India's Manufacturing Challenge: Winning the Last Mile

For more than a decade, manufacturing has occupied centre stage in India's economic aspirations. Successive governments have launched ambitious initiatives—Make in India, the National Manufacturing Policy, Production Linked Incentive (PLI) schemes, the National Logistics Policy, PM Gati Shakti, labour law reforms and corporate tax reductions for manufacturing. Massive investments have transformed India's highway network, expanded port capacity, accelerated dedicated freight corridors and improved the overall ease of doing business.

These reforms have been driven by a common objective: to build a globally competitive manufacturing sector that creates productive jobs, boosts exports and enables millions of Indians to move from low-productivity agricultural employment into higher-value industrial occupations.

Yet, despite these efforts, manufacturing's contribution to India's Gross Value Added (GVA) has remained broadly stagnant at around 16–17%, well below the long-standing aspiration of increasing its share to 25%. While India's services sector has become globally competitive, manufacturing has yet to emerge as the engine of employment and exports that policymakers had envisaged.

This matters because manufacturing is fundamentally different from many other sectors. It creates large-scale employment, supports technology development, strengthens supply chains and generates export earnings. Equally important, it is the backbone of India's Micro, Small and Medium Enterprises (MSMEs), which contribute nearly 36% of manufacturing output, account for around 45% of India's merchandise exports, and provide employment to more than 20 crore people. Strengthening manufacturing is therefore not simply an economic objective—it is central to India's long-term employment and inclusive growth strategy.

Unlike large corporations, however, most MSMEs do not operate from sprawling integrated campuses with captive infrastructure. They depend almost entirely on the quality of the industrial ecosystem around them—roads, electricity, water supply, drainage, waste management, public transport and common facilities. Every deficiency in this ecosystem translates directly into higher operating costs and reduced competitiveness.

Whenever export growth slows or India's manufacturing competitiveness comes under scrutiny, the debate almost invariably centres on the need for "more reforms." Businesses seek further policy changes, economists recommend greater liberalisation and governments announce fresh initiatives.

But perhaps we are asking the wrong question.

India today does not suffer from a shortage of industrial policy. It suffers from a shortage of industrial execution.

This is not to suggest that national reforms have been ineffective. On the contrary, they have laid the foundation for India's next phase of industrial growth. However, the next gains in manufacturing competitiveness are unlikely to come from another policy announcement in New Delhi. They will come from improving the environment in which factories actually operate every single day.

It may be useful to think of manufacturing competitiveness as comprising three distinct layers.

The first is national policy—taxation, trade agreements, labour regulations, industrial incentives and the broader ease of doing business. India has made significant progress on many of these fronts.

The second is strategic infrastructure—national highways, ports, airports, dedicated freight corridors and industrial corridors. Here too, India has witnessed remarkable improvements over the past decade. Freight movement across long distances is significantly faster and more reliable than it was just a few years ago.

The third, however, is the local industrial ecosystem. This includes the internal roads within industrial estates, traffic management, truck parking, drainage, reliable electricity, water supply, common effluent treatment facilities, waste management, digital connectivity, worker mobility and the professional maintenance of industrial areas.

It is this third layer that receives the least attention, yet often has the greatest influence on a manufacturer's day-to-day competitiveness.

Consider logistics. India's logistics costs are estimated at around 13–14% of GDP, compared with approximately 8–9% in many developed manufacturing economies. Considerable progress has already been made through investments in expressways, freight corridors and ports. Increasingly, however, the remaining inefficiencies are not on the highway—they are at the destination.

This brings us to what may be called Last Mile Competitiveness.

Much attention has rightly been paid to improving last-mile connectivity—connecting industrial clusters to highways, ports and freight networks. But connectivity alone does not guarantee competitiveness.

A truck carrying export-bound engineering components may travel 500 kilometres efficiently on a modern expressway, only to spend another 45 minutes negotiating the final two kilometres because of congested internal roads, inadequate carriageway widths, illegal parking, encroachments or poor traffic management within an industrial estate. Those last few kilometres often determine whether deliveries are made on time, inventories remain under control and production schedules remain uninterrupted.

For many manufacturers, particularly MSMEs, these hidden costs are more significant than another marginal reduction in freight tariffs or taxation.

Industrial clusters across the country provide numerous examples.

Take Bhosari and Moshi in the Pimpri-Chinchwad region—among Maharashtra's oldest and most established engineering clusters, supplying the automotive, engineering and export sectors. Despite their industrial importance, these estates have repeatedly faced issues relating to deteriorating internal roads, traffic congestion, inadequate drainage, waterlogging, waste management and delays in developing Common Effluent Treatment Plants (CETPs). Industrial associations have also highlighted concerns regarding local power reliability and ageing electricity distribution infrastructure.

These are not isolated incidents, nor are they unique to Maharashtra. Similar concerns have been reported from industrial clusters in Chakan, Ludhiana, Faridabad, Rajkot, Peenya, Coimbatore and several other manufacturing centres. In fact, the Maharashtra Government itself recently initiated an infrastructure gap assessment for the Chakan industrial belt after industries highlighted deficiencies in roads, utilities and civic infrastructure despite the region's importance as one of India's premier automotive manufacturing hubs.

The underlying issue is not one of intent—it is one of governance.

Responsibility for industrial estates is frequently divided among industrial development corporations, municipal corporations, electricity distribution companies, pollution control authorities, traffic police and planning agencies. Each controls one part of the ecosystem, but no single agency is accountable for the overall performance of the industrial estate.

As a result, world-class factories often operate within decidedly ordinary surroundings.

This is perhaps the least discussed aspect of India's manufacturing competitiveness. Investors do not experience industrial policy through government notifications. They experience it while moving trucks through congested roads, waiting for utility connections, coping with drainage failures, arranging waste disposal or managing production schedules around local power disruptions.

These are not glamorous reforms and they rarely attract headlines. Yet collectively they influence delivery performance, inventory levels, production efficiency, environmental compliance and ultimately investment decisions.

How then should India respond?

One practical step would be to establish a national Industrial Estate Competitiveness Index.

Just as rankings have encouraged improvements in Ease of Doing Business, Smart Cities and Swachh Bharat, a similar benchmarking exercise could transform the management of industrial estates.

Major industrial estates could be evaluated annually on measurable parameters such as internal road quality, truck turnaround time, power reliability, water availability, drainage, waste management, availability of Common Effluent Treatment Plants, digital connectivity, worker mobility, safety, grievance resolution and overall maintenance standards.

Publishing these rankings would create healthy competition among industrial development authorities, encourage accountability and provide investors with an objective assessment of industrial ecosystems across different states. More importantly, it would shift the focus from announcing new policies to improving the quality of implementation.

India has demonstrated that it can build expressways, airports, metro systems and dedicated freight corridors at remarkable speed. The next phase of manufacturing reforms should apply that same determination to the industrial estates where factories actually operate.

The next frontier is not merely last-mile connectivity.

It is Last Mile Competitiveness.

India has already completed much of the first mile of manufacturing reform. The next—and perhaps the most important—phase lies in ensuring that every industrial estate offers manufacturers an operating environment that matches the ambition of the policies that brought them there.

The road to becoming a global manufacturing powerhouse does not end with industrial policy. It begins at the factory gate.