Time Calls for Government Action to Spur Economic Recovery
Uncensored Economic Analysis: India's Manufacturing Woes
When examining the Indian economy's performance in the financial year 2024-25, it's clear that the nation sustained its title as the world's fastest-growing large economy, clocking in at a 6.5% GDP growth rate. Yet, beneath the surface, the economy reveals signs of slowing momentum, disguised by seemingly impressive totals.
A closer look at Gross Value Added (GVA) reveals some startling findings. Though real GVA grew by 6.4% in FY25, a sizable decrease from 8.6% the previous year, the sectoral growth numbers leave much to be desired.
The manufacturing sector, the focal point of the Narendra Modi government's efforts through initiatives such as Make in India, Production Linked Incentive (PLI), and lower corporate tax, has alarmingly exhibited deceleration. According to data from the ministry of statistics and programme implementation (MoSPI), the manufacturing sector only expanded by a paltry 4.5% in FY 2024-25, making it the second-lowest growth rate after the mining sector.
India's manufacturing sector's lethargy not only impedes the creation of employment opportunities for the burgeoning youth population but also hampers the country's aspiration to integrate more intricately into global manufacturing value chains. This slow pace suggests that India's ambition to seize a major share of the manufacturing output shifting out of China has gone awry.
While the service sector continued to shoulder the load in 2024-25, it's questionable whether an economy can maintain long-term growth without a vigorous industrial base. The protectionist policies introduced by U.S. President Donald Trump after his re-election this year further complicate matters for the government's efforts to stimulate factory growth.
India has entered into free trade agreements (FTAs) with numerous countries, which open up new markets for Indian products but also expose manufacturers to fiercer global competition. In this context, framing an effective industrial policy becomes a challenge, as it requires a mix of stimulating domestic consumption, increasing capital expenditure, expanding workforces, and fostering Economic stability.
Regrettably, risk-averse companies prioritizing market capitalization over worker well-being are less likely to raise salaries or expand their workforce, effectively shifting the responsibility of resurrecting the ailing economy onto the Central government. In light of this, the government must leverage its considerable resources to reignite the economy. Here's a glimpse into the key issues affecting India's manufacturing sector and their potential impact on the economy.
Slower Growth
India's manufacturing sector exhibited a significant decline in growth during the third quarter of 2025, with a mere 4.8% expansion compared to a whopping 11.3% increase in the same period last year[3]. This substantial downturn in one of the primary contributors to economic growth and employment hints at a broader slowdown in the economy.
Economic Stability
A strong and robust manufacturing sector is paramount for the stability of the economy, as it accounts for a substantial portion of the GDP. A faltering manufacturing sector can lead to a decrease in overall economic output and reduced growth rates, as evidenced by the 6.5% overall GDP growth in FY 2024-25, a drop from earlier years[4].
Job Creation
Manufacturing plays a significant role in job creation, particularly in the formal sector. A slowdown in the manufacturing sector translates to fewer job opportunities, impacting employment rates and overall economic prosperity.
Global Competitiveness
In a global context, a sluggish manufacturing sector might make India less competitive versus other nations, potentially affecting its ability to secure foreign investments and maintain its position as a strategic manufacturing hub[2].
Overall Economic Performance
Despite strong growth in other sectors such as construction and exports[1][2], the manufacturing sector's performance remains crucial for sustaining long-term economic growth and development. Its decline can impede the overall economic momentum and hamper broader-based economic development.
[1] Source: Ministry of Statistics and Programme Implementation (MoSPI)[2] Source: World Bank[3] Source: Invest India[4] Source: Ministry of Finance
- In light of the slow growth in India's manufacturing sector, it is crucial for investors and businesses in the personal-finance realm to closely monitor the nation's industrial policies and economic trends, as their success or failure could significantly impact the long-term growth of the market.
- To achieve economic stability and sustainable growth, the Indian government should focus on developing an effective industrial policy that fosters economic stability, encourages domestic consumption, increases capital expenditure, expands workforces, and addresses the concerns of risk-averse companies to stimulate factory growth, improve job creation, and boost global competitiveness in the personal-finance arena.
