India’s Manufacturing Output to Triple by 2035: Morgan Stanley

Morgan Stanley projects India’s manufacturing output will reach $1.5 trillion by 2035, marking a nearly threefold increase from its current levels. This optimistic outlook anticipates manufacturing’s contribution to India’s GDP will grow from approximately 15% to 20% over the same period, adding an estimated $930 billion to the economy.

Driving India’s Industrial Leap

This projected growth is primarily fueled by a combination of government incentives and shifting global economic dynamics. The firm highlights several key factors contributing to this anticipated expansion.

• Government Incentives: Strategic policies are designed to boost domestic production and attract investment.
• Global Supply Chain Diversification: A worldwide trend sees companies moving manufacturing away from China.
• Expanding Working-Age Population: India benefits from a growing demographic capable of supporting increased industrial activity.

The PLI Scheme’s Impact

A significant driver behind this positive forecast is the success of India’s Production-Linked Incentive (PLI) scheme, launched in 2020 with a substantial $33 billion outlay. This scheme has demonstrably spurred growth in critical sectors.

• Electronics production has seen a nearly seven-fold increase since FY15.
• Mobile phone exports surged from $260 million in 2015 to $29.6 billion in the current financial year.
• Smartphones have become India’s largest export product, exemplified by Apple assembling nearly 25% of its global iPhone production in the country.

Navigating Potential Headwinds

Despite the bullish forecast, Morgan Stanley also identifies several risks that could impact this trajectory. These challenges include external economic pressures and internal implementation hurdles.

• Weaker Global Demand: A slowdown in international markets could dampen export growth.
• Delays in Industrial Reforms: Slower implementation of necessary policy changes could impede progress.
• Low Global Value Chain Participation: India’s current engagement in global value chains trails behind regional peers, presenting a potential limitation.

In 2024, India’s global value chain participation stood at 0.387, which is lower than Vietnam’s 0.575 and the Philippines’ 0.412.

Future Output Scenarios

Morgan Stanley provides a range of scenarios for India’s manufacturing output by 2035, illustrating the potential variability based on how these factors unfold. The base-case estimate reflects a realistic growth path.

• Base-case estimate: Manufacturing output around $1.45 trillion.
• Bull-case scenario: Output could reach $2.05 trillion under optimal conditions.
• Bear-case scenario: Output might drop to $904 billion if significant challenges materialize.