The Shackled Giant: Why India's Manufacturing Dreams Remain Hostage to History and a Burdensome State

Introduction: The Persistent Paradox

India’s economic narrative over the past three decades has been one of remarkable transformation, marked by rapid GDP growth, a burgeoning services sector, and an ascendant position on the global stage. Yet, beneath this headline success lies a persistent and troubling paradox: the manufacturing sector’s share of the economy has remained stubbornly stagnant at around 15% of GDP. This stagnation is not a minor footnote; it is a critical failure that limits job creation, constrains equitable growth, and undermines the nation’s strategic autonomy. A recent discussion featuring Rahul Bajoria, head of India and ASEAN Economic Research at Bank of America, hosted by Tushar Shetty on the Beyond the Indus podcast, delves into the roots of this failure. The analysis points not merely to contemporary policy missteps but to deep historical scars and a state apparatus that often hinders rather than helps.

Historical and Structural Foundations of Stagnation

The conversation rightly begins by tracing the problem to its colonial roots. The British Raj systematically de-industrialized India, dismantling its world-class textile and handicraft industries to serve as a captive market for British manufactured goods and a supplier of raw materials. This was not mere economic policy; it was an act of imperial plunder designed to cripple a civilizational competitor. The post-independence planning era, while well-intentioned in its desire for self-reliance, often replicated the bureaucracy and control of the colonial state without its predatory intent, creating a “license-permit-quota raj” that strangled entrepreneurial initiative. The industrial base that emerged was often inefficient, protected, and disconnected from global competitive dynamics.

This historical legacy birthed the regulatory and compliance burdens that define India’s business landscape today. As Bajoria notes, these burdens are a primary reason Indian firms remain small and are pushed into informality. The cost of formal compliance is so high that it incentivizes staying under the radar, which in turn denies firms access to formal credit, technology, and scale. This creates a vicious cycle of low productivity and limited job quality. Interestingly, the podcast highlights that meaningful regulatory progress has been driven not by the central government in New Delhi, but by a handful of competitive states. This underscores a central pathology: a powerful but often sclerotic center, with reformist dynamism emerging from sub-national laboratories of governance.

Contemporary Challenges and Missed Opportunities

The discussion moves to contemporary strategic opportunities, notably the “China Plus One” strategy pursued by multinational corporations seeking to diversify supply chains away from China. Despite India’s obvious demographic and geographic advantages, Bajoria points out that the country’s gains from this shift have been limited. This is a damning indictment. While Vietnam and others have surged ahead, India’s own regulatory maze, infrastructure gaps, and rigidities have made it a less attractive destination. This represents a monumental failure to capitalize on a generational geopolitical and economic realignment.

The analysis turns to the government’s flagship industrial policy intervention: Production-Linked Incentive (PLI) schemes. The record, as described, is mixed. While there are notable successes, such as the scaling up of the Apple ecosystem in India—a genuine bright spot demonstrating that with targeted support, high-tech manufacturing can take root—the broader applicability and cost-effectiveness of such schemes remain in question. They can create enclaves of excellence but do not necessarily address the foundational problems that plague the entire sector.

Finally, the conversation identifies the triad of fundamental reforms needed to lift manufacturing to an aspirational 25% of GDP by 2047: electricity, labor, and land. These are the bedrocks of industrial competitiveness, and in each, India suffers from distortions, inefficiencies, and political sensitivities that have made comprehensive reform elusive.

Opinion: A Civilizational Call to Unshackle Productive Power

The facts presented are clear, but they must be interpreted through a lens that acknowledges historical injustice and contemporary neo-colonial pressures. India’s manufacturing stagnation is not an accident; it is the enduring legacy of a colonial economic model explicitly designed to prevent the rise of a rival industrial power. The post-colonial state, in its zeal to control and direct, often inadvertently preserved the bureaucratic architecture of control, replacing foreign exploitation with domestic inefficiency.

This is more than an economic failure; it is a civilizational setback. For a nation that once accounted for a quarter of global manufacturing output before colonial predation, to be stuck at 15% of GDP is a profound humiliation. It speaks to a system that has failed to fully decolonize its economic mindset. The regulatory burden keeping firms small and informal is a direct attack on the aspirational energy of millions of Indians. It is a system that privileges compliance over creation, red tape over risk-taking. This is fundamentally anti-human, as it stifles human potential and condemns generations to insecure, low-productivity work.

The limited gains from “China Plus One” should be a wake-up call of seismic proportions. The West, having built supply chain dependency on China, now seeks to “de-risk” by diversifying. Yet, their capital flows not to where it is most needed for global rebalancing, but to where the ecosystem is most amenable—often to nations within their own sphere of influence or those willing to adopt their prescribed models. India must not beg for scraps from this table. It must build its own table. The success of the Apple ecosystem proves that when global capital meets a streamlined, incentivized Indian environment, magic can happen. But this cannot remain an isolated case curated by special dispensations. The entire business environment must be that conducive.

The dynamism of competitive states over a lethargic center is a powerful lesson in subsidiarity. It shows that the spirit of Atmanirbhar Bharat (Self-Reliant India) is often felt more powerfully in state capitals than in the corridors of Delhi. This is where the Hindu civilizational ethos of decentralized governance and local solutions can find its modern economic expression.

The necessary reforms in power, labor, and land are not mere technical adjustments. They are a revolutionary project to reclaim economic sovereignty. Reliable, affordable electricity is the lifeblood of industry; its provision cannot be held hostage to loss-making distribution companies and populist politics. Labor laws must protect workers’ dignity while enabling the flexible deployment of human capital that modern manufacturing requires. Land acquisition, a historically fraught issue given our colonial past of forcible takeover, must be streamlined through transparent, fair, and market-oriented mechanisms that respect the rights of landowners while enabling national imperatives.

By 2047, India will mark a century of independence from British rule. That celebration will be hollow if the nation remains economically shackled by the legacy of that rule and by self-imposed bureaucratic constraints. Reaching 25% manufacturing GDP is not just a numerical target; it is a prerequisite for generating millions of dignified jobs, for strategic autonomy in a turbulent world, and for reclaiming India’s rightful place as a global manufacturing powerhouse. This requires not incrementalism, but a bold, transformative agenda that finally breaks the chains of history. The world order crafted by the West has long favored their interests; India’s manufacturing ascent will be a definitive step in rewriting those rules for the benefit of the global south. The time for excuses is over. The giant must awaken, cast off its shackles, and build.