Why in the News

India’s manufacturing sector is gaining momentum as global supply chains shift due to geopolitical risks. The focus is moving away from volume-based production towards technology-intensive and value-added manufacturing, reflecting India’s rise in the global value chain. Logistics costs have fallen to about 7.97% of GDP in 2023-24, electronics exports have increased nearly eightfold in the last decade, and the pharmaceutical sector now supplies over half of global vaccine demand. 

Why is India’s Manufacturing Strategy Undergoing a Structural Shift?

1. Global supply chain reconfiguration: Facilitates diversification away from single-country dependence amid geopolitical uncertainty.
2. Competitiveness imperative: Necessitates trusted production capabilities, scale, and technology intensity.
3. Policy reorientation: Strengthens manufacturing competitiveness by integrating firms into global value chains rather than protection-led expansion.

Which Sectors Signal India’s Move Up the Value Chain?

1. Electronics manufacturing: Records roughly sixfold expansion in production and nearly eightfold export growth over the last decade.
2. Pharmaceutical industry: Ranks among the world’s largest by volume, supplying over 50% of global vaccine demand and a major share of generic medicines.
3. Technology and tradability: Combines scale, R&D intensity, and export potential, enabling broader industrial participation.

Why Do Industrial Clusters Matter for the Next Phase of Industrialisation?

1. Agglomeration economies: Improve productivity, capability diffusion, and innovation spillovers.
2. Tier-2 and Tier-3 city clusters: Offer lower land, labour, and real-estate costs, alongside better liveability than congested metros.
3. Fragmentation challenge: Limits scale benefits unless clusters evolve into integrated industrial ecosystems.

How Do Logistics and Infrastructure Shape Manufacturing Competitiveness?

1. Logistics cost reduction: Declines to ~7.97% of GDP (2023-24), approaching global benchmarks.
2. Logistics Performance Index: Shows steady improvement, with Indian ports featuring among the global top 100 in World Bank rankings.
3. Policy initiatives: PM Gati Shakti and National Logistics Policy enhance multimodal connectivity, coordination, and freight efficiency.
4. Modal imbalance: Road transport dominates freight, while rail and coastal shipping remain underutilised for long-distance bulk movement.

What Role Do Quality and Regulatory Standards Play in Export Competitiveness?

1. Quality Control Orders (QCOs): Strengthen manufacturing competitiveness by enforcing minimum standards aligned with global norms.
2. Standards compliance: Enhances credibility in international markets and incentivises capability upgrading.
3. Implementation risks: Requires phased rollout, adequate testing infrastructure, and compliance support to avoid scale constraints.

Why Are MSMEs Central Yet Constrained in India’s Manufacturing Ecosystem?

1. Economic backbone: Contributes significantly to employment, output, and exports.
2. Formalisation gains: Improves access to finance and supply-chain integration.
3. Persistent constraints: Credit gaps, skill shortages, slow technology adoption, and uneven quality infrastructure limit deeper participation.

Why Must India Tolerate Higher Firm-Level Risk in Manufacturing

1. Technology-intensive production: Involves experimentation, learning costs, and higher failure rates.
2. Innovation ecosystems: Require robust R&D systems, skilled labour, and adaptive financing.
3. Strategic trade-off: Accepting firm-level failures enables long-term competitiveness and scale efficiencies.

Conclusion

India’s next manufacturing leap will be defined by what it produces rather than how much it produces. Deepening industrial ecosystems, strengthening logistics and standards, enabling MSMEs, and building technology-intensive capabilities are central to sustaining competitiveness in a fragmented global economy.

PYQ Relevance

[UPSC 2017] Account for the failure of manufacturing sector in achieving the goal of labour-intensive exports. Suggest measures for more labour-intensive rather than capital-intensive exports.

Linkage: Manufacturing is a core pillar of GS-III, repeatedly reflected in UPSC questions on MSMEs, labour-intensive exports, industrial policy, and jobless growth. This article updates the debate by showing how India is shifting from volume-driven manufacturing to technology-intensive, value-added production.

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