India is making considerable progress in expanding its manufacturing capabilities across key sectors such as crude steel, electronics, solar modules, and semiconductors, according to a recent report from Jefferies titled “GREED & fear – The virtues of small over large.” The report acknowledges India's growing private sector participation and supportive government policies as key drivers.
However, the analysis underscores a significant disparity in production scale between India and China. While India ranks second globally in several traditional manufacturing categories, China's output volumes remain vastly superior. For instance, last year China produced 960.8 million tonnes (Mt) of crude steel compared to India's 164.9 Mt. Similarly, in cement production, China's 1,700 Mt dwarfed India's approximate 470 Mt.
Key Growth Sectors Identified
Jefferies has pinpointed six areas with substantial growth potential for India's manufacturing sector:
- Space
- Semiconductors
- Solar manufacturing
- Data centres
- Electronics
- Aerospace
Government initiatives, including incentive schemes, tax holidays, and localisation requirements, are playing a crucial role in fostering growth within these sectors.
Energy Transition: A Crucial Factor
The report emphasizes the critical link between India's manufacturing ambitions and its energy transition. Jefferies identifies renewable energy, particularly solar power, as a vital structural growth area. Drawing parallels with China's experience, where extensive grid development and advancements in battery storage have significantly reduced solar power costs, the report suggests that cheaper and more reliable electricity will be essential for India's manufacturing expansion.
Hitachi Energy India projects that India's total final energy demand could surge by 50% by 2035, with electricity demand potentially doubling to 3,365 TWh. The share of electricity in total final energy demand is expected to climb from 19% in 2023 to 25% by 2035.
Rising Private Investment
Encouraging signs of increasing private investment are also noted. India’s annualized gross fixed capital formation as a percentage of nominal GDP rose from 31.4% to 32.4% in the four quarters leading up to December and June, respectively. Furthermore, machinery imports have seen a sharp increase, from US$29 billion in FY21 to US$62 billion in FY26, reaching US$66 billion in the 12 months to August 2026.
While India's manufacturing sector is clearly expanding across diverse areas, it starts from a much smaller base than China. Bridging this gap will necessitate continued investment, robust energy infrastructure, technological advancements, and sustained policy support. Jefferies' analysis suggests that manufacturing is poised to become an increasingly important component of India's overall economic growth narrative.