Modi’s Vision for a ‘Developed India’: Can Manufacturing Lead the Way?
After a tough election result, Indian Prime Minister Narendra Modi faces a crucial challenge: how to drive India towards its ambitious goal of ‘Viksit Bharat’ or ‘Developed India’ by 2047. This vision aims to transition India from an emerging economy to a global powerhouse. However, achieving this goal requires answering a fundamental question—should India focus more on growth, manufacturing or strengthen its services sector?
Manufacturing vs. Services: The Ongoing Debate
While the services sector has played a significant role in India’s economic growth, Modi’s government remains firmly committed to boosting manufacturing. The administration believes that a robust manufacturing industry will create jobs, reduce poverty, and elevate India’s global standing. To support this vision, the government has introduced various subsidies and incentives to encourage industrial growth.
At the heart of this strategy is the Production-Linked Incentive (PLI) scheme, which offers $28 billion in subsidies across 14 sectors to increase manufacturing output. Additionally, the government has allocated another $10 billion to boost the semiconductor industry, a crucial sector in today’s digital economy. Alongside these incentives, India has doubled its capital expenditure over the past decade, signalling its commitment to infrastructure development and industrial expansion.
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However, not everyone agrees with this approach.
The Case for Strengthening Services
Former Reserve Bank of India Governor Raghuram Rajan has voiced concerns over India’s manufacturing push. He argues that India should focus more on its services sector, which already enjoys a competitive edge. His key points include:
- Difficult Manufacturing Competition—India faces tough competition from countries like China and Vietnam, which have fewer restrictions on labor laws and can more easily attract manufacturers.
- Protectionist Policies – India’s reluctance to join major trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP), limits its ability to integrate into global supply chains.
- Value in Services – The most profitable parts of a product’s lifecycle—research, design, marketing, and branding—are service-driven. For example, Apple, which focuses on design and branding, is worth far more than its manufacturing partner, Foxconn.
Rajan’s argument suggests that instead of forcing a manufacturing boom, India should further develop industries like IT, legal services, consulting, and logistics, where it already excels.
Challenges Facing Indian Manufacturing
Despite government efforts, Indian manufacturing has not performed as expected. Some key issues include:
- Declining Foreign Direct Investment (FDI) – India’s FDI inflows have dropped in recent years, from over $50 billion annually between 2019 and 2022 to less than $30 billion now.
- Limited Growth in Manufacturing – Manufacturing’s share of India’s GDP remains around 17%, barely changing since Modi first took office in 2014.
- Global Positioning – While China has increased its share of global manufacturing from 25% to over 30% in the past decade, India still holds less than 3%.
These figures highlight the difficulty in making India a manufacturing hub despite government initiatives.
The Role of Geopolitics in Modi’s Manufacturing Push
One primary reason Modi focuses on manufacturing is geopolitical competition with China. Like India’s ‘Viksit Bharat’ vision for 2047, China has a similar centennial goal for 2049—to become a dominant global power. India’s strategy revolves around self-reliance, much like China’s ‘Zili Gengsheng’ (self-reliance), naturally placing manufacturing at the centre of national policy.
Global supply chain disruptions have also encouraged India to reduce its dependence on Chinese manufacturing. By promoting local industries, Modi aims to position India as a reliable alternative to China in global trade.
The Road Ahead: Reforms and Challenges
For Modi’s manufacturing dream to succeed, major reforms are necessary, particularly in two key areas:
- Land Reforms – Land acquisition in India is complex, with outdated records and lengthy legal battles delaying projects. Streamlining land approvals will be essential.
- Labour Reforms – Indian labour laws are fragmented between state and central governments, creating uncertainty for businesses. Simplifying hiring and firing regulations will encourage more investment in manufacturing.
Modi appears determined to address these issues. However, with a weakened parliamentary majority, implementing these reforms could prove difficult.
Conclusion: Will Manufacturing Lead India to ‘Developed’ Status?
While India’s manufacturing ambitions remain strong, challenges like global competition, trade policies, and slow sectoral growth raise questions about its effectiveness. Strengthening the services sector could provide an alternative path to economic prosperity. That said, Modi’s commitment to manufacturing remains unwavering, and it is likely to remain the cornerstone of India’s economic strategy in the coming years.
Whether this approach will lead India to its ‘Developed India’ vision by 2047 remains to be seen, however, one thing is certain—the world will be closely watching India’s economic trajectory.
This article was initially published in Chathamhouse
