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Yet sustainably strong growth is not guaranteed, particularly at a time of rising geopolitical competition and global challenges to growth. In fact, the economy’s growth momentum has slowed since last year, while an alternative measure of growth looking at the supply side of the economy—real gross value added—is showing a more modest annual expansion of 6.8 percent in the March quarter.
Unlike many of its Asian peers, India does not depend strongly on external trade for growth, which cushions it somewhat from ongoing shifts in global trade and tariff policies, though it is not immune to the rising trade protectionism. While the government’s targeted policy interventions are helping to build domestic manufacturing capacity and strengthen India’s role in global supply chains, India’s manufacturing sector remains relatively small, leaving the economy dependent on less labour-intensive services and lower-productivity agriculture for growth and job creation.
A primary growth driver in the past, private consumption has been slow to recover from the pandemic, with a growing disconnect between rural and urban spending. While rural spending has improved, supported by rising farm incomes and moderating inflation following last year’s good monsoon, urban consumption remains sluggish. Partly, this is due to high interest rates and the Reserve Bank of India’s (RBI) crackdown on unsecured lending, but there are also more structural issues including an unstable labour market and gaps in long-term social security.
The government has been gradually reducing the tax burden for the middle class and continuing to subsidise government-administered social security schemes. But it is the high-quality formal sector job creation and greater access and affordability of social security (including through private insurance and pension) that would support the sustained recovery in private consumption. The government’s focus on manufacturing sector development for job creation may aid this goal, but it would take time to see meaningful progress.
But beyond the initial impact, increasing trade protectionism will further encourage supply-chain diversification, likely benefiting India. The threat of higher US tariffs on other Asian exporters could be leveraged to India’s advantage to accelerate its manufacturing growth and increase its share in global exports. Manufacturing value added accounts for a relatively modest 17.2 percent of India’s real GDP (latest government estimate for FY25), against the government target of 25 percent.India’s share in global manufacturing exports has remained largely flat over the past decade, reaching only 1.8 percent in 2024. In contrast, its share in global service exports increased from 2.9 percent in 2014 to 4.3 percent in 2024.
Further, the country’s share in global foreign direct investment (FDI) inflows has declined after a post-pandemic spike, from a high of 6.5 percent for FY21 down to 2.1 percent in FY24.
That said, the government has implemented targeted policy interventions to build domestic manufacturing capacity and strengthen India’s role in global supply chains. In particular, the Production Linked Incentive schemes introduced since March 2020 have contributed to growth and boosted exports in several manufacturing segments, including electronics, pharmaceuticals and automobiles. Notably, mobile phone exports, valued at zero in 2016, soared to $20.4 billion in 2024, growing 44 percent from 2023 alone.
The private sector also remains optimistic about growth opportunities in India’s manufacturing sector. High-frequency HSBC PMI® data —compiled by S&P Global Market Intelligence—highlights the domestic manufacturing sector’s resilience to recent global headwinds compared with other major economies. The country’s headline manufacturing PMI® readings over the past 12 months substantially exceeded global averages, supported by strong orders, increased hiring and inventory buildup.
An analysis of S&P Global Market Intelligence’s Strategic Opportunity Index® (SOI) measuring a market’s potential to generate opportunity for enterprise and looking at broad drivers of competitiveness over time also indicates India has made notable progress in enhancing several key aspects of competitiveness, including policy favourability, market potential, and logistics efficiency. Yet, the latter remains the key area of opportunity going forward, along with availability of capital and skilled labour.
An S&P Global Market Intelligence analysis shows that, beyond the initial negative impact or rising trade policy uncertainty, the effects of further manufacturing reshoring and trade regionalisation strategies on India could be positive over time. Companies are expected to relocate their operations to regions that offer competitive advantages, with India emerging as a key destination. Further, improvements in logistics efficiency, labour market deregulation, and financial resource availability would create a favourable environment for manufacturing investment. This, in turn, would lead to increased economic efficiency, greater manufacturing output, higher employment and stronger economic growth overall.â— The writer is head of Asia-Pacific Economics, S&P Global Market Intelligence
First Published: Jun 19, 2025, 16:21
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