Rahul Bajoria, BofA India Chief Economist, on India’s Manufacturing Ambitions

India’s manufacturing sector has long hovered around 15 percent of gross domestic product, a figure that seems at odds with the country’s rapid overall growth. In a recent interview on The Diplomat, Rahul Bajoria, Bank of America’s chief economist for India, traced the roots of this stagnation to historical, regulatory and structural factors, and outlined the reforms required to lift manufacturing to 25 percent of GDP by 2047. The discussion offers a nuanced view of why India’s industrial base remains under‑developed and what policy levers could change the trajectory.

Historical Foundations of a Weak Industrial Base

Bajoria highlighted that India’s industrial weakness is not a recent phenomenon. Its origins lie in the colonial era, when the British Empire deliberately limited indigenous manufacturing to serve raw‑material extraction and export markets. This legacy was reinforced during the post‑independence planning period, when the state pursued a model of heavy industry centred on a few large public enterprises. The result was a fragmented industrial ecosystem that never achieved the scale or competitiveness of its East Asian peers.

These historical patterns have left a lasting imprint on the country’s economic structure. While services and information technology have surged, the manufacturing sector has remained constrained by a lack of deep‑rooted industrial culture, limited supplier networks and a shortage of skilled labour accustomed to large‑scale production. The interview suggests that any effort to expand manufacturing must reckon with these deep‑seated institutional legacies.

Regulatory Burdens and the Rise of Informality

According to Bajoria, the contemporary regulatory environment continues to hamper the growth of Indian firms. He described a “regulatory and compliance burden” that forces many enterprises to operate on a small scale or to slip into informality. Complex licensing procedures, fragmented tax regimes and inconsistent enforcement create a climate where scaling up is fraught with uncertainty.

This environment not only limits firm size but also discourages investment in capital‑intensive manufacturing. Companies often opt for labour‑intensive, low‑margin activities that can be managed within the constraints of the regulatory framework. The result is a manufacturing sector characterised by a multitude of small, informal units rather than a handful of globally competitive firms.

State‑Led Reform versus Central Initiatives

Bajoria noted that regulatory progress in India has tended to emerge from a handful of competitive states rather than from the central government. States such as Gujarat, Karnataka and Maharashtra have pioneered reforms in land acquisition, electricity supply and labour regulations, creating pockets of industrial dynamism. These state‑level experiments have demonstrated that targeted policy changes can unlock manufacturing potential.

However, the interview also underscored the limitations of a fragmented approach. Without a coordinated national strategy, reforms remain uneven, and firms operating across multiple states face a patchwork of rules that erodes efficiency. Bajoria’s analysis implies that a more harmonised, centrally‑driven reform agenda could amplify the successes seen in leading states and spread benefits more broadly.

China Plus One and the Paradox of Growing Exports to China

The “China Plus One” strategy—shifting some production from China to alternative low‑cost locations—has been touted as a growth engine for Indian manufacturing. Bajoria argued, however, that India’s gains from this shift have been limited. While some firms have secured contracts, the overall impact on the sector’s share of GDP remains modest.

Complicating the picture, India’s exports to China have actually risen, creating a paradox where India supplies components and raw materials to Chinese manufacturers rather than replacing them. This dynamic reflects a broader pattern of integration into global supply chains that does not necessarily translate into domestic value‑addition or higher manufacturing output.

Production‑Linked Incentives: Mixed Outcomes

India’s recent policy toolkit includes production‑linked incentives (PLIs) designed to spur investment in targeted industries. Bajoria described the record of PLIs as mixed. While certain sectors—such as pharmaceuticals and electronics—have attracted significant capital, the broader manufacturing landscape has not seen a corresponding surge in output.

The interview suggested that PLIs, while useful for catalysing specific projects, may not address the systemic issues that keep many firms small and informal. Without complementary reforms in land, electricity and labour, incentives alone cannot generate the scale required to push manufacturing to the 25 percent target.

The Apple Ecosystem as a Scaling Model

One of the more concrete examples Bajoria cited was the scaling up of the Apple ecosystem in India. The presence of Apple’s supply chain has prompted investments in high‑tech components, assembly lines and ancillary services. This ecosystem demonstrates how a global brand can act as a catalyst for domestic manufacturing capabilities, creating spill‑over effects in skills development and supplier networks.

Nevertheless, Bajoria cautioned that the Apple model is not universally replicable. It relies on a combination of brand prestige, consumer demand and a supportive policy environment that may not exist for other sectors. The lesson, however, is that strategic partnerships with multinational firms can accelerate the development of advanced manufacturing clusters if paired with broader reforms.

Reforms Needed to Reach 25 Percent by 2047

Looking ahead, Bajoria outlined three core reform areas essential for achieving a 25 percent manufacturing share of GDP by 2047: electricity, labour and land. Reliable, affordable power supply remains a bottleneck; frequent outages and complex tariff structures deter capital‑intensive projects. Streamlining land acquisition—reducing bureaucratic delays and ensuring transparent pricing—could unlock vast tracts of industrial land needed for large‑scale factories.

Labour reforms were described as particularly delicate, balancing worker protections with the flexibility required for modern production processes. Bajoria advocated for a framework that encourages formal employment while preserving essential safeguards. Together, these reforms could lower the cost of doing business, encourage larger firms to scale, and attract foreign direct investment, thereby moving India closer to its manufacturing ambition.

This article was produced with AI-assisted research and editorial support. Reporting is based on the source material cited below. Sources: The Diplomat; thediplomat.com; Global1.News (02 October 2026).

By Kenji Tanaka, Staff Writer