Manufacturing sector needs mission-based approach

Manufacturing industries are central to employment, productivity, exports, and strategic resilience. They warrant a mission-oriented approach beyond incentive-based interventions, the Economic Survey 2025-2026 observed.

In the midst of economic transformation, geopolitical uncertainty, and rapid technological change, manufacturing capacity needs to be viewed as a strategic national asset. And, MSMEs are crucial as they should evolve from micro-scale production to deeper participation in formal and export-linked supply chains.

“The next phase of industrialisation will require a calibrated shift from a model centred mainly on import substitution towards one focused on scale, competitiveness, innovation and deeper integration into GVCs.” it noted.

MSMEs account for approximately 35.4% of manufacturing, around 48.58% of exports, and 31.1% of GDP in the country. Over 7.47 crore enterprises employing over 32.82 crore persons.

The MSME sector is well-positioned to harness the current momentum in the manufacturing sector. Despite expanding credit footprints and rising digital integration, access to formal credit remains a binding constraint for many micro-enterprises due to limited collateral and documentation readiness.

Innovative measures including cash-flow–based lending should be expanded significantly to encourage formal credit access to micro and even first-time borrowers. Accelerating digital lending partnerships may also support these enterprises. Continued calibration of tariffs on intermediates and capital goods—especially in high-growth sectors—can enhance cost competitiveness.

The design and implementation of QCOs should be grounded in economic practicality. Mandating certification for specialised raw materials, intermediate inputs, or spare parts—particularly when domestic alternatives are scarce or non-existent—can inadvertently be counterproductive. QCOs on intermediates, therefore, require exceptional caution, with flexibility built in.

Further, the gap between domestic strength and global competitiveness underscores the need for an upgraded cluster strategy. While India has several organically developed clusters that bolster domestic production, transforming these clusters into globally competitive ecosystems requires achieving optimal scale and improving regulatory flexibility.

Sustained investments in connectivity, industrial infrastructure, skilling, and supportive policy frameworks can facilitate many tier-two and tier-three cities to emerge as competitive manufacturing centres.