Morgan Stanley: India’s Manufacturing to Hit $1.5T by 2035

Morgan Stanley has significantly increased its long-term forecast for India’s manufacturing sector, now projecting an output of $1.5 trillion by 2035. This revised estimate marks a substantial rise from its previous target of $1.1 trillion, suggesting manufacturing’s contribution to India’s GDP could grow from 15% to 20%.

Key Manufacturing Projections

• Manufacturing output forecast by 2035: $1.5 trillion
• Previous output forecast: $1.1 trillion
• Expected GDP contribution increase: From 15% to 20%
• PLI scheme allocation since 2020: Approximately $33 billion
• Mobile phone exports surge: From $260 million (2015) to $29.6 billion (current fiscal year)
• India’s GVC participation index (2024): 0.387

Driving India’s Manufacturing Surge

The upgraded forecast from Morgan Stanley stems from a combination of strategic factors. These include consistent government industrial policies implemented since 2019 and a global push by multinational corporations to diversify supply chains away from China.

India’s large and expanding working-age population further provides a competitive labor advantage, attracting manufacturing investments. This demographic dividend supports the nation’s industrial growth ambitions.

Policy Mechanisms and Sectoral Growth

Visible growth is particularly evident in electronics manufacturing, a sector significantly boosted by government initiatives. The Production-Linked Incentive (PLI) scheme, launched in 2020, has been a pivotal mechanism.

• The PLI scheme has allocated approximately $33 billion to incentivize domestic production across various sectors.
• Electronics production has seen a sevenfold increase since the 2014-15 fiscal year.
• Mobile phone exports surged from $260 million in 2015 to $29.6 billion in the current fiscal year, establishing it as India’s largest export product.

Navigating Potential Headwinds

Despite the optimistic outlook, the report identifies several critical risks that could impede India’s manufacturing ascent. A significant slowdown in global demand poses a threat to Indian exports, which are crucial for achieving the projected growth.

• India’s integration into global value chains (GVC) remains a challenge, with a participation index of 0.387 in 2024.
• This index is lower than competitors such as Vietnam (0.575) and the Philippines (0.412), indicating scope for improvement.
• Potential delays in industrial reforms and persistent infrastructure bottlenecks could also jeopardize the $1.5 trillion target.

Investor Watchpoints and Scenarios

Investors are encouraged to closely monitor India’s progress in improving global value chain integration. Performance within the electronics assembly ecosystem and ongoing updates to PLI programs will offer key insights into the sector’s trajectory.

While the base estimate for 2035 stands at $1.45 trillion, a bear-case scenario could see the manufacturing output drop to $904 billion. This lower projection would materialize if structural or demand challenges persist without adequate resolution.