MANUFACTURING GROWTH

FOR LONG, INDIA’S MANUFACTURING SECTOR AND MERCHANDISE EXPORTS HAVE BEEN ON THE BACK SEAT. BUT AMIDST CHANGING GLOBAL ECONOMIC DYNAMICS, CAN THESE BECOME THE NEW ENGINES OF GROWTH?

- SURABHI

WITH AN ESTIMATED GROSS DOMESTIC PRODUCT (GDP) GROWTH OF 6.5% IN FY25, INDIA REMAINS THE FASTEST-GROWING MAJOR ECONOMY IN THE WORLD. THOUGH THAT RATE WAS THE SLOWEST IN FOUR YEARS, THE GOOD NEWS IS THAT INDIA WILL RETAIN THE FASTEST-GROWING LARGE ECONOMY TAG IN THE COMING YEARS AS WELL WITH THE INTERNATIONAL MONETARY FUND (IMF) PEGGING ITS GROWTH AT 6.2% IN CALENDAR YEAR 2025 AND 6.3% IN 2026.

As per the IMF, India is set to become the fourth-largest economy this year, overtaking Japan, with experts continuing to bet on its long-term potential. A new report by BofA Securities says nine structural themes beneficial for India's long-term growth outlook are likely to play out. These are rapid infrastructure build-up; productivity gains through energy efficiency, better logistics infrastructure; improved capital-output ratios; digitisation, financialisation, resilience of household savings; rise in discretionary consumption; formalisation through the goods and services tax (GST); UPI and e-invoicing; decarbonisation; and current account surplus through exports push. “India is likely to become the third-largest economy in the world in this decade, surpassing Germany,” says Amish Shah, Head of India Research at BofA Securities.

But the manufacturing sector remains a concern. Growth in gross value added (GVA) in the manufacturing sector slowed considerably to 4.5% in FY25 from 12.3% the previous year. In FY25, its contribution to overall GVA declined marginally to just 14% from an already modest 14.3% in FY24. In fact, it has been on a downward trajectory in recent years, declining from 17.4% in FY12, despite the government's ambitions to grow it to 25%.

For comparison, in 2023, manufacturing GVA as a share of GDP was 26% in China and 24% in Vietnam, as per the World Bank data.