The Economic Survey on Manufacturing: What It Gets Right and What It Avoids

The Economic Survey 2025–26 marks a noticeable shift in how the government views manufacturing. Gone is the confident assumption that manufacturing growth will follow naturally once incentives are announced and procedures are simplified. This year, it appears to be a more layered claim. The survey reckons that India’s industrial future will hinge on whether it can embed itself in global value chains (GVCs) as a credible, high-quality and technologically dependable producer. This is a welcome shift in diagnosis. Perhaps it is also an implicit admission that earlier manufacturing strategies, which were heavy on incentives and light on institutional depth, ran into their own limits.  

The survey’s invocation of the idea of ‘strategic indispensability’ signals an emerging reality of GVCs. It recognises that the world has moved beyond the era of frictionless trade, where comparative advantage could be reduced to just costs and scale. In a geopolitically fractured environment, manufacturing competitiveness increasingly rests on trust—trust in standards, delivery timelines, regulatory predictability, contract enforcement and the durability of policy regimes. Countries that cannot supply these attributes will be bypassed. While the survey is right to recognise this shift, it remains silent on whether India possesses the institutional capacity to deliver on it. 

There is no denying that India’s recent industrial performance has been stronger than what many critics acknowledge. Manufacturing Gross Value Added grew by 7.7% and 9.1% in the first two quarters of FY 2025–26, recovering sharply from the global-demand-driven slowdown of FY25. Medium- and high-technology activities now account for 46.3% of India’s manufacturing value added, placing India among a small group of middle-income economies that are slowly moving up the production ladder. The more crucial question, however, lies not in these growth rates but in the structure of that growth and the governance architecture required to sustain it. The survey flags this but avoids deeper analysis.  

This limitation is most evident in its discussion of the Production-Linked Incentive (PLI) scheme that was launched in alignment with the vision of ‘Aatmanirbhar Bharat’ in 2020. The survey reports some impressive headline numbers - over ₹2 lakh crore in realised investment, incremental production exceeding ₹18.7 lakh crore, exports above ₹8.2 lakh crore and employment generation of more than 12.6 lakh jobs. Electronics manufacturing, in particular, has expanded dramatically—mobile phone production alone rose from ₹18,000 crore in FY15 to ₹5.45 lakh crore in FY25. 

But the survey itself implicitly admits that incentives are at best a catalyst, not a substitute for industrial capability. Actual incentive disbursements so far amount to less than ₹24,000 crore across 12 sectors, a small fraction of the production value attributed to the schemes. More importantly, assembly-led expansion has not yet translated into commensurate gains in domestic design capabilities, component ecosystems, or R&D intensity. By foregrounding headline investment numbers and incentives, the survey sidesteps the harder question of whether these translate into spillovers in productivity, innovation and local capability. Without such spillovers, industrial policy risks degenerating into a fiscally costly exercise in accommodating global value chains rather than internalising them. 

The National Manufacturing Mission, announced with ambitious targets for 2035, also reflects this recurring tension between ambition and institutional capacity. Doubling manufacturing’s share of GDP from 12.9% (in 2023) to 25% and generating 143mn jobs would require sustaining manufacturing growth in the low-to-mid teens for more than a decade. India has never achieved this consistency. Doing so would demand hard choices on land use, urbanisation, labour mobility, environmental trade-offs and fiscal federalism. 

This is precisely where the survey is again conspicuously cautious. It speaks of Centre–State alignment but says little about how conflicts will be resolved when state-level political economy diverges from national ambition. Manufacturing transformation cannot be politically neutral. It will continue to generate winners and losers and those distributional consequences cannot be wished away through administrative reforms alone. The Survey could have dwelt on this aspect.  

The discussion on quality regulation further illustrates this ambiguity. The expansion of Quality Control Orders (143 QCOs now covering 723 products) signals an intent to reposition India as a trusted manufacturing base. In sectors such as toys, quality mandates combined with tariff changes led to a 52% fall in imports and a 239% rise in exports, turning India into a net exporter. Yet, the survey quietly records a critical data point in the footnote: in 2025–26 alone, 46 QCOs covering 51 products were revoked and several others were deferred, without further elaboration. Quality mandates imposed without adequate consultation or phased implementation typically generate industry pushback, strong enough to force retreat. That the survey records this significant rollback rate without analysing what it reveals about regulatory capacity is telling in itself. 

The same appears in the survey’s treatment of innovation. India’s Gross Expenditure on R&D remains stuck at 0.64% of GDP, with the business sector contributing just 41%, well below levels in the US, China and South Korea. New instruments such as the RDI Fund and the Anusandhan National Research Foundation aim to crowd in private research. Yet the survey’s optimism rests on an assumption that once funding for architecture exists, private risk-taking will follow. International evidence does not strongly support this.   

In practice, firms respond to a broader set of incentives—competitive pressure, regulatory predictability, reliable demand from lead firms or the state and confidence that intellectual property will be enforced over time. These are slow-moving institutional variables and the survey is silent mainly on how quickly, or through what mechanisms, they are expected to change. Without progress on these margins, higher public spending may expand research activity but may not materially alter the innovation behaviour of firms. 

To its credit, the 2025-26 Economic survey recognises that manufacturing-led development is not a matter of declarations. It is a long political and institutional slog. Countries that have succeeded have done so by sustaining discipline across governments, business cycles and bureaucracies. Whether policy choices will now reflect the survey’s diagnosis remains uncertain. 

(The authors are faculty members in the Economics & Public Policy Area at the Indian Institute of Management (IIM) Ranchi. The views expressed are personal.)