Manufacturing in India is facing significant issues, and I am writing this piece to elucidate these issues and present some sort of frameworks that attempt to solve these issues.

It is broken because the state misunderstands the true nature of this sector; they are emergent, relational and adaptive, not planned, plotted or policed.

Indian manufacturing is not growing. The growth rate is abysmal, especially compared to the services sector. Manufacturing’s share of GDP has hovered around 15-20% for three decades. Meanwhile services have grown at an exponential rate, 126%, in the last ten years, compared to manufacturing’s measly 38%, a mere 0.5% per year when compounded in nominal dollar terms. For a developing country, 0.5% is insignificant.

The reason manufacturing suffers are intuitive, but the uniquely Indian problem is the fact that factories are very visible entities, what I mean by that is that it makes it a sitting duck, vulnerable to both private and public actors to extort them, not in the traditional sense but in various informal and formal ways.

Another weakness lies in how industrial policy tries to “create” linkages through policy without applying a top-down approach towards it, “linkages” is a term coined by Albert O. Hirschman in “The Strategy of Economic Development”. Linkages are positive externalities that arise organically when industries evolve together. They are not something that can be inculcated in design by creating corridors or clustering a single product to a single geographical location without leaving any space for any spillover effects.

Then comes the issue of bigger companies squeezing the smaller ones; the smaller companies lack bargaining power, are subjected to payment delays, tight working capital cycles. These make small firms extremely vulnerable and take us back to the original point about manufacturing’s susceptibility to predation.

Electricity is yet another hindrance. It is unreliable, generators are an added and expensive cost, and commercial and industrial users are charged a premium and then when they try to export their goods, they are met with carbon taxes imposed by European buyers and government who deem our power generation “not green” which it isn’t but it adds on to the burden of the manufacturer.

Global value chain participation brings its own balancing act: the delicate dance of managing lead times, distributors, contractors, and the cathedral of control that small firms must maintain lest they should face heavy financial penalties. These are only some of the issues that plague Indian manufacturing.

When we study countries now dominated by services like the USA or Norway, we see that each passed through a strong manufacturing phase before services became their stronghold. This strengthens the belief that nations need a manufacturing boom before moving into higher-order sectors. India has still not had that phase.

For decades, development economists and policymakers have treated manufacturing as destiny, prescribing export targets, deciding which industries to favor, and desigining systems that ignored the organic linkages firms develop. From Lewis to Prebisch, the traditional view held that centrally planned industrialization was the only reliable path out of an agrarian economy which by no means suggests that I am discounting the importance of agriculture and allied sectors. This mindset shaped postcolonial policy including ours.

Industrial policymaking in the 60s and 80s is very reminiscent of that era.

Micromanaging manufacturing and designing corridors have routinely failed.

Modern thinkers have slowly dismantled these orthodox narratives. Dani Rodrik shows that many countries, including India, face “premature deindustrialization”: losing manufacturing jobs and output before becoming rich. Unlike earlier industrializers, they shifted to the services sector too soon, because of the ease of entry into that market, as the service sector doesn’t have the same high barriers to entry as manufacturing does.

They end up missing the productivity gains, export strength and mass employment that manufacturing traditionally provides, making sustained growth much harder.

James C. Scott, who authored “Seeing like a state” has revealed in his book why top-down, state-designed industrialization routinely fails; it ignores local knowledge, informal ecosystems and the evolutionary nature of real clusters. The real focal point should be building capability over factory fetishism and treating manufacturing as a complex adaptive process. Only then can India achieve a stronghold on manufacturing which will be the base for all economic growth that will happen in the country going forward.