Why India’s industrial growth isn’t as satisfactory as it’s made out to be

However, the industrial growth numbers raise many questions, both statistical and substantial. When the current NAS series (base year 2011-12) was introduced in 2015, red flags were raised on the veracity of the revised GDP series, as the new growth estimates were at serious variance with the earlier estimates (R. Nagaraj, ‘Seeds of Doubts on New GDP Numbers,’ Economic and Political Weekly, 28 March 2015). The doubts were most acute for the manufacturing sector.

The primary cause of the reported overestimation was the introduction of the ministry of corporate affairs’ MCA21 database of statutory filings of audited financial accounts. It replaced the earlier production accounts-based estimates, which mainly used the Annual Survey of Industries (ASI).

The doubts raised by various data users, however, have remained unresolved. Without public access to the MCA database, it was not possible to independently validate the official estimates.

Now, with over a decade of yearly observations, a meaningful comparison of NAS and ASI-based estimates is possible. We did this exercise for 2011-12 to 2019-20, excluding the pandemic year and subsequent economic rebound to minimize possible distortions and noise in the data.

The accompanying graph shows average growth rates of manufacturing gross value added (GVA) and gross fixed capital formation (GFCF), or fixed investment, at constant prices for the two data series. The sector’s average GVA growth rate is 6.2%, as per the NAS. The ASI-based estimate is 3.5% per year, significantly lower. The difference in average growth rates is starker for GFCF: 4.5% by the NAS and practically zero by the ASI at 0.3%.

The sharp differences in the growth rates between the two series also hold for most industry groups under 2-digit classification (R. Nagaraj, ‘How to Reverse India’s Industrial Decline,’Economic and Political Weekly, 15 March 2025).

As the growth estimates derived from the time-tested and more credible ASI readings are significantly lower than official NAS estimates, the ASI data confirms the GDP overestimation hypothesis of the debate.

Many macro readings that bear clear correlations with manufacturing growth, such as declining industrial credit growth, are consistent with that conclusion.

These credible growth estimates cast doubts on the official narrative of India’s industrial performance since the early 2010s. As there was practically no growth in the gross fixed investment rate, unsurprisingly, domestic industrial capacity has hollowed out.

It means that many policy initiatives, such as Make in India (2014) or Atmanirbhar Bharat (2020), have failed to revive industrial investments overall. A steady decline in India’s net foreign direct investment to GDP ratio, at a time when the economy was supposedly growing rapidly, also supports the alternative estimates.

The effects of a slowdown in industrial output and investment are also evident in exports. The share of merchandise exports in the total has steadily declined from 68.4% in 2011-12 to 55.0% in 2023-24. Inadequate capacity to produce intermediate and capital goods has also raised the import content of final output and exports.

Integrating with global supply chains is fine if it expands output and exports faster than imports and creates backward linkages to augment domestic capabilities and employment. But that does not always happen. For instance, the much-acclaimed success of generic drug exports is increasingly dependent on imports of active pharmaceutical ingredients (APIs or bulk drugs) from China. This vulnerability came to a head during the pandemic, when China stopped its exports to meet its domestic needs.

Modest industrial output growth and a lack of investments have adversely affected employment and skill formation in the manufacturing sector, whose share in employment in the total has declined between 2011-12 and 2022-23, with a corresponding rise in the agriculture sector’s share, as workers fall back on the safety net of land and village. Taken together, all this presents a clear picture of premature de-industrialization.

The geopolitical shock of US tariffs has added salt to the injury of depleted productive capacity. With China restricting its exports of intermediate goods and the mobility of its skilled workers in high-tech industries (to throttle a potential global competitor), India’s slender production base is being adversely affected from the supply side.

Dependence on China as a single supplier of many critical industrial inputs has come home to roost. With US tariffs threatening to throttle exports of labour-intensive manufacturers from the demand side, the country faces a double whammy.

These are the bitter dividends of complacency underpinned by a faulty statistical barometer. India needs a reality check that credible statistics can provide. The country could re-industrialize quickly by reformulating policy; V. Anantha Nageswaran and Rose Mary Abraham suggest as much in ‘India’s share of manufacturing in its economy can easily expand’ (Mint, 9 September).

If India is serious about Swadeshi, it has to prioritize industrial investment to expand domestic production and exports with rising domestic content, rather than promote import-intensive luxury consumption. To get the strategy right, our data dashboard needs to be sound and granular.

These are the author’s personal views.

The author is an economist associated with IIT Bombay.