With $2.3 trillion in GDP, India is the world’s ninth-largest economy and the third largest by purchasing power parity at $8 trillion. Yet manufacturing accounts for only 16 percent of the country’s GDP, compared with the services sector’s nearly 52 percent. India represents only 2 percent of the world’s manufacturing output, a tenth of what its neighbor China contributes. Clearly, India is punching below its weight in manufacturing.

Growth in manufacturing is crucial for India’s economic development. To capitalize on the demographic dividend, India must create nearly one million jobs per month over the next decade. Manufacturing has the potential to provide large-scale employment to the young Indian population and thereby enable a significant section of the population to move out of poverty. With this in mind, the Indian government has adopted “Make in India” as a core policy initiative to encourage and accelerate growth of the country’s manufacturing sector.

India has several strengths that could help it become a manufacturing powerhouse: a large pool of engineers, a young labor force, wages that are half that of China’s, and significant domestic consumption of manufactured goods. These factors become especially important as China, the world’s preeminent manufacturing destination, faces peak labor shortages and exponential wage growth.

India does have a few shining examples of world-class excellence in manufacturing and well-established core sectors such as textiles, auto components, and, more recently, petrochemicals. For example, Bharat Forge’s Mundhwa plant, the world’s largest forging factory, is a state-of-the-art complex that has placed India on the world map for manufacturing. The company has all the necessary attributes: heavy investment in technology, a scientifically skilled workforce, and a sharp focus on lean manufacturing.

Yet, manufacturing executives continue to wonder if manufacturing in India is globally competitive. If not, what are the main issues inhibiting the country’s ability to compete with the best in the world, and how can those issues be addressed? Answers to these questions will determine if companies should set up shop or expand their manufacturing footprint in India.

Competitive analysis
To better understand the global competitiveness of manufacturing in India, we undertook a comprehensive analysis, benchmarking select manufacturers against their peers around the world. We used Kearney’s proprietary Global Excellence in Operations (GEO) framework to assess manufacturers across six dimensions of operational excellence (see sidebar: About global excellence in operations). We found a correlation between operational excellence and industry, with automotive manufacturers typically leading the field, followed by large series manufacturers of consumer goods. Since geographic comparisons are influenced by distribution differences for industry types across regions, we analyzed a sample of sites that feature similar types of manufacturing and are represented evenly across all major manufacturing regions. Our findings were validated in one-on-one interviews with industry leaders and subject-matter experts.

Read more: How manufacturing in India can become globally competitive