Thirty-five years ago, in 1991, Dr. Manmohan Singh presented a budget that abolished the industrial licensing system and launched what has been described as the "liberalisation" reform, but which is better described as a "privatisation" reform because it involved a shift away from public sector in industry.  Perhaps the most important intention was to accelerate the growth of the manufacturing industry and there was a boost with the share of manufacturing in gross value added (GVA) at current prices rising to 19.7 percent in 1995-96.

But this was a temporary achievement. The share of manufacturing in gross value added (GVA) at current prices  has fluctuated in the 17-18 percent level since then and was 17.4 percent in 2011-12, Since then, the share of manufacturing in GVA at current prices has declined steadily to 14.3 percent in 2023-24 which is 3 percentage points lower than  the level that was reached as far back as 1974-75.  The decline in the share of manufacturing in GVA is also matched by the fall in the share of manufacturing in gross fixed capital formation from 40.8 percent in 2011-12 to 31.6 percent in 2023-24.  An even more disturbing feature is that the share of manufacturing in employment remained static at a little over 10 percent all the way from 1990-91.

From a global perspective the World Development Indicators show that in the calendar year 2024 manufacturing value added as a percentage of GDP at current dollar prices was 12.6 percent of GDP in India. This is distinctly below the percentage share of manufacturing value added in our neighbours Bangladesh (21.9 percent), and Sri Lanka (17.6 percent), the south-east Asia countries Indonesia (19.0 percent), Malaysia (22.5 percent), Thailand (24.3 percent), Vietnam (24.4 percent), and the east Asians China (24.9 percent) and South Korea (26.6 percent).

A comparision with China is most striking. In 1990, China and India had nearly identical manufacturing bases. But by 2025, China's manufacturing value added became approximately 10 times larger than India. Clearly this substantial difference in the share of manufacturing in GDP between India and most Asian states is an indication that our manufacturing promotion policy has been less than adequate.

Perhaps the most important development challenge that India faces at present is the revival of manufacturing growth and greater prospect of achieving the 25 percent target articulated first in 2012 and repeated in 2015 and 2025 policy announcements.  The truth is that the "privatisation" of manufacturing development has not led to the "liberalisation" that opened opportunities for new starters. Established industrial conglomerates flourished and broadened their presence.

Government intervention must shift from being business friendly to being market friendly.  That will be more consistent with the "liberalisation" change launched in 1991. Our present policy involves entrepreneurship selection even after the abolition of industrial licensing system and continues in  manufacturing support programmes like the Product Linked Initiative (PLI). Much of this is in favour of conglomerates who operate in multiple sectors. This link between the government and some enterprises dissuades others from entering and competing in the relevant sectors. The sad part is that these favoured conglomerates have not established a high presence in global trade or for that matter in technology development, as Korean companies like Samsung and Hyundai and Chinese companies like Huawei and BYD have done.  

Actually significant structural development of the economy requires what Schumpeter called "creative destruction". Supporting established enterprises in public policy works against this. The success of entrepreneurship does not require any close link between corporate managers, bureaucrats or ministers as it may lead to the prevention of competition.

What we need is a strong emphasis on encouraging newcomers and this is what requires a market friendly policy approach.  The basis of this approach is what the government does for small and medium enterprises. Do note that the spectacular growth in manufacturing in China is basically the Chinese governments, at the centre and in provinces and cities, promoting new private enterprises in manufacturing and services with the focus on starters who were basically small and medium enterprises. What is even more spectacular is the rapid rise in their presence in advanced technologies.. 

India does have a Micro, Small and Medium Enterprise (MSME) programme.  But the impact is modest with MSMEs accounting for just 31 percent of GDP, way below what it is in China.  There was a move to enhance development for MSMEs in the 2025-26 budget and a provision was made of Rs 11954 crores for the Employment Guarantee. programme and for Credit Support schemes.  But the 2026-27 budget reported that the revised outlay in 2025-28 was just Rs. 2549 crores. This is way below the funds accruing to larger enterprises through  the Product Linked Incentive (PLI) where the revised outlay reported for 2025-26 is Rs.13145 crores and the saving in corporate tax from tax incentives which is Rs.98095 crores.

Our MSME programmes  seem to be separated from the industrial policy programme, may be because two different Ministries are responsible for formulation and implementation. Perhaps the MSME scheme is seen as a welfare scheme. What we need to do is to separate out the welfare part of MSME, say the part that is devoted to helping khadi and village industries, connect the manufacturing oriented support for small and medium enterprises (SMEs) with the broader industrial policy and focus attention on new comers vigorously in manufacturing promotion. An example of this is the Design Linked Incentive Scheme in semiconductor development. Yes, there may be a few programmes based on global strategic considerations which may be wider in their approach and include both established enterprises and foreign companies.

We must understand that adventurous and technologically advanced start-ups will come mainly from new starters. That is what happened in the infotech boom and perhaps also in the recent expansion of the digital transactions initiative. A particularly interesting  case is the recent boom in 190 space related enterprises following the 2023 Indian Space Policy with .India's space economy expected to reach $ 44 billion fairly soon.  Most of them space service providers are new starters promoted by technologically savvy newcomers. Our industrial policy must focus on promoting many "little giants" who will start as new comers, become developers of advanced technologies, grow in size and increase both the national availability of advanced items that are imported and support greater export capacity growth of fast-growing new items. 

Basically we need a substantial reorientation from past practices which have not delivered the results required for faster growth in manufacturing production and employment.  Reduce the number of central schemes focussed on manufacturing which at present are over 100  and make them longer lasting and predictable Do not focus on conglomerates and large established enterprises who can grow and hopefully develop without government support. The primary focus of government manufacturing policy should be on new start-ups and a strong focus on support for technological growth. Do that and the 1991 promise of liberalisation will restart.