NEW DELHI : India remains the world’s fastest-growing large economy despite a slowdown in real GDP growth in fiscal 2024-25. It has moderate dependence 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 manufacturing value added accounts for a modest 17.2% of the country’s real gross domestic product (GDP), the government has implemented targeted policy interventions to build domestic manufacturing capacity and strengthen India’s role in global supply chains.
High-frequency HSBC Purchasing Managers’ Index® (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.
An analysis of S&P Global Market Intelligence’s Strategic Opportunity Index® (SOI) over time indicates that India has made notable progress in enhancing its competitiveness and making its manufacturing sector more attractive to investors.
Beyond the near-term impact, therefore, India can benefit from the increasing trade protectionism, which may catalyze supply- chain diversification.
Rewiring of global trade is a silver lining for India’s manufacturing sector
India is not immune to the ongoing shift in global trade and tariff policies towards protectionism despite a moderate dependence on external trade for growth.
The country faces higher tariffs on exports to the United States (US), its largest export partner. The broader spillovers of heightened global trade and financial uncertainty may be more damaging to its growth in the near term. Private corporate investment may be particularly vulnerable to prolonged policy uncertainty.
Beyond the initial negative impact, however, S&P Global Market Intelligence notes that increasing trade protectionism may catalyze supply-chain diversification, benefiting India. The threat of higher US tariffs on several Asian economies, including mainland China, Vietnam, Taiwan, Thailand and Bangladesh, 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 modest 17.2% of India’s real GDP (latest government estimate for fiscal 2024-25), against the government target of 25%.
India’s share in global manufacturing exports has remained largely flat over the past decade, reaching only 1.8% in 2024. In contrast, its share in global service exports increased from 2.9% in 2014 to 4.3% 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% for FY2020-21 down to 2.1% in FY2023-24.
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% from 2023 alone, after Apple shifted part of its mobile phone manufacturing from China to India.
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 buoyant demand, increased hiring and inventory buildup.
Market competitiveness insights from SOI
An analysis of S&P Global Market Intelligence’s SOI® over time indicates that India has made notable progress in enhancing its competitiveness and making its manufacturing sector more attractive to investors.
Measuring India’s strategic opportunity over time
The SOI measures a market’s potential to generate opportunity for enterprise and looks at the broad drivers of competitiveness over time. When available data over the past 10 years is considered, compared with other markets in the G20, India’s SOI momentum scores indicate notable improvement in policy favorability (89.9 out of 100), market potential (80.1 out of 100) and logistics efficiency (90.6 out of 100). These scores measure how much improvement markets have made towards setting policy direction that supports new enterprise, the market’s openness and attractiveness to business activity, and the effectiveness and reliability of the logistics and supply-chain infrastructure, respectively. Nevertheless, there is significant opportunity for continued improvement in logistics efficiency, considering the country’s SOI score in 2024 (49.3 out of 100). For additional analysis of India’s logistics efficiency, refer to ‘Make In India’ Manufacturing Push Hinges on Logistics Investments, Volume 3, India Look Forward journal.
That said, India continues to lag in the resource availability momentum score (69.4 out of 100), which looks at the cost and availability of two key inputs: labor and finance. This is primarily due to the relatively low score of the labor component (50 out of 100), as the availability of labor with the required skills for value-added manufacturing remains a significant challenge that hinders India’s competitiveness. The targeted skill development initiatives (e.g., for semiconductors and solar photovoltaic cell manufacturing) underway may take some time to translate into an improvement in the score.
In contrast, with a score of 89.6 out of 100, finance emerges as an area of strength for India’s competitiveness. The score reflects the improved financial position of lenders over the past seven years, following regulatory measures to improve banks’ asset quality and the recapitalization of public sector banks. However, much of the financing resources have gone to household lending and the services sector (their share of total loans rose 5 and 3 percentage points, respectively, between 2021 and 2025), with manufacturing’s share of total loans falling from 12.7% to 11.1% over the same period.
There are tentative signs of faster manufacturing lending growth in early 2025, at roughly the same pace as total loans. Although the uncertainty stemming from US trade policies will likely reduce the appetite for loans, growth in the manufacturing sector is expected to be supported by high finance resource availability following the inclusion of Indian government bonds in global indices in 2024.
Source : S&P Global
