India’s manufacturing opportunity amid global trade uncertainty

That said, the government has implemented targeted policy interventions to build domestic manufacturing capacity and strengthen India’s role in global supply chains. In particular, the Production Linked Incentive schemes introduced since March 2020 have contributed to growth and boosted exports in several manufacturing segments, including electronics, pharmaceuticals and automobiles. Notably, mobile phone exports, valued at zero in 2016, soared to $20.4 billion in 2024, growing 44% from 2023 alone, after Apple shifted part of its mobile phone manufacturing from China to India. 

The private sector also remains optimistic about growth opportunities in India’s manufacturing sector. High-frequency HSBC PMI® data — compiled by S&P Global Market Intelligence — highlights the domestic manufacturing sector’s resilience to recent global headwinds compared with other major economies. The country’s headline manufacturing PMI readings over the past 12 months substantially exceeded global averages, supported by buoyant demand, increased hiring and inventory buildup.  

An analysis of S&P Global Market Intelligence’s SOI® over time indicates that India has made notable progress in enhancing its competitiveness and making its manufacturing sector more attractive to investors.  

That said, India continues to lag in the resource availability momentum score (69.4 out of 100), which looks at the cost and availability of two key inputs: labor and finance. This is primarily due to the relatively low score of the labor component (50 out of 100), as the availability of labor with the required skills for value-added manufacturing remains a significant challenge that hinders India’s competitiveness. The targeted skill development initiatives (e.g., for semiconductors and solar photovoltaic cell manufacturing) underway may take some time to translate into an improvement in the score. 

In contrast, with a score of 89.6 out of 100, finance emerges as an area of strength for India’s competitiveness. The score reflects the improved financial position of lenders over the past seven years, following regulatory measures to improve banks’ asset quality and the recapitalization of public sector banks. However, much of the financing resources have gone to household lending and the services sector (their share of total loans rose 5 and 3 percentage points, respectively, between 2021 and 2025), with manufacturing’s share of total loans falling from 12.7% to 11.1% over the same period. 

There are tentative signs of faster manufacturing lending growth in early 2025, at roughly the same pace as total loans. Although the uncertainty stemming from US trade policies will likely reduce the appetite for loans, growth in the manufacturing sector is expected to be supported by high finance resource availability following the inclusion of Indian government bonds in global indices in 2024.  

Resource availability remains a challenge, where the momentum score suggests India has the most room for improvement to drive competitiveness in manufacturing. 

While the labor score represents an area for improvement, there is reason to be optimistic. Over the past year, India’s manufacturing PMI data indicated positive employment trends. The PMI consistently registered above the neutral mark of 50, reflecting ongoing job creation as manufacturers increased hiring to meet rising production demand. Robust order books and optimism about future demand underpinned workforce expansion, although rising input costs occasionally tempered recruitment enthusiasm. Rates of job creation have generally been moderate compared with output and sales growth, as firms have often relied on existing capacity or productivity gains.

The range of tools available to the authorities will also strengthen financial availability and provide an opportunity to boost domestic manufacturing capabilities. One prominent feature of the Indian banking sector is the use of priority sector lending (PSL). In the past, the Reserve Bank of India (RBI) had shown flexibility and adjusted PSL in accordance with the contemporary economic climate and gap in the industry. 

After expanding the PSL criteria for renewable energy in April 2025, the RBI could consider delivering more liquidity to manufacturers in the defense and semiconductor space in the same manner.  

Another way to attract more lending to these manufacturing segments is to change the risk-weight of loans, which the RBI has been actively doing to reduce risks. The central bank can include key development industries in the “specified categories” and provide a lower risk-weight to reduce capital needs. 

Both measures will require scrutiny and monitoring to ensure lending standards are maintained and credit risks do not rise significantly as a result. 

Although the Indian manufacturing sector faces notable challenges, the resilience demonstrated by key indicators, such as HSBC PMI data and SOI scores, suggests a positive momentum. As economies adapt to evolving trade dynamics and tariff challenges, India can capitalize on this momentum for accelerated manufacturing growth and greater global supply-chain integration. A strategic shift towards local sourcing, proximity to end-markets, and enhanced regional integration should attract additional investment to the sector, accelerating India’s technological advancement and manufacturing competitiveness and creating additional high-quality manufacturing jobs.   

An S&P Global Market Intelligence Global Link Model scenario analysis shows that despite the initial negative impact of rising US import tariffs and global policy uncertainty, the effects of further manufacturing reshoring and trade regionalization strategies on India could be positive over time. They could add about 1.3 percentage points to India’s real GDP by end of fiscal 2034-35, compared  with our baseline forecast. S&P Global Market Intelligence projects the country’s real GDP growth to average 5.7% over the next decade. Companies are expected to relocate their operations to regions that offer competitive advantages, with India emerging as a key destination. Further, improvements in logistics efficiency, labor market deregulation and financial resource availability would create a favorable environment for manufacturing investment. This, in turn, would lead to increased economic efficiency, greater manufacturing output, higher manufacturing employment and stronger economic growth overall.

The PMI for India is a crucial tool to track economic performance during uncertain times, such as the tariff concerns emerging in early 2025. Providing a near-real-time snapshot of output, new orders, exports, employment and inflation, the PMI helps assess how India’s manufacturing sector responds to global trade disruptions and domestic challenges. By capturing these dynamics, the PMI informs policy responses — such as trade adjustments or monetary measures — and signals to global investors India’s ability to navigate tariff-driven uncertainty while maintaining growth. The SOI is a tool to assess the state of a market and its potential to generate opportunity for enterprise. The SOI covers more than 90 markets from a macro perspective, measuring and benchmarking broadly across themes such as economics, banking, policy direction and supply chains. The SOI measures the fundamental drivers of opportunity across time and looks to where the momentum is likely to continue going forward.