India’s Industrial Growth Must Deliver Greater Value to Domestic Manufacturers

With industrial production rising 6.7% in September 2026, economist Rohit Kumar Singh examines uneven sectoral performance and calls for manufacturing policies that prioritise productivity, domestic value addition and stronger MSME participation.

India’s Industrial Growth Must Deliver Greater Value to Domestic Manufacturers
By Rohit Kumar Singh, Ph.D. (Eco), PMP®
India’s industrial production figures for September 2026 indicate continued expansion, but they also raise important questions about the quality and durability of manufacturing growth.
The Index of Industrial Production (IIP) increased by 6.7% compared with September 2025, moderating from 8% growth in August 2026.
Manufacturing recorded 7.6% growth, supported by electrical equipment, automobiles and rubber and plastics products.
Capital goods production rose by 10.4%, while intermediate goods expanded by 12.2%.
However, mining contracted by 6.2%, and consumer nondurables recorded growth of only 1.4%.
These differences suggest that policymakers should examine whether higher industrial output is translating into lasting productivity gains, stronger domestic suppliers and greater value creation within India.

INDUSTRIAL OUTPUT ALONE CANNOT MEASURE ECONOMIC PROGRESS
The expansion in capital goods and intermediate goods is encouraging, particularly if it reflects investment in productive capacity.
However, stronger production figures do not automatically establish that the manufacturing sector is experiencing a broad and sustainable recovery.
The IIP measures changes in industrial output. It does not explain whether growth results from lasting improvements in capacity, temporary spending or other short term factors.
This distinction matters for industrial policy.
If higher production reflects investment that improves efficiency and future output, the resulting capacity can support sustained economic activity.
If the increase is primarily driven by temporary expenditure, its benefits may diminish once that spending slows.
Manufacturing incentives should therefore be assessed against the underlying causes of growth rather than production increases alone.

WEAK CONSUMER NONDURABLE GROWTH DESERVES ATTENTION
The 1.4% increase in consumer nondurables is another important feature of the September data.
Although this figure does not establish that consumer demand is declining, it raises questions about the relationship between industrial capacity and household purchasing power.
Manufacturers require sufficient demand to sell their products, maintain operating levels and protect margins.
If production capacity expands faster than consumers’ ability to purchase goods, businesses may face pressure from unsold inventories and weaker profitability.
A fuller assessment of industrial conditions should therefore include real wage growth, rural consumption, retail sales and corporate inventories.
Where weak demand is identified as the underlying constraint, policy intervention should address household purchasing capacity rather than simply encouraging additional manufacturing capacity.

MINING CONTRACTION REQUIRES A CLOSER EXAMINATION
Mining output declined by 6.2% in September, even as manufacturing expanded by 7.6%.
This divergence does not prove that manufacturers experienced mineral shortages during the month.
Nevertheless, it warrants closer investigation into the availability, pricing and movement of industrial raw materials.
A prolonged reduction in domestic mineral production could increase dependence on imported inputs, exposing manufacturers to international price fluctuations and supply disruptions.
Policymakers should identify the minerals and producing regions responsible for the contraction.
Where necessary, targeted measures could address exploration, project execution, transport infrastructure and mineral processing capacity.
Such interventions would be more useful than treating every decline in mining output as evidence of the same underlying problem.

MANUFACTURING INCENTIVES MUST GENERATE ADDITIONAL VALUE
India’s Production Linked Incentive (PLI) scheme has contributed to capacity expansion in selected manufacturing industries.
The next policy question concerns additionality: how much investment, productivity improvement and domestic value creation occurred because of public incentives and would not otherwise have taken place.
This is important because higher production does not necessarily mean that more value is being created within the domestic economy.
Manufacturers may expand assembly operations while continuing to import critical components and specialised technologies.
An incentive system that primarily rewards output growth risks supporting such arrangements without sufficiently improving domestic industrial capabilities.
Future extensions of PLI support should therefore be linked to independently verifiable progress in domestic value addition, productivity and export competitiveness.
The objective should be to measure the economic benefits generated by public support, not simply the quantity of goods produced.

MSME SUPPLIERS NEED GREATER PARTICIPATION
Manufacturing policy should also help micro, small and medium enterprises participate more effectively in industrial supply chains.
A supplier development programme could improve connections between MSMEs and larger manufacturers.
Such participation would allow smaller businesses to access production opportunities and develop capabilities that contribute to domestic value addition.
Public incentives are likely to deliver broader economic returns when they support networks of competitive suppliers rather than concentrating benefits among a limited number of major manufacturers.

DOMESTIC MANUFACTURING MUST REMAIN COMPETITIVE
Import substitution should be pursued selectively rather than treated as an objective regardless of cost.
Domestic production offers economic value when it develops competitive industrial capabilities or reduces significant supply risks.
Producing an item within India is not, by itself, sufficient justification for supporting its manufacture.
Access to competitively priced imported inputs also remains important for businesses seeking to compete in international markets.
A balanced industrial strategy should therefore consider domestic capability development alongside the input requirements of export oriented manufacturers.

PRODUCTIVITY AND VALUE ADDITION SHOULD GUIDE POLICY
September’s IIP figures are not necessarily a warning of an industrial slowdown.
They do, however, demonstrate why headline production growth should not be the only measure of manufacturing performance.
India’s long term industrial prospects depend on whether investment creates productive capacity, domestic suppliers capture a larger share of manufacturing value and consumer demand supports expanding output.
The central objective of industrial policy should be to improve productivity, domestic value creation and international competitiveness.
Sustained industrial development will require growth that delivers measurable economic benefits across the manufacturing sector, including the smaller enterprises that form part of its supply chains.

PRODUCTIVITY AND VALUE ADDITION SHOULD GUIDE POLICY
September’s IIP figures are not necessarily a warning of an industrial slowdown.
They do, however, demonstrate why headline production growth should not be the only measure of manufacturing performance.
India’s long term industrial prospects depend on whether investment creates productive capacity, domestic suppliers capture a larger share of manufacturing value and consumer demand supports expanding output.
The central objective of industrial policy should be to improve productivity, domestic value creation and international competitiveness.
Sustained industrial development will require growth that delivers measurable economic benefits across the manufacturing sector, including the smaller enterprises that form part of its supply chains.

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