India’s manufacturing sector posted its strongest growth in at least three years in the second quarter of FY2025-26, even as official data and the Economic Survey 2025-26 confirmed that the services sector continues to anchor the economy. The concurrent acceleration of both sectors has lent new substance to the government’s ambition of positioning India as a global manufacturing destination, while also clarifying that the services-to-manufacturing transition, if it is underway, remains partial and gradual.
What the Official Numbers Show
According to the National Statistics Office’s First Advance Estimates released on January 7, 2026, the manufacturing sector is expected to post 7 per cent growth in Gross Value Added terms in FY2025-26, up sharply from 4.5 per cent in FY2024-25. The services sector, for its part, is estimated to grow at 9.1 per cent in GVA terms, compared to 7.2 per cent in the previous year.
The quarterly trajectory tells a more granular story. Manufacturing GVA growth accelerated from 7.72 per cent in the first quarter to 9.13 per cent in the second quarter of FY26, which the Economic Survey 2025-26 attributed to structural changes including a shift toward higher-value manufacturing, better industrial infrastructure through economic corridors, and increased technology adoption and formalisation. Worldbank
Under the revised national accounts series with a base year of 2022-23, released by MoSPI on February 27, 2026, manufacturing has attained double-digit growth rates in FY2023-24 and FY2025-26, and the press note describes the sector as a major driver of the economy’s resilient performance across three consecutive financial years after rebasing. Business Standard The two series use different methodologies and benchmark data; comparisons between them should be made with caution.
Despite these gains, the structural composition of the economy has not fundamentally shifted. Services continues to account for the larger share of both GVA and output. The manufacturing sector’s contribution to overall GVA, while growing in pace, remains below that of the tertiary sector by a substantial margin — a structural feature that has persisted for decades and is not expected to reverse in the near term.
Electronics: The Breakout Export Segment
The most vivid evidence of manufacturing’s acceleration comes from electronics. Electronics exports reached $22.2 billion in the first half of FY2025-26, placing the sector on a trajectory to become India’s second-largest exported item. Total electronics production increased from ₹6.4 lakh crore in FY22 to ₹11.3 lakh crore in FY25, while exports rose from ₹1.2 lakh crore to ₹3.3 lakh crore over the same period. World Bank
In the first eight months of FY26, electronic exports led by smartphones reached $31 billion, an increase of 38 per cent over the same period in FY25, making electronics the fastest-growing segment among India’s top 30 export items, according to Ministry of Commerce and Industry data. Smartphones accounted for 60 per cent of electronics exports in this period, with Apple alone exporting iPhones worth $14 billion, constituting more than 45 per cent of total electronics export value.
The Economic Survey noted that India has transitioned from a net importer to the world’s second-largest mobile phone manufacturer, with over 300 manufacturing units today, compared to just two in 2014. Mobile phone production value increased nearly 30-fold, from ₹18,000 crore in FY15 to ₹5.45 lakh crore in FY25. World Bank
The PLI scheme, launched with an outlay of ₹1.97 lakh crore across 14 sectors, had, as of June 2025, mobilised investments of ₹13,107 crore in electronics, generated production worth ₹8.56 lakh crore, exports of ₹4.65 lakh crore, and created over 1.35 lakh direct jobs. The World Bank The government has also approved the Electronics Components Manufacturing Scheme with an initial outlay of ₹22,919 crore, subsequently expanded given strong industry response; the scheme is intended to shift India’s electronics manufacturing from predominantly assembly-based activity to component and design-level production.
The Logistics Cost Correction
A significant data revision has altered one of the most commonly cited structural handicaps for Indian manufacturing. For years, India’s logistics costs were routinely described as equivalent to 13-14 per cent of GDP. A joint study by DPIIT and NCAER, published in September 2025, placed India’s logistics costs at 7.97 per cent of GDP in FY2024, down from 8.84 per cent in FY23 and 8.79 per cent in FY22. Business Standard
The study’s authors noted that the older 13-14 per cent estimates were based on partial or external data. India’s logistics cost at 7.97 per cent is now within the same band as advanced economies — the United States at 8.8 per cent, Germany at 8 per cent, and Australia at 8.6 per cent — according to Business Standard’s analysis of the DPIIT-NCAER report.
This correction matters for the manufacturing competitiveness argument. If India’s logistics costs are no longer structurally higher than those of major competing economies, the “hidden tax on manufacturing” narrative requires revision — though the DPIIT-NCAER study itself notes that road freight dominates at a 71 per cent modal share, well above global benchmarks, and that small firms continue to face disproportionately higher logistics burdens than large enterprises.
Where the Gaps Remain
The electronics and PLI success story, while real, is concentrated. Medium- and high-technology segments now account for 46.3 per cent of India’s total manufacturing value added, placing India among a small group of middle-income economies moving toward more sophisticated production structures. India’s Competitive Industrial Performance ranking improved to 37th in 2023, up from 40th in 2022, according to the Economic Survey. Worldbank
Yet India’s share of global manufacturing output remains modest. Multiple international databases, including the United Nations Industrial Development Organization’s data through 2023-24, place India’s contribution to global manufacturing at approximately 3 per cent, against China’s dominant share of roughly 28-30 per cent. That gap is not narrowing rapidly.
The workforce challenge is another constraint that official data does not resolve. The Economic Survey and ISM documents reference large-scale skilling targets, but independently verified data on the supply of workers with advanced manufacturing skills — in areas such as precision engineering, semiconductor handling, and industrial automation — is not yet available in forms that allow confident benchmarking.
The Honest Assessment
Official data, the Economic Survey 2025-26, and sectoral export statistics together make a coherent case that India’s manufacturing sector has demonstrably accelerated, that the acceleration is not confined to a single quarter, and that electronics in particular has moved from an assembly-dependent sector to one with meaningful export volumes. The logistics cost data revision removes one long-standing objection to India’s manufacturing competitiveness argument.
What the same data does not support is the claim that India has become, or is imminently about to become, a global manufacturing hub in the sense that the term implies — a dominant, diversified, high-volume producer integrated across the value chain in multiple sectors. Services continues to outpace manufacturing in GVA growth, retains a far larger share of the economy, and leads India’s export earnings when goods and services are measured together. Manufacturing’s acceleration is genuine; its dominance is not yet established. The distinction matters for policy, for investment decisions, and for accurate reporting of where the Indian economy actually stands.
