The Economic Survey 2025-26, tabled in Parliament on January 29, places India’s industrial future at the centre of its economic vision. In a dedicated chapter titled “Industry’s Next Leap: Structural Transformation and Global Integration”, the Survey departs from incremental reform narratives and frames manufacturing as a strategic national priority requiring sustained, mission-mode intervention.
According to the Survey, the global manufacturing order is undergoing a decisive churn, one that goes beyond the old arithmetic of cheap labour and cost arbitrage. Competitiveness today flows from what the document describes as “strategic indispensability” within global value chains, a position earned by nations that combine scale with capability. For India, this demands a Swadeshi-informed transformation: building high-productivity, high-technology manufacturing capacities anchored in domestic innovation, resilient supply chains, and policy stability, while engaging the world on its own terms.
The Survey underlines that this is not mere rhetoric but a conscious recalibration of industrial strategy. Swadeshi, as envisioned here, is not inward-looking autarky, but confident outward engagement, moving away from defensive import substitution towards purposeful integration with global production networks, where Indian industry is not a peripheral supplier but a critical, value-creating node.
Industrial recovery amid global headwinds
The Survey opens its assessment with evidence of recovery in India’s industrial sector despite persistent global uncertainties. Industry Gross Value Added (GVA) grew by 7.0 per cent year-on-year in the first half of FY26, an improvement over the 5.9 per cent recorded in the previous fiscal year.
Manufacturing performance, in particular, showed marked acceleration. Manufacturing GVA expanded by 7.72 per cent in the first quarter of FY26 and by 9.13 per cent in the second quarter. The Survey attributes this momentum not merely to cyclical rebound but to ongoing structural changes within the sector.
These include a gradual shift toward higher-value manufacturing activities, corridor-led industrial infrastructure development, increased technology adoption, and greater formalisation across firms. Medium- and high-technology activities now account for 46.3 per cent of total manufacturing value added, placing India among a limited group of middle-income economies moving steadily toward more sophisticated production structures.
Reflecting this progress, India’s ranking in the Competitive Industrial Performance Index improved from 40th in 2022 to 37th in 2023.
Signals from the factory floor
Forward-looking indicators cited in the Survey reinforce the recovery narrative. The Manufacturing Purchasing Managers’ Index (PMI) has remained consistently above the expansion threshold of 50 since March 2023, indicating sustained growth in manufacturing activity.
Similarly, the Reserve Bank of India’s Business Expectations Index has remained above the neutral benchmark of 100, reflecting improved sentiment among firms regarding production, order books, and investment intentions.
Taken together, these indicators suggest that the industrial revival is broad-based rather than episodic, supported by demand conditions and structural improvements.
Among all manufacturing segments, electronics stands out as the most dramatic success story highlighted in the Survey. The sector has undergone what the document describes as a “structural transformation,” rapidly climbing the export ladder.
From being the seventh-largest export category in FY22, electronics became the third-largest and fastest-growing export segment by FY25. Mobile phone manufacturing illustrates this shift most clearly. Production value increased nearly thirty-fold, from Rs 18,000 crore in FY15 to Rs 5.45 lakh crore in FY25.
India has transitioned from a net importer of mobile phones to the world’s second-largest manufacturer. The number of manufacturing units expanded from just two in 2014 to more than 300 by FY25.
In the first half of FY26 alone, electronics exports reached $22.2 billion, positioning the sector to emerge as the second-largest export category.
Policy architecture behind electronics growth
The Survey attributes the electronics boom to a combination of targeted policy interventions. Key among them are the Production Linked Incentive (PLI) Scheme for Large Scale Electronics Manufacturing, PLI 2.0 for IT Hardware, the Electronics Component Manufacturing Scheme, and the India Semiconductor Mission.
These measures, the Survey notes, helped attract investment, expand scale, and integrate domestic manufacturing into global supply chains. The focus on both finished products and components has been critical in improving domestic value addition.
Semiconductors and strategic sovereignty
A significant portion of the chapter is devoted to semiconductors, which the Survey frames not merely as an industrial input but as a strategic necessity. The absence of a reliable semiconductor supply, it warns, has economy-wide implications, affecting sectors ranging from automobiles to consumer electronics and defence.
Reliance on a limited number of global suppliers is identified as a major vulnerability. Against this backdrop, the India Semiconductor Mission is presented as a step toward strategic resilience.
As of the Survey’s publication, ten semiconductor manufacturing and packaging projects have been approved, involving cumulative investments of approximately Rs 1.60 lakh crore across six states. These include Micron’s Assembly, Testing, Marking, and Packaging (ATMP) facility and Tata Electronics’ semiconductor fabrication project.
The Production Linked Incentive scheme, now extended to 14 sectors with a total outlay of Rs 1.97 lakh crore, receives a detailed assessment. As of September 2025, actual investment under the scheme had exceeded Rs 2.0 lakh crore.
