India’s manufacturing push is gathering momentum, but factories alone will not determine competitiveness. Design, R&D, logistics, finance, testing and professional services will decide how much value Indian firms can capture from global production.
Kolkata: Manufacturing is no longer just about what happens within the walls of a factory. A product can be manufactured in one country, while many of the services that make it competitive — engineering and design, logistics and finance, software, testing and after-sales support — are provided elsewhere. This is increasingly evident in global value chains. The OECD has estimated that services constitute around 37% of the value of manufacturing exports, a figure that rises to 53% when services performed within manufacturing firms are included. This is particularly relevant for India. The standard narrative is that the country’s economic success rests largely on a globally competitive services sector, while manufacturing is the sector in which it wants to do more. But the divide is increasingly artificial. Modern manufacturing depends heavily on services, while the growth of manufacturing can itself create demand for more sophisticated service capabilities. The question for India, therefore, is not simply whether it can attract more factories. It is whether it can build the services ecosystem around those factories that enables companies to innovate, meet global standards, lower costs and capture more value. This is the less understood challenge behind India’s manufacturing push.
What Actually Goes Into a Manufactured Export?
Consider a smartphone, car or pharmaceutical product coming out of an Indian factory. Its value as an export goes far beyond the act of manufacturing it. Before reaching the consumer, it may have involved product design, software, engineering, intellectual property, trade finance, freight, testing and certification, marketing and distribution. This matters because global value chains fragment these tasks across different countries. A country can therefore grow its manufacturing exports without necessarily capturing an equivalent share of the value embodied in those goods. For India, this distinction is particularly relevant. Its comparative advantage in IT and business services gives it capabilities that could complement manufacturing — from industrial software and engineering to supply-chain management and R&D. But these services do not automatically become integrated into domestic manufacturing value chains. The policy issue, then, is broader than simply raising factory output. India needs to ask whether its manufacturers have access to competitive domestic providers of the services that help them design better products, meet global standards, manage complex supply chains and move into higher-value activities. That is where the manufacturing strategy begins to converge with the services economy.
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India’s Services Advantage Has a Manufacturing Gap
India is entering this manufacturing race with a distinctive advantage: it already has a large and globally competitive services economy. IT and business services have made the country one of the world’s major exporters of software, consulting, back-office and professional services. Yet this strength has not automatically translated into deeper participation in manufacturing value chains. The distinction matters because the services that support manufacturing go far beyond traditional IT outsourcing. They include industrial design, engineering, product development, R&D, supply-chain management, testing, certification and specialised financial services. These capabilities can help determine whether a manufacturer remains an assembler or moves into higher-value activities.
India has made progress across several of these areas. Its engineering and technology companies increasingly work with global manufacturers, while government initiatives have sought to build capabilities in areas such as semiconductor design, logistics and industrial R&D. But these capabilities remain unevenly distributed across the manufacturing ecosystem. The result is a potential mismatch. India is highly competitive in exporting services, yet manufacturers can still depend on foreign companies for technology, design, specialised inputs and other high-value functions. The challenge, therefore, is not simply to turn India into a larger manufacturing hub. It is to integrate India’s services capabilities more closely with its manufacturing base so that Indian companies can capture more value at each stage of the production process.
The Evidence: India’s Missing Manufacturing Ecosystem
The divide becomes clearer when India’s manufacturing output is examined alongside the capabilities supporting it. India has expanded its role in global production, but its ability to take on higher-value activities within those value chains remains more limited. One measure is the composition of India’s global value-chain participation. OECD data show that the foreign value-added content of India’s exports increased from 21.9% in 2010 to 25.7% in 2022, compared with a G20 average of 19.8%. This means that a growing share of the value embodied in India’s exports originates from inputs produced abroad. That is not inherently a weakness. Reliance on specialised imported inputs is a normal feature of global production networks. But it also highlights the importance of building domestic capabilities that allow Indian firms to contribute more than labour and assembly to global value chains.
A second signal comes from innovation. The World Intellectual Property Organisation’s Global Innovation Index 2025 ranked India 38th globally and identified it as an innovation overperformer relative to its level of development. At the same time, the data point to continuing limitations in R&D intensity. India’s gross expenditure on research and development stood at 0.65% of GDP in 2020, while business-financed R&D accounted for 40.6% of total R&D expenditure. Taken together, these indicators point towards the same challenge. India is becoming more deeply integrated into global production, but building the domestic capabilities needed to capture more of the knowledge and technology embedded in that production remains a work in progress. For a country seeking to climb global value chains, this distinction is significant. Exporting more manufactured products is one measure of success; capturing a larger share of the knowledge, technology and services embedded in those products is another.
Does India’s Manufacturing Policy Recognise the Ecosystem?
India’s manufacturing policy framework has become considerably more ambitious. The Production Linked Incentive schemes covering 14 sectors are designed to encourage investment, expand domestic production and strengthen India’s integration into global supply chains. By March 2026, cumulative investment under the schemes had crossed ₹2.40 lakh crore. But the nature of these incentives raises a broader question: are sufficient attention and resources being directed towards the services that make manufacturing competitive?
Production Linked Incentive (PLI) schemes are primarily linked to production and investment outcomes. This makes sense when the immediate objective is to build manufacturing capacity. However, the capabilities that determine a country’s position within a global value chain — product design, engineering, R&D, testing, certification, specialised logistics and professional services — do not necessarily develop automatically as production volumes increase. This does not mean India’s policy framework ignores these capabilities. Initiatives such as the Design Linked Incentive scheme for semiconductors, along with measures aimed at improving logistics and strengthening research and innovation, reflect recognition of their importance. The broader challenge is ensuring that such interventions are connected closely enough with manufacturing policy to create an integrated ecosystem. If India is to move beyond being primarily a site for assembly and production, industrial policy may need to assess success not simply by how much is made in India, but also by how much of the design, technology, services and intellectual value embedded in that manufacturing is developed in India.
Manufacturing and Services Need Each Other
The manufacturing-versus-services debate can obscure how interdependent the two sectors have become. Competitive manufacturing requires efficient transport, finance, engineering, software, design, testing, research and professional services. At the same time, a larger and more sophisticated manufacturing sector can create demand for precisely these higher-value services. This relationship matters for India because it already possesses substantial capabilities in several service industries. The opportunity lies in connecting those capabilities more effectively with manufacturing rather than treating the two sectors as separate economic strategies. A domestic company that can design a product, develop its software, finance production, certify it to international standards, manage the supply chain and provide after-sales services is likely to capture more value than one that performs only the final manufacturing stage. That is ultimately what moving up a global value chain means.
Conclusion
India’s manufacturing push has moved beyond the question of whether the country can build factories at scale. The harder question is whether it can build the capabilities around those factories that allow Indian firms to capture more value from global production. India does not lack a services sector or the individual capabilities needed to support manufacturing. The challenge is connecting these strengths more closely with the manufacturing economy. Stronger integration of design, R&D, finance, logistics, testing, certification and professional services could help Indian firms move beyond assembly and into higher-value segments. India’s manufacturing ambition, ultimately, should not be about making manufacturing and services compete. It should be about making them work together.
