Unlocking India’s Manufacturing Potential: From Capacity Expansion to Operational Excellence

Manufacturing is central to India’s economic growth story, contributing about 17 percent of the country’s GDP and creating a multiplier effect across logistics, construction, utilities, and services. It also supports ~12% of total employment, providing millions of skilled and semi-skilled jobs. A strong manufacturing base is integral to India’s self-reliance and adds to the country’s export basket.

India has set its sights on raising the manufacturing share of GDP to 25%, which would position the country among the world’s leading industrial economies. Policy initiatives are already supporting this aspiration. Production Linked Incentive (PLI) schemes across 14 sectors have mobilized over ₹1.8 lakh crore of investments and created more than one million jobs, while infrastructure investments are strengthening the foundations for globally competitive manufacturing.

As India builds new capacity, realizing manufacturing’s full potential will also depend on ensuring cost-competitiveness. This will require a shift from traditional operating norms towards more disciplined ways of working, focusing on eliminating inefficiencies and improving the economics of conversion.

Even with new investments, Indian factories continue to operate below full potential, with average capacity utilization of around 74–76% for many years now. In contrast, eurozone manufacturers operate at about 81%, while U.S. manufacturing averages 77–78%. Productivity presents a similar challenge, with India’s manufacturing labour productivity at roughly one-fifth that of China and about half that of Vietnam. Further, there is limited focus on scientific approaches to cost-efficiency, such as value engineering, despite more than 70 percent of product life-cycle costs being driven by design.

Disciplined execution can change this equation. Leading automotive manufacturers have implemented continuous improvement programmes that delivered significant efficiency gains, with productivity in some lines increasing by as much as 60 percent. These case studies demonstrate the scale of improvement possible through structured operational focus.

Productivity gains also deliver meaningful energy efficiency benefits, as specific energy consumption typically declines with rising output, lowering both operating costs and emissions intensity. Sustainability has moved firmly into boardroom and investor agendas, reinforced by policy signals. Emissions reporting is now mandated for top 1,000 listed companies, and legacy schemes such as Perform, Achieve and Trade (PAT) are being renewed through Carbon Credit Trading Scheme (CCTS), which sets emissions-intensity targets for manufacturers. While manufacturers are already accelerating renewable energy adoption driven by falling costs and policy support, productivity-led improvements in energy efficiency offer an additional, often underappreciated lever to reduce emissions and strengthen competitiveness.

Improving manufacturing performance requires right diagnosis and targeted interventions. Five imperatives can help manufacturers translate this into action.

1. Track the Right Operational Metrics: Improving factory performance begins with the right data. Many plants only record shift-level production totals, while meaningful analysis requires continuous, asset-level data for stoppages, speeds, and quality parameters. This needs to be supported with accurate reporting of operating asset effectiveness: a combination of availability, throughput, and acceptance with proper accounting of changeovers, micro-stoppages, rated speeds, and rework. With the right data reporting, manufacturers get a clearer view of capacity losses and improvement areas.
2. Cost It Right: Managing cost structures well is crucial to cost-competitiveness. A design-to-cost approach, with levers such as standardization and alternate materials, designing for manufacturability can lead to double-digit savings while meeting performance requirements. Tracking production costs through activity-based costing can provide a more accurate view of product-level economics and activity-wise resource consumption, helping identify avoidable costs and reallocate resources. Together, these approaches can optimize costs from the idea board to the shop floor.
3. Accelerate Digital and Automation Adoption: Digitalization and automation now sit at the centre of manufacturing excellence. Approaches such as manufacturing execution systems, Andon alerts, and condition-based maintenance bring real-time visibility and discipline. Building on this, Industry 4.0 technologies such as IoT sensors, analytics, and digital twins allow predictive decision-making and tighter integration on performance and quality. Further, targeted automation initiatives such as mechanized material handling and robotic assistance can improve productivity, quality, and reliability.
4. Institutionalize Lean Practices: Lean approaches are fundamental to improving flow, reducing waste, and increasing responsiveness. Tools such as 5S, value-stream mapping, single-minute exchange of die (SMED), and pull systems can help eliminate non-value-added activities and balance workloads across processes. Six Sigma can help address the root causes of defects, reduce process variation, and improve quality. Over time, plants that embed lean and Six Sigma in daily routines through visual dashboards and shop-floor practices can achieve better cost-competitiveness and quality.
5. Build a Future-Ready Workforce: A skilled workforce is essential to sustaining cost-competitiveness. With limited talent pipelines across emerging sectors, the immediate priority is sector-specific vocational training. In addition, digital adoption demands new skills, such as operators who are familiar with data systems, supervisors who are skilled in analytics, and engineers who are proficient in automation. A workforce that combines vocational depth with digital adaptability will define the next frontier of India’s manufacturing competitiveness.

Firms that institutionalize these disciplines can build an enduring cost advantage. Manufacturing leaders should treat operational excellence as a strategic priority, not a cost-cutting exercise. India’s manufacturing opportunity is clear, but its durability will depend on how systematically companies pursue operational excellence to compete globally on cost and quality.