A recent discussion highlighted by economist Noah Smith on social media has brought renewed attention to the persistent challenge of accelerating India's manufacturing sector growth. The tweet, posted on August 5, 2025, pointed to insights from Karan Bhasin, a doctoral candidate at University at Albany, SUNY, and Prakash Loungani, Director of the M.S. program at George Washington University, who propose significant policy shifts to boost the industry.
India's manufacturing sector has seen its share of the nation's Gross Domestic Product (GDP) remain relatively flat, hovering around 15-17% in recent years, even as the services sector has expanded significantly. This stagnation contrasts with the industrialization paths taken by many East Asian economies. The lack of robust growth in labor-intensive manufacturing poses a challenge for job creation and broader economic development.
Bhasin and Loungani argue that a key to unlocking manufacturing potential lies in treating it similarly to the services sector, advocating for less regulatory intervention. Their perspective suggests that the "best 'masala mix' to achieve a successful manufacturing base would be to let the state treat manufacturing just as services: that is, to just let them be," according to the article referenced in Smith's tweet. This approach implies a reduction in the complex and stringent regulatory environment that often stifles businesses.
The sector faces numerous hurdles, including outdated technology, inconsistent quality standards, and difficulties in accessing finance for small and medium-sized enterprises (SMEs). Additionally, skilled labor shortages and infrastructure gaps continue to impede progress. Regulatory burdens, particularly concerning labor laws, are frequently cited as deterrents to investment and operational efficiency.
Despite these challenges, the Indian government has initiated various programs to stimulate manufacturing growth, notably the 'Make in India' initiative and Production Linked Incentive (PLI) schemes across 14 key sectors. These policies aim to boost domestic production, attract foreign direct investment, and enhance India's competitiveness in global supply chains. The sector is projected to reach US$1 trillion by 2025-26, indicating significant potential if obstacles are overcome.
The insights from Bhasin and Loungani underscore the critical need for policy reforms that foster a more business-friendly environment. Addressing regulatory complexities and ensuring a skilled workforce could be pivotal in transforming India into a global manufacturing hub, driving economic growth and creating substantial employment opportunities.