India’s service-led economy sees manufacturing at 16.3% of GDP, missing the 25% target. Beyond economics, factories drive jobs and innovation. The hurdle isn’t capability, but whether India’s regulatory architecture permits growth
By Karan Pandit, The author is a Venture advisor and business consultant
SNAPSHOTS
- Manufacturing is the backbone of employment. No large economy attains middle-income stability without a strong industrial base
- Job creation is manufacturing’s primary benefit. The sector drives innovation, strengthens trade, and fosters development
- Expanding industrial manufacturing serves as the catalyst for job growth, economic stability, and comprehensive development
- Excessive regulation blocks ventures. Policymakers must evaluate regulatory models governing trade and business market entry
NUMBERS don’t lie, and in our case, the numbers tell a story of underutilization. A manufacturing contribution of 14.27% remains significantly below the government’s long-term target of 25%. In FY25, the share improved to roughly 16.3%, a modest increase from the previous year, but still far from the 25% aspiration. The service sector (excluding public administration and defence) accounted for roughly 40%, while agriculture, forestry, and fishing made up about 17.66%. The principal exporter to our nation remains our neighbour, China. We carry a trade deficit of USD 83.58 billion with China (against total imports of USD 95.06 billion); the majority of this deficit is due to goods manufactured in China.
THE CHINA CONTRAST
While India’s economy is not directly comparable to China’s, the numbers are still worth noting. According to the National Bureau of Statistics of China, China’s industrial production reached an impressive USD 5.6 trillion in 2024, accounting for 30% of China’s total GDP of USD 18.6 trillion.
Job creation is the lowest-hanging fruit that the manufacturing sector provides. It is a fact that manufacturing leads to innovation, trade strengthening, economic stability and overall development. The lesson is structural, not sentimental. Manufacturing is not merely about output, it is the backbone of sustained employment generation. Historically, no large economy has achieved durable middle-income stability without a strong industrial base.
So why is it that we cannot manufacture what China is shipping to us? In my humble opinion, in the long run, this isn’t about a price war. But it is the resistance to starting something new, particularly in the manufacturing sector. Why the resistance? Because it seems too challenging, and the excessive regulation surrounding the process becomes a barrier in itself. “Why manufacture when you can trade?”, that’s a line I hear all too often.
Does India need regulation? Absolutely. But does India need trade regulation? Yes, just enough to ensure uniformity and a level playing field.
THE REAL BARRIER
It is appalling that starting a new business in India, whether small-scale or large, still requires entrepreneurs to interact with multiple officials at both the State and Central levels. Even after decades of reforms (and countless appeals from Ministers urging industry players to invest), starting a business remains one of the biggest hurdles in the country. The situation is so discouraging that many small and medium-sized businesses hesitate to expand beyond their home States.
India urgently needs a paperless approval process where the promoter is informed of the information and documents he requires prior to setting up any new venture. This would cut out middlemen and liaison agents
The list of approvals is as long as a giraffe’s neck, and the land management rules form a labyrinth, few dare not venture into. We have still not managed to have a completely paperless, single-window clearance system. We are yet to cut down the number of approvals to the absolute bare minimum. Worst of all, the timelines prescribed by the State governments are never adhered to.
Recently, a central minister criticized domestic businesses for not investing enough in India. In my view, the real roadblock lies in excessive regulation, especially around starting new ventures. That is the barrier that needs to be dismantled first. The policymakers need to acutely evaluate the current regulatory model for trade and business entry. Over the decades, our tax laws have transitioned to a self-assessment model by the assessees. What is declared is accepted. So why can’t the same be done for approvals required for starting new ventures?
THE APPROVAL MAZE
Japan, which has a similar GDP to India, has many small and medium-sized ventures that concentrate on making specialised products. Japan’s SMEs account for more than 99% of its enterprises and roughly half of its manufacturing value added, forming the backbone of its export strength. They not only cater to the domestic market but also export across the world. This is a critical area where India still lags significantly.
To start a new manufacturing facility, an entrepreneur must obtain the following approvals and documents in the least – MoA, AoA, PAN, TAN, GST registration, MSME Udyam certificate, Import Export Code (IEC), building plan approval, factory plan approval, labour registration, water connection, electricity connection (temporary and permanent), fire clearance (two stages), pollution control certificates for water and air (CTE and CTO), factory license, trade license, weights and measures registration, contract labour registration, interstate labour registration, ESIC/EPF registration, professional tax, boiler registration, explosive materials clearance, and hazardous waste management approval.
