US punitive tariffs on select Indian exports have intensified calls across academia and industry for India to transition from a service-driven economy to a product nation.

Historical Context: India’s Structural Growth Shift

Services Sector: The Persistent Growth Driver

• The share of the services sector in total Gross Value Added (GVA) rose from 50.6% in FY 2013–14 to 55.3% in FY 2024–25.
  • Between FY 2022–25, the sector registered an average growth rate of 8.3%, maintaining pre-pandemic levels (Economic Survey 2024–25).
  • Even during periods of global trade slowdowns, such as post-COVID and during 2023 geopolitical shocks, the services sector continued to sustain overall GDP growth.
  • Sub-sectors like IT, fintech, health services, and tourism contributed significantly to this performance.

Manufacturing Sector: Stagnation Amid Structural Ambitions

• Despite the “Make in India” push, the manufacturing sector’s share in GDP has remained stagnant, 16.7% in FY 2013–14 to ~17% to  in FY 2023–24.
• Employment in manufacturing remains significant—over 6 crore workers, many in MSMEs and informal units (MoSPI, 2023).
• The sector continues to face competitiveness challenges, supply chain dependencies, and global substitution risks, especially in labour-intensive and assembly-based exports (e.g., textiles, electronics).

Need for Transition

• Strategic  leverage: Countries producing critical products gain bargaining power (e.g., Taiwan’s semiconductors, South Korea’s  electronics, China’s rare earths and high-end batteries, Germany/Japan in precision machinery).
• Current gap: India’s exports (garments, generic drugs, electronics, cellphones) are largely substitutable, limiting global influence.
  • The top merchandise exporters include engineering goods, electronic goods, pharmaceuticals, and agriculture, which together accounted for over 50% of India’s total exports in FY 2024‑25 (PIB).
• Economic rationale: Strengthening domestic manufacturing enhances resilience against global shocks and trade disruptions, improves competitiveness, and ensures higher value addition.
  • India’s Production-Linked Incentive (PLI) scheme in sectors like electronics and mobile manufacturing has already boosted exports (e.g., mobile exports crossed ₹1.2 lakh crore in FY24)

Significance of Building a Product Nation

• Economic Resilience: Strengthening domestic manufacturing enhances India’s ability to withstand global economic shocks and trade disruptions.
• Global Competitiveness: Developing high-value, IP-driven products boosts India’s position in international markets.
• Strategic Leverage: Reduces dependence on external markets and mitigates risks from punitive trade measures.

Challenges Faced by Manufacturing Sector in India

• Low Productivity & Value Addition: Per capita manufacturing value added in India is $0.32K, far below the global average of $2K (World Bank, 2023).
• Semiconductor design: India has ~20% of the world’s chip design engineers but <10% of global design facilities; much work is for foreign specifications.
• Insufficient R&D Investment: Only 0.7% of GDP is spent on R&D, compared to 2-4% in industrial economies.
• Skill Gaps & Education-Industry Mismatch: Just 48.7% of the workforce is employable (India Skills Report 2023), with limited exposure to Industry 4.0 technologies.
• Import Dependence: Reliance on imports for semiconductors, electronics, and EV batteries contributes to trade deficits
• Inadequate Infrastructure: Delays in industrial park development, high logistics costs, and a lack of plug-and-play facilities.

Way Forward

• Investment in R&D: Increase R&D investment to at least 2% of GDP and establish mission-driven hubs for advanced manufacturing technologies.
  • China’s R&D spend is ~2.5% of GDP; it helped build global champions in EVs (BYD), electronics (Huawei), and solar modules.
• Investment in Human Capital: Focus on practical training, product design, and prototyping to align with a product-driven economy.
  • Germany’s Dual Vocational Training system integrates apprenticeships with classroom learning, producing skilled manufacturing engineers.
• Industrial Cluster Development: Establish industrial clusters and SEZs in underdeveloped regions to spur regional economic growth.
  • Shenzhen, China: Transformed from fishing town to tech hub via special economic zones, catalysing global giants like Huawei and Tencent.
• Infrastructure Investment: Allocate 1% of GDP for plug-and-play industrial parks, logistics networks, and certification labs.
  • Japan’s Kaizen model: World-class logistics and lean infrastructure enhanced competitiveness in global supply chains.
• MSME Support: Lower capital thresholds under the PLI scheme and provide financial and technical assistance to integrate MSMEs into global supply chains.
  • Replicate Auto Component Industry model : MSMEs in Pune and Chennai supply to global majors like Toyota and Hyundai.
• Indigenous Design & Product Ownership: Design and develop products based on Indian specifications to retain intellectual value and profit.
  • India’s ISRO model: Low-cost innovation like the Chandrayaan-3 and PSLV series shows how mission-driven research can yield global breakthroughs.
  • Bharat Biotech’s Covaxin: Indigenous vaccine development retained IP rights, boosting India’s health security and global credibility.

Conclusion

Transforming India into a Product Nation is critical to move up the global value chain, capture high-value segments, and enhance economic and strategic resilience. By focusing on innovation-led, IP-driven manufacturing, India can reduce dependence on low-margin exports, gain geopolitical leverage like Taiwan, South Korea, and emerge as a globally competitive, innovation-driven manufacturing hub.

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