An economic ‘sagar manthan’ beckons: As IT growth dwindles, manufacturing exports to take driver’s seat
Recent analysis argues that India's IT services sector, the primary engine of export-led growth over the past three decades, is showing signs of saturation in terms of job creation and export volume growth.
The IT sector directly employs approximately 5 million people — a figure that is unlikely to scale dramatically further, given the capital-intensive and skill-intensive nature of services-led growth.
India needs to create approximately 7.85 million non-agriculture jobs every year until 2030 to accommodate its expanding working-age population, a target that services alone cannot plausibly meet.
Labour-intensive manufacturing — textiles, footwear, electronics assembly, chemicals — is identified as the sector that must absorb the demographic dividend, replicating what export-oriented manufacturing did for China, Vietnam, and South Korea.
India currently holds only 1.6% of global manufacturing export market share, trailing even Vietnam (2%) despite India's vastly larger population and resource base.
Demographic Dividend — Concept and India's Window
The demographic dividend refers to the economic growth potential that arises when the proportion of a population in the working-age group (15-64 years) is larger than the dependent population (children and elderly). India's working-age share of total population is projected to peak at approximately 68.9% around 2030, after which it will begin to decline as the population ages. This makes the current decade the critical window for converting demographic potential into productive employment.
Key Details
- India's dependency ratio is projected to reach its lowest point (~31.2%) around 2030.
- Unlike East Asia, which industrialised during its demographic dividend, India's dividend window coincides with an era of automation and AI-driven labour displacement in manufacturing.
- States vary widely: south Indian states (Tamil Nadu, Kerala) are ageing faster; northern states (UP, Bihar) have younger populations with larger dividend windows ahead.
If India cannot create adequate manufacturing jobs in the next 5-7 years, the demographic dividend risks turning into a liability — large numbers of young people with inadequate employment opportunities, with consequences for social stability and growth.
India's Manufacturing Export Underperformance
India's manufacturing exports grew at roughly 5% annually over the past decade, compared to Vietnam's ~18% annually. In labour-intensive sectors — textiles, footwear, leather — India and Vietnam were on a comparable trajectory until around 2015, after which India's share stagnated while Vietnam's surged. Three structural factors explain the gap: (1) Vietnam's foreign-invested enterprises account for 70-75% of its manufacturing exports, while India has been less successful at attracting export-oriented FDI into manufacturing; (2) Vietnam joined CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership), securing zero-tariff access to large markets; and (3) India's logistics costs remain significantly higher — estimated at US$7 per unit compared to Bangladesh's US$3 — undermining price competitiveness.
Key Details
- India ranks 44th on the World Bank Logistics Performance Index, behind China and Vietnam.
- India's share of labour-intensive exports (textiles, footwear, manufacturing n.e.c.) fell from ~37% in 1999 to ~14% in 2019.
- The ICT, financial, and business services sector employs ~23 million in India vs ~63 million in manufacturing — showing the structural imbalance.
The article's central argument is that India needs to urgently replicate Vietnam's export-manufacturing playbook at a much larger scale, using FTAs, PLI schemes, and logistics improvements as enabling levers.
Production-Linked Incentive (PLI) Scheme
The PLI scheme, launched in 2020-21, provides financial incentives to manufacturers in 14 key sectors (including electronics, pharmaceuticals, automobiles, textiles, food processing) based on incremental production over a base year. It is designed to attract both domestic and foreign manufacturers, enhance scale, and improve export competitiveness, addressing the cost disadvantage that Indian manufacturers face relative to regional peers.
Key Details
- PLI outlay across 14 sectors: approximately ₹1.97 lakh crore.
- Electronics is among the best-performing PLI sectors, with Apple's supply chain partners (Foxconn, Tata Electronics) expanding India production.
- Textiles PLI (Man-made fibres and technical textiles) aims to create 7.5 lakh jobs.
- Critics note that PLI primarily benefits capital-intensive production and may not generate as many jobs per rupee invested as hoped.
PLI is the government's primary instrument to accelerate manufacturing export growth, but economists argue its job-creation impact may be insufficient unless complemented by labour law reforms and logistics improvements.
- IT sector direct employment: ~5 million (insufficient for demographic dividend scale)
- Jobs needed annually (non-agriculture): ~7.85 million until 2030
- India's global manufacturing export market share: 1.6% (vs Vietnam 2%, despite 14x population difference)
- Vietnam manufacturing export growth: ~18% annually vs India's ~5%
- India dependency ratio expected lowest point: ~31.2% around 2030
- Working-age population peak share: ~68.9% of total by 2030
- India logistics cost per unit: ~US$7 vs Bangladesh ~US$3
- PLI scheme total outlay: ~₹1.97 lakh crore across 14 sectors
- Services exports (FY25): grew 13.6% YoY, driven by software and GCCs