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The manufacturing sector in India is the largest contributor to industrial output, accounting for 77.6% of total industrial production. This dominance underscores its central role in driving industrial activity and employment.
Manufacturing contributes approximately 17% to India’s GDP, making it a vital engine of economic expansion.
India’s engineering sector, the largest industrial segment, drives 63% of foreign collaborations, supporting key industries like infrastructure, energy, and automotive. Simultaneously, domestic electronics production is evolving, reducing import dependence and enhancing India’s role in the global value chain (GVC) through high value finished goods beyond basic assembly.
Meanwhile, domestic electronics production is transforming, reducing import reliance and strengthening India's standing in the GVCs. The country has moved beyond assembly-based production to high-value finished goods, reinforcing its competitive edge.
However, India's global electronics export share remains modest, highlighting the need for deeper localisation of high-tech components, investment in R&D, and strong design capabilities. This shift toward value-added production enhances economic resilience, attracts foreign investment, fosters innovation, and positions India as a key supplier in international markets.
GVCs integrate manufacturing with pre- and post-production services via global capability centres (GCCs), driving 70% of international trade. In 2022, GVC-related trade made up 40.3% of India's gross trade, underscoring the need for deeper involvement in electronics, semiconductors, automobiles, chemicals, and pharmaceuticals. India's auto component exports remain modest despite a strong base, requiring stronger global linkages.
The global economic centre of gravity is shifting eastward, with Asian economies like China, Vietnam, and India playing key roles in GVCs. Asia's rise in manufacturing, trade, and regional integration — exemplified by the RCEP — has strengthened its GVC position. Vietnam thrives due to efficient policies and strategic location, while China remains dominant in high-value manufacturing. Despite its potential, India faces challenges such as high tariffs, regulatory hurdles, and low productivity. To better integrate into GVCs, India must reform trade policies, boost innovation, and leverage its demographic and FDI advantages. Successful integration is likely to reinforce Asia's global economic leadership.
Significant opportunities for higher value addition exist across various sub-sectors in the manufacturing industry. With technological progress, policy reforms, and global demand shifts, Indian industries can move beyond low-cost production and position themselves as leaders in innovation and premium manufacturing. Key sectors such as electronics, biotechnology, automotive, aerospace, renewable energy, advanced materials, and medical devices are poised for substantial growth, driving economic expansion and enhancing India's global competitiveness. By focusing on research & development, automation, and high-tech capabilities, Indian manufacturers can capture more value in the production chain and accelerate the country's transformation into a global manufacturing hub.
The engineering sector continues to play a crucial role in India's industrial growth. A strong push toward self-reliance is evident with multiple initiatives aimed at enhancing manufacturing in India while reducing import dependency. Production growth has been steady, with electronic goods seeing remarkable growth — including 99% of smartphones being manufactured locally. India's semiconductor ecosystem has also gained significant momentum, with five landmark projects receiving approval and a total combined investment nearing USD 17.78 billion (INR 1.52 lakh crore) to boost domestic chip production and reduce reliance on imports. Key initiatives include a USD 10 billion (INR 83,947 crore) joint venture in Maharashtra for analogue and mixed-signal semiconductor manufacturing, Micron Semiconductor's Special Economic Zone (SEZ) in Gujarat, and Aequs Group's SEZ in Karnataka, all aimed at strengthening domestic capacity and fostering high-tech employment. In light of this, there is a need to ensure that the right manufacturing technology and talent are available along with a robust ecosystem to enhance productivity, quality, and cost competitiveness. At the same time, India's participation in global value chains is becoming increasingly vital, allowing domestic industries to integrate with international production networks, improve efficiencies, and drive higher-value exports. Strengthening these linkages, coupled with investments in Industry 4.0, digital transformation, and innovation-driven strategies, will not only elevate India’s competitiveness but also reinforce its role as a key player in the global manufacturing landscape.
Shridhar Kamath, Partner and Industry Leader, Engineering and Industrial Products, Grant Thornton Bharat
Quarterly newsletter - July 2025
