India’s Industry Sector Shrinks: Why Policy Support Is Critical for Revival

According to the Economic Survey 2025, during the decade 2014-24, the average share of the Industry sector (Manufacturing, Electricity, Construction, gas, and water supply) in nominal GVA declined to 26.4% from 29.4% in 2004-14 and 27.4% in 1994-2004. Particularly in the year 2024-25, the share has declined to 25.1% which is below the average of the decade 1974-84. The peak share was 30.4% from 2006 to 2008.

During 2014-24, the compounded average growth rate (CAGR) of the industry sector at constant price (2011-12) was barely 5.9%; that is the lowest in the past three decades. The growth of the industry sector is largely dependent upon the Manufacturing sector.

A developing nation like India requires double-digit growth in the manufacturing sector till India becomes an upper-middle income Nation.

The manufacturing sector has a long economic chain, procuring various goods and services produced elsewhere. On the finished-goods side, services like transportation, distribution, and trade services are generated. The financing requirements for the manufacturing sector are higher, generating financial services. Therefore, manufacturing growth is essential for propelling the service sector and overall GDP. It also contributes to increased exports of manufactured goods, which form a significant part of total exports.

In 2011, the National Manufacturing Policy (NMP) was announced, followed by the “Make in India” scheme in September 2014. Both policies emphasized the need to increase the share of manufacturing in GDP to 25%. However, in the past decade, its share has mostly remained below 17%. During 2024-25, it has tumbled to barely 12.6% of nominal GDP and 15.7% of real GDP. The crucial question arises: why is manufacturing progressing slowly?

I believe that business risks in manufacturing are relatively higher due to higher fixed costs (including interest) compared to the service sector. Banks are hesitant to provide liberal credits to the manufacturing sector, particularly to MSMEs, due to stringent NPA norms and associated risks. During the developing phase, NPA norms must be relaxed. Units with long-term viability but trapped in a cash-flow mismatch should be allowed loan restructuring. Even additional working capital may be considered, subject to adequate security coverage. Moreover, interest rates must be moderated.

Regulatory risks for the manufacturing sector are also very high in India due to multiple and complicated laws; those are difficult to comply with. Interim support during a bad cycle is missing, even for genuine entrepreneurs. The role of Industry ministries at the state and centre in resolving regulatory hurdles is crucial. After the repeal of the SICA Act and the introduction of the IBC law, the risks for genuine promoters have increased. It’s high time to review business laws, rekindle entrepreneurial spirit through regulatory easement, and reduce compliance burdens.

I believe that the aims and objectives of any law must be stated in its preamble, and the fine prints of the law must not violate the same. The provisions of criminal prosecution for delay in compliance and cumbersome compliance discourage entrepreneurs from entering into manufacturing. Business and taxation laws in India are complicated and numerous compared to any developing nation. Hence, laws and regulations must be simplified, especially for MSMEs. Ways and means must be designed to overcome this crucial problem to encourage new entrants and business expansion for existing entrepreneurs. India needs a large team of job providers through business-friendly policies to unlock India’s growth potential.