Trajectories across sectors point to a substantial but uneven manufacturing expansion in the value it creates.
Manufacturing is where India’s industrial policy has placed its largest bets. By March 2026, production linked incentive schemes across 14 sectors had attracted over Rs 2.40 lakh crore in investment and generated Rs 22.66 lakh crore in production. Manufacturing GVA grew 9.3% in 2024-25 and 10.7% in 2025-26, but its share of the economy at current prices barely changed, edging from 14.7% in 2022-23 to 14.8% in 2025-26.
The Annual Survey of Industries (ASI), with its latest 2024-25 round released last month, reported broad based growth: fixed capital up 10.5%, workers 7.3%, output 7.8% and gross value added (GVA) 9.6%. ASI shows more than whether manufacturing is growing it tracks capital, inputs, and output at the same factories. It shows how much value each rupee of capital generates, and how much output is produced in-house rather than purchased as inputs.
Read across 2014-15, 2019-20 and 2024-25, the answer is mixed. The sector has grown, and many industries now get more from their capital. But manufacturing as a whole is not adding more value to what it produces than it was a decade ago. Closing that gap means shifting from building capacity to building capability.
The first part of that picture is the value generated by the sector’s expanding capital base. GVA per rupee of fixed capital relates the value factories add after deducting purchased inputs to the book value of their land, buildings, plant and machinery. On this measure, the past decade has seen a U-shaped trajectorya decline followed by a recovery: each rupee of fixed capital generated about 47 paise of GVA in 2014-15, 41 paise in 2019-20 and 53 paise in 2024-25.
The initial decline was driven largely by petroleum refining, where GVA per rupee of fixed capital fell from about 64 paise to under 10 paise. At the same time, refining’s share of the factory sector’s fixed capital increased from about 9.5% to nearly 14%, giving its deterioration greater weight in the overall figure. Excluding refining, GVA per rupee of fixed capital remained broadly stable at 45-46 paise. The aggregate decline therefore did not reflect a widespread weakening across industries. Similarly, in the recovery period post 2019-20, excluding refining, GVA per rupee of fixed capital rose from about 46 paise in 2019-20 to 58 paise in 2024-25.
It implies that the recovery was widespread across industries, but it does not explain how much came from prices and how much from better use of capital. To assess whether factories are also adding more value to what they produce, we need to examine GVA as a share of output.
GVA per rupee of fixed capital increased in 21 of 29 two-digit industry groups between 2019-20 and 2024-25. A shift-share decomposition attributes roughly 70% of this broad-based improvement to higher capital productivity within individual industries, and around 30% to capital shifting toward higher-ratio sectors. Consequently, changes in India’s industrial mix explain only a fraction of the progress, pointing to underlying operational gains across diverse sectors.
Motor vehicles show strong evidence of expansion accompanied by stronger capital productivity. Their share of manufacturing output rose from 6.8% to 8.4%, and their GVA share from 7.4% to 9.5%, while their fixed-capital share stayed near 6%. GVA per rupee of fixed capital climbed from about 58 to 85 paise, increasing the industry’s economic weight without a comparable rise in its share of factory capital stock.
Electronics presents a different picture. Computer, electronic, and optical products expanded rapidly: their share of manufacturing output rose from roughly 1.8% to 4.6% over the decade. But GVA did not rise at the same pace. GVA accounted for around 19% of electronics output in 2014-15; by 2024-25, the share was closer to 12%. ASI cannot tell us whether this reflects imported components, product-mix shifts, prices, or assembly’s growing role. It does show that rapid domestic production growth need not yield an equally rapid increase in value generated domestically.
In the pharmaceuticals sector, share of manufacturing fixed capital has increased, while GVA generated per rupee of capital has softened slightly. Yet pharmaceuticals remain highly value-added-intensive: GVA now accounts for nearly 38% of sectoral output, compared with about 35% a decade ago. Greater capital intensity, therefore, need not imply weaker value creation if the production itself continues to generate substantial value. Whereas the chemical sector raises a different question. Its share of manufacturing fixed capital rose from about 7% to more than 10% over the decade, but its share of GVA increased much less. Consequently, GVA per rupee of fixed capital declined from about 54 paise to 43 paise in the period. This does not by itself imply overcapacity; for example, new plants take time to mature, and sectoral price cycles matter, but it illustrates why investment alone cannot tell us what is happening within an industry.
Together, these trajectories across sectors point to a substantial but uneven manufacturing expansion in the value it creates. Some industries have combined greater scale with stronger capital productivity; others have expanded production or capital more quickly than value added. These movements partly offset each other: GVA fell from 16.9% of manufacturing output in 2014-15 to 16.3% in 2024-25, while net value added stayed near 14%. India produces much more, and many industries extract more value from capital, but factory production has not broadly become more value-added intensive.
India’s manufacturing policy increasingly aims to ensure expansion creates deeper domestic economic activity, not just more final products. Automobile incentives require at least 50% domestic value addition for eligible advanced products. Electronics policy is shifting toward components, design, and R&D, while pharmaceutical programmes target critical inputs and higher-value products.
The next test of India’s manufacturing strategy may therefore be different from the last one. Attracting capital, expanding output, exports, and employment remain vital. But as manufacturing grows, success will increasingly depend on deepening supplier networks, producing components domestically, advancing technology, and creating more value from added industrial capacity.
*Amit Kapoor is Chair& Mukul Anand, Senior Researcher at Institute for Competitiveness.X: @kautiliya.
