INDIA’S MANUFACTURING SHIFT: FROM SCALE TO STRATEGIC ADVANTAGE

As India’s manufacturing momentum accelerates, the focus is shifting from volume to value. Backed by capital investment, policy reform, and human capital, India is redefining its role in the global manufacturing landscape.

India stands at the threshold of a historic industrial transformation. The country’s Manufacturing sector is not just scaling up; it is pivoting towards genuine strategic depth, propelled by rising global interest, robust domestic demand, targeted policy incentives, and rapid technological progress.

Macro Drivers and National Momentum

India is the world’s fastest-growing major economy, posting real GDP growth of 7.8 percent in Q1 FY26. Manufacturing currently contributes about 17 percent of the nation’s GDP, with an ambitious goal to reach 25 percent by 2030 under the ‘Make in India’ and ‘Atmanirbhar Bharat’ initiatives.

The momentum is reflected in robust export performance: total exports grew by 6.18 percent year-on-year to US$ 349.35 billion during April-August 2025. Within this period, the cumulative value of merchandise exports reached US$ 184.13 billion—up 2.52 percent compared to the same period last year. With this visible expansion and ongoing policy support, the Manufacturing sector is widely expected to achieve the milestone of US$ 1 trillion by FY26 and add over US$ 500 billion annually to the global economy by 2030, steadily cementing India’s position as a global manufacturing hub.

Foreign direct investment inflows recorded a new high: overall FDI inflows stood at US$ 81.04 billion in FY25 (a 14 percent year-on-year increase), with the Manufacturing sector alone drawing US$ 19.04 billion—an 18 percent annual jump. The inflow was well distributed across states and Union Territories, reflecting the nationwide appeal of India’s investment landscape and the broad-based opportunities available across the country for global investors. At the same time, Overseas Direct Investment (ODI) trended sharply upward, touching US$ 23.65 billion in FY25, a 63.7 percent increase from FY24. This duality underscores India’s evolving role as both a magnet for inbound capital and a source of outbound investments, reflecting the country’s deeper integration into the global financial and corporate landscape.

Capital Goods: The Bedrock of Industrial Ambition

Amid this surge, the Capital Goods sector sits at the heart of India’s manufacturing ecosystem. Capital goods—encompassing plant and process machinery, machine tools, power and electrical equipment, textile machinery, and advanced engineering solutions—are the ‘industry of industries’. Investments here multiply productivity across downstream verticals such as Energy, Chemicals, Food Processing, Mobility, and Healthcare. In FY24, the Indian capital goods market touched US$ 52 billion across key subsegments: Heavy Electrical Equipment, Plant Process Equipment, Earth Moving and Mining Machinery, Textile Machinery, and Machine Tools. It is projected to reach US$ 81 billion by 2030 as both domestic and global project investments gather pace.

Recent years have witnessed India moving into the top echelon of FDI destinations for plant and processing machinery, machine tools, earthmoving and mining, and power and electrical equipment as global majors diversify their supply chains. The momentum is being amplified by policy support and targeted government initiatives. Central schemes such as the Remission of Duties and Taxes on Exported Products (RoDTEP), the MOOWR (Manufacture and Other Operations in Warehouse) Scheme for duty deferment, the Duty Drawback program, and the EPCG (Export Promotion Capital Goods) Scheme provide fiscal incentives and regulatory flexibility that stimulate technology adoption and capital investment.

In parallel, state-level incentives—including fixed capital subsidies reaching up to 50 percent, SGST reimbursement up to 300 percent of capex, interest subvention of 4-7 percent, and stamp duty and electricity duty exemptions up to 100 percent in most parts of the country—are driving significant localization and value addition across manufacturing. The effectiveness of these structured policies is evident in the sector’s rising competitiveness and its ability to rapidly scale both domestic production and export capacity.

Crucially, capital goods are a lynchpin for critical national priorities:

• Clean Energy Transition: India’s total installed energy capacity currently stands at 495 GW, with non-fossil or ‘green’ sources already contributing 248 GW, representing nearly 50 percent of the energy mix. By 2030, the country projects the energy grid to reach 784 GW in total capacity, of which around 500 GW, or 64 percent, will come from renewable and other non-fossil energy technologies. This dramatic growth trajectory is set to drive substantial demand for turbines, grid modernization equipment, and industrial electronics.
• Infrastructure Build-out: Massive investments in logistics, transport, smart cities, and data center ecosystems underpin steady demand for a wide array of capital equipment and automation systems.
• Export Competitiveness: Manufacturers with an India footprint stand to access not only the domestic market but regional export corridors across South Asia, the Middle East, Africa, and ASEAN, leveraging improved logistics and policy-driven trade facilitation.
  

Supply Chain Resilience and Human Capital

India is emerging as a resilient alternative—diversifying global sourcing for machinery, components, and advanced industrial systems. New investments in warehousing, cold chain, and upstream logistics are lowering costs and improving just-in-time delivery for manufacturers.

India’s competitive advantage is multi-dimensional. A rapidly growing working-age population—projected to increase from 735 million in 2011 to nearly 988.5 million by 2036—provides a substantial demographic dividend for the nation. This growth in workforce is complemented by fast-evolving technical skillsets and is mirrored in a rapidly urbanizing, aspirational consumer class. India is investing deeply in human capital through the Skill India Mission, thousands of upskilling centers, and industry-academia partnerships. These efforts have raised the Worker Population Ratio to 52.2 percent, while the Female Worker Population Ratio has risen to 32 percent, pushing female workforce participation to new highs.

The opportunity is further harnessed by key initiatives launched by the government such as the multi-modal National Logistics Policy, the PM GatiShakti scheme, and targeted skilling programs, ensuring that workforce development, infrastructure, and policy reforms drive sustained economic growth.

India’s Industrial Future—Integrated, Innovative, Inevitable

India’s manufacturing ascent is now structural, not cyclical. Urban demand, robust policymaking, skilled talent, and a thriving domestic and export market all reinforce the case for capital goods investment as a pillar of national growth. Risk management and localization remain key, but with the government continuing to lower policy and logistical barriers, India is poised to become not just the ‘factory of the world’ but an innovation and engineering hub.

Devesh Tripathi Senior AVP Invest India

Shanvi Gupta Manager Invest India