Each of these requires a separate statutory fee, comes from a separate office, operates via a separate website, involves different officers, and follows distinct processes and paperwork. And all of this is before even addressing the purchase or lease of land.
A CASE FOR SIMPLIFICATION, NOT DEREGULATION
This is one area where significant reduction in regulation (not deregulation), uniformity of laws, and monumental reduction in approvals are required.
Investors should feel that they are welcome to start new ventures or to move to new regions of the country. Moreover, laws should be such that investors should not require specialists or service providers to assist them in the process. If a business promoter, small or big, wishes to, he should be able to apply for all approvals on his own initiative.
Each State should adopt a uniform investment module, with processes that are published, updated, and simplified over the years. No one should require a third party simply to create paperwork, submit documents, or obtain approvals.
REFORM WITHOUT CHAOS
Cut the paperwork, just end it. If we can’t achieve this in the digital age, then when will we?
There are too many manual forms to be filled and far too many laws to look into. India urgently needs a paperless approval process where the promoter should be informed (by the State) of the information and documents he requires prior to setting up any new venture. The investor should not be required to submit affidavits on stamp papers, use letterheads, fill out separate forms for every approval, or personally meet a group of officers. It is this requirement that gives rise to middlemen and liaison agents. The business ecosystem should be made in such a way that it cuts out the middlemen. This should be the calling card of a State over and above the infrastructure that it can provide.
THE DIGITAL MILESTONE
If I want to start a business, I should be able to do everything through a single website. If I face an issue, I should be able to raise it on that same platform. If I want information regarding any approval or steps in the process, it should be available on a single website. As far as feasible, these should be uniform across the country.
The system should be faceless, digital, and proudly promoted as a milestone India has achieved. In our country, where substantial B2C consumption is done online, these shopping portals were built by homegrown specialists. Why not create a user-friendly, intuitive UI/UX-driven government portal that lays down all the facts and information for the world to see?
In today’s digital age, where so much of our personal and financial data is already online, it is unacceptable that our business systems still act as entry barriers. Rather, it should be an open invitation for every promoter (big or small) to try their hand at entrepreneurship.
The principal exporter to our nation remains our neighbour, China. We carry a trade deficit of USD 83.58 billion with China against total imports of USD 95.06 billion; the majority of this deficit is due to goods manufactured in China
At a national scale, such a reform would transform millions of lives over decades. Such a simple change should have such far-reaching consequences. Not just for the large business houses, but also for the micro, small and medium business owners and people who aspire to be industry owners one day.
BREAK THE CYCLE
India cannot rely solely on foreign investors to bring technology and capital to set up manufacturing facilities. They see India’s image, and many of them are not pleased, not to mention apprehensive. Increased manufacturing capabilities and a healthy share of manufacturing activities in GDP are signs of developing and developed nations.
India shouldn’t rely on wary foreign investors. Domestic manufacturing is essential, as
high industrial GDP distinguishes developed nations. Strengthening internal
capabilities overcomes negative perceptions and economic instability
At the outset, I must admit that India and its citizens do need regulation in industry. Indian businesses are, despicably corrupt. We’re good at finding loopholes. While this does not sound pleasant, it is the truth one does not want to admit. Our history of scams and tax-related financial scheming are a testament to that. This has led policymakers to adopt a mindset of control, resulting in disproportionate governance. This, in turn, hampers a citizen’s ability to start something new, especially in the manufacturing sector. It seems like a vicious spiral we can’t work our way out of.
A CALL TO REFORM
But just as we transitioned to a self-assessment model in taxation, it is time we offer similar autonomy to budding entrepreneurs, especially those venturing into manufacturing and other high-value-added activities. I believe it is time for businessmen with large caches of money and access to land to shift their focus from real estate development to manufacturing and R&D. Instead of playing the role of inspector, policymakers should take up the role of a helping
hand. Be the guiding light rather than overseeing every move an investor makes. Trade should be facilitated and simplified. This will only happen when our government lets their guard down; when they guide and invite entrepreneurs to leave their shops and set up factories.
It is time for regulation and policymakers to play a role in creating industry leaders.
