India has erased almost all extreme poverty in a single decade and secured its first sovereign credit upgrade in 18 years.
The country’s economy has been growing faster than any other in Asia, yet its manufacturing sector still lags behind smaller peers like Vietnam and Bangladesh.
Investors see a rising giant, but one still searching for the right formula to turn growth into large-scale, export-driven industrial strength.
There might be a path from which India can shift from a service-led success story to the kind of manufacturing powerhouse that can lift hundreds of millions more into the middle class.
Poverty is no longer the main story
The latest Household Consumption Expenditure Survey shows India’s extreme poverty rate, measured at the World Bank’s $1.90 PPP line, has fallen to just 2.2%.
In 2011–12, it stood at 12.2$. At a higher $3.20 PPP line, the rate dropped from 53.6% to 21.8% over the same period.
That reduction came without counting in-kind benefits like subsidised food, which would make the numbers even lower.
The data reveal a broad-based improvement. Rural poverty remains higher than urban, but the gap has narrowed.
The dispersion of poverty rates across states has also shrunk, suggesting growth has been more inclusive.
By statistical standards, the change is dramatic: this is one of the fastest nationwide poverty declines ever recorded in a large democracy.
For policy, the numbers mean the country’s existing poverty line is outdated.
The focus can now shift from alleviating extreme deprivation to lifting the bottom third of the population into secure, higher-income lives.
But this evolution requires both services growth, as well as a surge in jobs from labour-intensive manufacturing.
The export gap
India’s share of manufacturing in GDP has stayed largely flat for decades, even as its services sector has grown to 60% of the economy.
In exports, the picture is mixed. Total goods and services exports as a share of GDP match China’s levels in the 1990s, but India’s manufactured exports lean towards capital-intensive products like chemicals and automobiles rather than mass job-creating goods such as garments, footwear, or electronics assembly.
Manufacturing for export forces firms to compete internationally, and raising productivity and technology adoption is particularly important.
Domestic-market production does not provide the same competitive pressure.
In the 2010s, India’s “Make in India” strategy aimed to boost manufacturing but focused heavily on import substitution for local consumers.
That created pockets of output growth without the export discipline that transformed countries like South Korea and Vietnam.
This might also be changing. The government now talks about “Make for the world” and is courting foreign manufacturers in electronics, semiconductors, and other high-value sectors.
Recent wins include Apple and Samsung expanding production in India, with India overtaking China in smartphone shipments to the US earlier this year.
Electronics is capital-intensive but light to ship, making it well-suited to India’s geography and a global supply chain looking to diversify from China.
What is holding manufacturing back
Economists point to four barriers. The first is labour regulation. Under the Industrial Disputes Act, firms with more than 300 employees face strict rules on layoffs.
This discourages companies from scaling, pushes them toward automation, and limits labour-intensive production.
Services firms are not bound by these rules and have been able to grow much larger.
The second barrier is land acquisition. Converting agricultural land to industrial use is slow and expensive in many states.
Some states have eased these rules and have been rewarded with more investment, showing the potential of local reform.
The third is trade policy. After liberalisation in 1991, tariffs fell steadily until the mid-2010s, when a protectionist shift saw duties rise in many sectors.
Sectors exposed to export competition have performed better than those protected for the domestic market.
Lowering tariffs on inputs, signing free trade agreements, and ensuring predictable access to key markets like the US and EU could help integrate India into supply chains.
The fourth is the business climate. India’s global ranking in ease of doing business has improved, but private investment is still subdued.
The withdrawal from bilateral investment treaties has reduced legal protections for foreign investors.
Compliance costs have risen, and a slow judiciary adds uncertainty. Restoring treaty protections and streamlining regulation could raise investor confidence.
States matter more than Delhi
India’s industrial success stories are concentrated in states such as Tamil Nadu, Gujarat, and Andhra Pradesh.
These states benefit from port access but also from proactive reforms in land, labour, and investment facilitation.
They are building clusters in automobiles, electronics, and other manufacturing sectors, while other regions lag far behind.
This variation shows how much industrial policy depends on state-level execution.
Competitive federalism, where states compete for investment by improving their business environment, was more visible in the 2000s than it is today.
Reviving it could mean granting certain states more control over industrial zones, infrastructure planning, and investment incentives.
Special Economic Zones are a clear example. India has hundreds, but most are small and fragmented.
China’s model of a few large SEZs, often the size of cities, concentrated investment, and created strong industrial clusters.
Scaling up a handful of Indian zones, giving them city-scale autonomy and marketing them globally, could help attract large-scale export manufacturing.
A better macro backdrop
On August 14, S&P Global Ratings upgraded India’s sovereign rating from BBB- to BBB, the first increase since 2007.
The agency cited strong growth, improved monetary policy credibility, and fiscal consolidation.
GDP grew an average of 8.8% from fiscal 2022 to 2024 and is projected to grow 6.8% annually for the next three years, the fastest in Asia-Pacific.
Debt-to-GDP is expected to fall from 83% in fiscal 2025 to 78% by 2029.
This upgrade lowers borrowing costs for investors and indicates confidence in India’s policy direction.
Bond yields fell, and the rupee strengthened on the news. The timing is important. Lower capital costs could help fund the infrastructure, factory capacity, and supply-chain integration needed for export-led industrialisation.
But S&P warned that backsliding on fiscal discipline or a slowdown in growth could stall progress.
From data to strategy
The poverty data show the country has moved beyond the emergency phase of development. The challenge now is to create jobs that match the scale of its workforce.
That means building a manufacturing base with two distinct tracks: high-value electronics and other capital-intensive exports to integrate into advanced supply chains, and labour-intensive industries to absorb millions moving out of agriculture.
The path is clear in outline.
Ease scaling limits in labour and land markets. Secure better trade access and predictable tariffs.
Reduce regulatory friction for investors. Concentrate resources in a few large, globally competitive industrial hubs.
Align vocational training with the needs of target industries. And let states that are ready to compete for investment take the lead.
If India moves decisively, the combination of strong macro growth, falling poverty, improving credit ratings, and global supply-chain realignment could finally align.
The gains would not just be in GDP numbers. They would be in millions of new jobs, rising wages, and the transformation of India’s economic structure from a service-heavy outlier to a balanced, export-driven industrial economy.
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