I ndia’s GDP story has long been haunted by a manufacturing ambition. From the ‘Make in India’ slogan to the Rs 1.97 lakh crore Production-Linked Incentive (PLI) schemes, policymakers have envisioned a future where factories hum, assembly lines expand, and jobs multiply. But in practice, India may have taken a different path — one not consciously chosen, but increasingly evident.
Services are surging. India’s services exports touched a record $340 billion in FY24, and this is no longer driven solely by traditional IT outsourcing. Today, India is exporting fintech platforms, SaaS tools, legal and accounting services, and increasingly, AI and data analytics solutions. Remote delivery, English proficiency, and a thriving startup ecosystem have created a competitive edge that’s hard to replicate.
This transformation is especially visible in the booming gig economy, digital services, and cross-border software-as-aservice firms. As generative AI reshapes business models globally, Indian service providers are moving up the value chain — from back-office processing to full-scale innovation and strategic consulting. This evolution is not just tech-led — it’s talentled and market-responsive, with strong integration into global digital workflows.
Contrast this with manufacturing, where progress remains patchy. Despite the bold promise of “Make in India,” the share of manufacturing in GDP has stubbornly hovered around 15-17 per cent for over a decade. PLI schemes have seen early success in sectors like mobile phones and semiconductors, but in labour-intensive areas like textiles, toys, and white goods, traction has been weak. FDI into manufacturing has risen selectively but not at the scale anticipated during the global pivot away from China.
Structural bottlenecks remain: logistics and power costs are high in non-metro zones; land acquisition is delay-prone; labour laws, while reformed on paper, face state-level implementation challenges. Even with Government incentives, India struggles to match the ecosystem depth of Vietnam or Bangladesh in export-focused manufacturing. Moreover, automation is reducing the job intensity of industrial growth, challenging the assumption that factories alone can absorb India’s expanding workforce. This raises a fundamental question: Is it time to stop forcing a manufacturing narrative and instead double down on services where India has a clear comparative advantage? Or, more constructively, should India aim for a hybrid model — ‘servicesplus manufacturing’—where digital capabilities enable smart, niche manufacturing suited to global demand?
A course correction within PLI is worth considering. Instead of spreading incentives thinly across sectors, India could identify areas where service capabilities and manufacturing intersect — such as medical devices, precision engineering, defence tech, and renewable energy systems —and build end-to-end value chains. Skilling efforts must also shift accordingly: we need data scientists and AI engineers as urgently as machine operators.
Ultimately, India may not need to choose between services and manufacturing. The real opportunity lies in blending both. Services will continue to drive exports and global competitiveness. Manufacturing must find its role in meeting domestic demand, building strategic capacity, and creating stable jobs in Tier II and III towns. India’s future won’t be built on steel and software alone — but on the synergy between them. Recognising this shift and planning policy around it could be the smartest growth strategy of the next decade. BIB