In 2017–18, the manufacturing sector (industry) accounted for 18 per cent (31.2 per cent) of India's gross domestic output (GDP) at constant prices. The corresponding ratio for employment is 12.1 per cent (27 per cent), as per the periodic labour force survey (PLFS) data. As the ratios have barely inched up for over 25 years (Figure 1.1), it is a sign of industrial stagnation (Nagaraj 2017). Moreover, after initiating the liberal (free-market) economic reforms in 1991, import and technological dependence have risen (Chaudhuri 2013; Mani 2018).
However, a boom in information technology (IT) services and their exports has more than compensated for industrial stagnation, as India's output growth accelerated. After joining the World Trade Organisation (WTO) in 2001, if China came to be known as the world's factory, many believed that India was on its way to becoming the world's back office. For a while, India seemed to be on course, catching up with China, but it faltered suddenly.
The global financial crisis in 2008, the great recession after that and the rising threats of a trade war have taken the sheen out of India's performance and put paid to its global ambition. Meanwhile, China has graduated from assembling low-quality consumer goods to a technologically dominant nation – for example, Huawei's pole position in the telecom technology market – with world-beating firms and brands, both in high-tech manufacturing and IT services.
Realising the limits to the growth of the new services without the backing of a sound manufacturing base, the National Manufacturing Policy, 2011, sought to raise the sector's share in GDP to 25 per cent and to create 100 million additional manufacturing sector jobs by 2025. Though the policy failed to take off, the document helped articulate the need for industrialisation – or re-industrialisation – as an imperative for long-term national development.
In 2015, the policy was recast as the ‘Make in India’ initiative, with the following objectives:
1. The target of an increase in manufacturing sector
growth rate to 12–14 per cent per annum over the medium term.
2. An increase in the share of manufacturing in the country's GDP from 16 per cent to 25 per cent by 2022.