Weekly Economic Briefings > Emerging Markets Weekly Economic Briefing

In recent years, the questions regarding India's ability to repeat China's record of sustained, fast growth have become more persistent. At the same time, the Modi administration appears determined to put India on the global manufacturing map. We outline the path that India needs to take to realize its industrial aspirations, but are of the view that it is poorly positioned to achieve these, given current trends.The National Manufacturing Policy (NMP) aims to raise the share of manufacturing in India's GDP to 25% by 2022 and create 100mn additional jobs in the sector. To realize this vision, the Modi government has launched the 'Make in India' campaign that encourages global companies to use India as a manufacturing export hub.However, manufacturing's share in GDP has fallen by 1 percentage point since the NMP's launch in 2011 and the sector's job creation has been just 1.6% per year. The recent underperformance is partly because of weak demand. But at the heart of India's industrial malaise is poor productivity, aggravated by the hangover of ill-judged policies of previous decades. We do not think that India has the luxury to follow a sequential approach to industrialization à la China. We would suggest a multi-pronged strategy targeted at boosting FDI, raising productivity and diverting rural labour towards industry, maximizing the advantages of competitive labour costs and a vast domestic market. Indeed, the latter provide India with an edge in the current environment, when the viability of an export-led manufacturing model is increasingly being questioned. But India fares poorly on most parameters that we think are necessary to boost manufacturing output (such as the investment climate). In line with this, we expect manufacturing growth to stagnate around 7% pa over the next 15 years, leaving its share in GDP at just 17%.  As a result, GDP growth may dip to around 5% by 2030.