As China turned itself into the manufacturing center of the world over the past decade, many expected India to follow – but it never happened. The Indian economy did take off, but largely in services such as software development. For years, manufacturing’s share of GDP has been flat at 15-16 percent, and has actually declined slightly in recent years. Now, with the economy in trouble, manufacturing output is stagnating.
Many of the factors usually blamed for this are beyond the manufacturers’ control. Infrastructure is still weak. Financing is difficult to get, with high inflation driving up interest rates and bankers becoming risk averse. Labor laws make it extremely difficult to lay off employees; this discourages investment by global businesses, which are able to locate elsewhere. Energy is expensive and unreliable.