continue nurturing high-tech, capital-intensive sectors that are clearly emerging as global competitive strengths. At the same time, it must revive labour-intensive industries. Reviving labour-intensive manufacturing now demands clear, practical reforms. India needs to create large, well-serviced industrial clusters with true plug-and-play infrastructure so firms, especially small ones, can scale quickly instead of operating in scattered, fragmented units. Simplifying compliances, reducing the cost of formalisation, and easing access to credit and working capital will help smaller manufacturers grow and integrate into supply chains. Lowering input costs through tariff rationalisation, improving logistics efficiency, and speeding up customs and quality clearances will directly boost competitiveness. Strengthening skilling systems, improving productivity, and attracting anchor investments into these clusters can create the ecosystem needed for mass job creation.
India has shown that it can build globally competitive manufacturing capabilities. The challenge now is to ensure that this progress becomes broad-based and employment-rich.
Riya Jindal & Salome Sara Philips are economists and Young Professionals at NITI AAYOG