This investment translated into incremental production and sales worth over Rs 18.70 lakh crore and generated employment for more than 12.60 lakh people, both directly and indirectly.
Cumulative incentives disbursed stood at Rs 23,946 crore across 12 sectors, with 806 applications approved. Exports linked to PLI-supported sectors crossed Rs 8.20 lakh crore, driven largely by electronics, pharmaceuticals, and telecom equipment.
Sector-specific outcomes are highlighted. In pharmaceuticals, domestic value addition reached 83.74 per cent. The automobile and auto-components PLI attracted investments of Rs 35,657 crore and generated nearly 49,000 jobs. Specialty steel saw investments of Rs 23,022 crore and production of 2.34 million tonnes.
The Survey presents PLI as evidence of a strategic, selective, and mission-driven industrial policy approach.
Innovation: Progress and persistent gaps
Despite these gains, the Survey identifies innovation as India’s most significant structural weakness. Gross Expenditure on Research and Development (GERD) remains at 0.64 per cent of GDP, well below the global average and far behind major economies such as the United States, China, and South Korea.
This shortfall persists despite strong indicators of research capability. India ranks third globally in scholarly publications, and its position in the Global Innovation Index improved from 66th in 2019 to 38th in 2025. Bengaluru, Delhi, and Mumbai are among the world’s top 50 innovation clusters.
The problem, the Survey argues, lies in translation, from early-stage research to market-ready products. India performs well at Technology Readiness Levels (TRL) 1-3 but struggles to advance innovations to TRL 7-9, where commercialisation occurs.
Private sector’s limited role in R&D
A key constraint identified is low private sector participation in R&D. Business enterprises account for only 41 per cent of total R&D expenditure in India, compared to significantly higher shares in China, the United States, and South Korea.
The Survey notes that Indian firms have historically relied on technology imports and licensing, limiting their role as drivers of original innovation.
To address this, the Survey highlights initiatives such as the Anusandhan National Research Foundation, the Rs 1 lakh crore Research, Development and Innovation Fund announced in Budget 2025-26, and mission-driven programmes in areas like artificial intelligence, quantum computing, semiconductors, and green hydrogen.
One of the chapter’s most critical sections examines India’s limited integration into global value chains. India accounts for about 2.9 per cent of global manufacturing GVA and 1.8 per cent of global merchandise exports, figures the Survey says reflect significant untapped potential.
The limited share is attributed to low participation in GVC trade, particularly in backward linkages where firms import intermediate inputs for export-oriented production.
The Survey directly addresses the policy dilemma between deepening domestic sourcing and integrating into international production networks. Based on empirical research, it concludes that deeper GVC integration, especially for a labour-rich economy like India, yields higher domestic value addition and employment over time.
Vietnam is cited as a comparative case. In 2020, Vietnam’s backward GVC participation stood at 48 per cent, compared to India’s 17.2 per cent. Despite higher foreign content per export unit, Vietnam achieved higher export volumes and greater absolute domestic value creation.
Tariffs, duties, and competitive pressures
The Survey cautions against policy frameworks that raise tariffs on intermediate goods while keeping final product tariffs lower, leading to inverted duty structures. Such distortions, it warns, increase input costs and discourage domestic manufacturing of components and assemblies.
Quality Control Orders (QCOs) receive a nuanced assessment. The number of QCOs expanded to 143, covering 723 products, up from 214 products in 2019. The toy sector is cited as a success story, with imports declining by 52 per cent and exports rising by 239 per cent, turning India into a net exporter.
However, the Survey warns that indiscriminate application of QCOs, especially on specialised inputs with limited domestic alternatives, can disrupt supply chains and raise costs. It notes that 46 QCOs covering 51 products were revoked in 2025-26, reflecting the need for recalibration.
MSMEs: Backbone under stress
The Survey devotes significant attention to Micro, Small and Medium Enterprises (MSMEs), which contribute 35.4 per cent of manufacturing output, 48.58 per cent of exports, and 31.1 per cent of GDP. The sector includes over 7.47 crore enterprises employing 32.82 crore people.
Access to finance remains a critical constraint, with 27 per cent of MSMEs identifying credit as their primary challenge. Delayed payments amounting to Rs 8.1 lakh crore further strain working capital.
Encouragingly, MSME credit growth has outpaced that of large industries, and formal financing penetration increased from 48 per cent of manufacturing establishments in 2021–22 to 51 per cent in 2023–24.
The Survey concludes with a call for strategic clarity. The next phase of industrialisation, it argues, must focus on scale, competitiveness, innovation, and deeper global integration rather than narrow import substitution.
The National Manufacturing Mission announced in Budget 2025-26 provides the framework, targeting manufacturing’s share of GDP at 25 per cent by 2035, creation of 143 million jobs, and $1.2 trillion in merchandise exports.
Manufacturing, the Survey concludes, is essential not only for growth but for governance, as its demanding nature forces sustained efficiency and capability development.
