How to make in India for the world and attract large global companies

Manufacturing and trade support each other: Quality manufacturing increases export, and global-market access helps manufacturers grow. India’s trade relies heavily on manufactured goods, which account for 75 per cent of its merchandise exports.

The last decade (2014-24) of India’s manufacturing and export performance offers an interesting perspective on how these two vital components of economic growth have performed.

The government has highlighted several achievements as India completed 10 years of the “Make in India” initiative. For example, 99 per cent of the mobile phones used in India are now made locally. India is now a net exporter of finished steel and the fourth-largest producer of renewable energy, with a 400 per cent rise in capacity. The Production-Linked Incentive (PLI) scheme has attracted Rs 1.46 trillion in investment, generating Rs 12 trillion in output and creating 900,000 jobs. Foreign direct investment (FDI) in manufacturing has grown by 69 per cent, reaching $165.1 billion in the past decade.

However, looking beyond these highlights, a broader view of the economy shows more mixed results. In FY14, India’s GDP was $2,010 billion, with merchandise exports at $314 billion and manufacturing accounting for 15 per cent of GDP. By FY24, GDP had grown to $3,900 billion, and exports reached $437 billion, but manufacturing’s share in GDP dropped to 13 per cent. With manufactured products making up 75 per cent of India’s trade in both periods, the share of manufacturing exports relative to manufacturing GDP fell from 78.1 per cent in FY14 to 64.6 per cent in FY24. This reflects a dual challenge: The shrinking role of manufacturing and its decreasing export contribution. These trends point to deep structural challenges that require urgent action.

Critical challenges

High input costs: Compared to China, Indian manufacturers face high costs of raw materials, energy, and financing. Companies here often pay higher tariffs on imported intermediate goods while China benefits from efficient local production and integrated supply chains. The cost of industrial electricity in India varies between $0.08 and $0.10 per Kwh, whereas in China, it’s $0.06 to $0.08. Additionally, lending rates in India average 9-10 per cent compared to 4-5 per cent in China. These cost differences make a product expensive. For instance, producing solar cells in India is 40 per cent more expensive than sourcing from China. High costs hurt export and deter potential manufacturers.

Complex labour laws: These make it difficult for manufacturers to scale up. Global trade favours large companies, but Indian labour rules restrict layoffs for firms with more than 300 employees. Events like the Samsung strike at Perumbudur show the challenges businesses face even when they follow rules. In contrast, China, Vietnam, and Bangladesh offer more labour flexibility, giving firms a competitive advantage in scaling up their operations.

High logistics costs: India relies on foreign shipping companies for 90-95 per cent of its trade cargo, leading to higher freight costs and less control over shipping schedules. About 25 per cent of Indian cargo passes through hubs like Colombo and Singapore because many Indian ports lack deep waters for large ships, adding time and costs. Dependence on Chinese-made containers further risks supply disruption, while internal logistics costs go up due to delays in road transport and customs clearances.

Results

The above challenges have kept India’s manufacturing, particularly the electronics sector, focused on assembly rather than full-scale, deep manufacturing. For instance, high-end smartphones made in India use imported inputs up to 90 per cent. The high costs and the low ease of doing business also hurt labour-intensive exports, such as garments, marine products, and gems and jewellery, all of which have seen declining export over the past decade.

Strategy

In the long term, India must shift from a nation with high costs and complex regulations to a low-cost producer of high-value goods and services. Achieving this will require structural reforms, including lowering costs of raw materials and energy, modernising labour laws, and strengthening manufacturing capabilities. Let us discuss a few urgent reforms.

To cut raw-material costs and ease supply, India needs to revisit import tariffs and anti-dumping duties on key starting materials (KSMs). Many large businesses producing most KSMs in textiles, chemicals, and steel are shielded by high import tariffs, which drive up costs for user industries, making their products more expensive and less competitive, particularly in export. Forced to buy costly domestic materials, user industries also face lower import duties on finished goods, putting them at a disadvantage in both global and domestic markets.

Make all efforts to attract large global companies in critical sectors. As anchor manufacturers they can rapidly scale up operations. We have seen how the Maruti-Suzuki joint venture has increased the productivity of India’s auto sector. Or how Apple now has crossed $10 billion in export in three years.

Establishing a paperless, single-window “National Trade Network” will allow small businesses to handle all regulatory filing online. This single portal will help thousands of micro, small, and medium enterprises become exporters.

Producing quality products isn’t enough. We need policies to build efficient, product-focused supply chains that streamline raw-material sourcing, production, logistics, and customs clearance. The government currently lacks the expertise to achieve this and must build capacity.

Finally, we need to shift from cheerleading to self-reflection and improvement. We should be wary of global consultants pushing grand visions of India becoming a $50 trillion or $100 trillion economy, especially when per capita income is still under $3,000. Such promises often come with hidden motives.

China quietly leads the world in exports, technology, and manufacturing without fanfare. As Deng Xiaoping once said, “Hide your strength, bide your time”. India would do well to follow this approach.

The writer is the founder of Global Trade Research Initiative