Budget 2024 expanded the Production-Linked Incentive (PLI) scheme to include toys and footwear, increasing coverage to 16 sectors and increasing allocations to key industries. The total allocation surged by 89% to Rs 16,092 crore in FY25 from Rs 8,520 crore in FY24. Notably, 38 percent of this year’s allocation is earmarked for large-scale electronics manufacturing, highlighting the government’s efforts to attract investment and expand domestic production.
Although India has made significant progress in the global market, particularly in the manufacturing of Apple products and auto parts, much remains to be done to meet new challenges. As many as 27 manufacturers seeking access to the PLI scheme for IT hardware are struggling to meet the FY25 target. On the other hand, the response to the PLI system for white goods was lukewarm, and five major manufacturers withdrew from the system. Furthermore, the majority of the 27 beneficiaries of the scheme have not yet started production, and those that have started production have not yet reached the optimal size to generate significant revenues or achieve their goals. .
What can the budget offer?
India aims to become a global manufacturing powerhouse and is focusing on various other sectors such as medicinal plants, handicrafts, leather and footwear, gems and jewellery, and even the space sector. However, it is equally important to enforce the four labor laws across the state to make the industry more competitive and attract investment.
Read more: How Budget 2025 will shape the future of Indian farmers India’s growing exports of high-tech products (such as mobile phones) indicate that manufacturing’s contribution to GDP could grow. For example, electronics production nearly doubled from $48 billion in 2017 to $101 billion in 2023, and mobile phones now account for 43 percent of total electronics production. To further increase its share, the PHD Chamber of Commerce and Industry has called for an ambitious allocation of Rs 51 million in the 2024-2025 budget, up from Rs 48.2 million in the previous year. In pre-Budget consultations, economists are putting forward a new manufacturing policy that includes strategies on import duties, taxation, technology transfer and other key areas. This policy could address any potential interventions to support the sector.
Export challenges
One of India’s major challenges is its declining focus on exports. From 2012 to 2013, exports accounted for nearly 20% of manufacturing industry sales. That number is expected to fall to less than 7% by 2023 and fall further in 2024, according to Bloomberg data.
More recently, electronics giant Apple has become a key driver of India’s export growth, positioning the country as an important part of global supply chains and shifting manufacturing away from China. As a result, mobile phones have surpassed auto parts to become India’s largest export to the US. However, India’s broader manufacturing sector is yet to capitalize on this success. While Apple and the auto sector have achieved notable milestones, the rest of the private sector has yet to follow suit.
Read more: Budget 2025: 5 plans that Finance Minister Nirmala Sitharaman may add to
To address this, the budget is likely to resist calls for more tariffs, more subsidies, and stronger trade barriers. Instead, the focus could be on strengthening India’s manufacturing base, promoting exports, and simplifying trade-related processes to increase global competitiveness. The government should also aim for a balanced approach, encouraging domestic industry to support the ‘Make in India’ initiative while promoting seamless integration into global value chains. This will attract large global companies to set up operations in India, especially given the new geopolitical realities, as highlighted in a recent report by Deloitte.
Exporters have also expressed concerns about rising insurance costs due to instability in the Middle East and delays caused by congestion at Indian ports. These challenges are not just about physical infrastructure. They also emphasized the need to reduce red tape and modernize port governance, Bloomberg reported.
Finally, governments should work with the private sector to support mid-sized companies keen to explore new markets. Research shows that Indian companies are often unable to take advantage of free trade agreements due to red tape and lack of guidance. Government support to overcome these challenges could help develop new export opportunities.
Tamil Nadu model: Compatibility example
When it comes to manufacturing, Tamil Nadu is a beacon of hope for other states to emulate, emerging as a magnet for attracting large investments on a regular basis. In 2024, the state secured commitments of nearly Rs 1 trillion, cementing its position as India’s most industrialized state and largest exporter of automobiles and electronics. Tamil Nadu is currently competing not only with Gujarat and Maharashtra, but also with countries such as Vietnam and Mexico.
A manufacturing boom is also evident in India’s richest states, Maharashtra and Gujarat, but the populous core states of Uttar Pradesh, Bihar, Rajasthan and Madhya Pradesh are looking to replicate Tamil Nadu’s success. This has the potential to significantly strengthen India’s manufacturing industry. These states can leverage their vast workforces to attract similar investments and create jobs.
Tamil Nadu’s success is partly driven by the ‘China plus one’ trend, which has brought in significant investments from global companies. Tata Motors, for example, recently began construction on a $1 billion facility to produce Jaguar Land Rover vehicles, and Ford is restarting its Chennai factory three years after exiting the local market. Tamil Nadu has also become a hub for industries such as electric vehicles, with companies such as Vietnam’s VinFast working to manufacture EVs in the region.
With India positioning itself as a strong competitor in the US-China trade war, the Budget should prioritize fostering a similar manufacturing boom in other states such as Tamil Nadu. This includes helping to attract investment, improve infrastructure and create a favorable business environment for global companies. By taking these steps, India can ensure sustained growth and success in manufacturing in the years to come.
