Introduction

India’s manufacturing sector, despite its vast potential, faces persistent obstacles that hinder its true growth. While the country aspires to become a global manufacturing powerhouse, issues rooted in the tax system, bureaucratic red tape, and import dependency—particularly on China—continue to limit progress and competitiveness.

The Tax System: High Hopes, Mixed Results

India’s tax landscape saw significant transformation with the introduction of the Goods and Services Tax (GST) in 2017. While GST was designed to simplify the tax structure, the reality for manufacturers has been complex:

Initial Benefits: GST replaced a patchwork of state and central levies, making it easier for larger players to comply and reducing interstate transport snarls.

Persisting Challenges for Manufacturers:

Small and medium enterprises (SMEs) still struggle to adapt to complex compliance requirements and technological demands, raising operating costs and administrative burdens.

Issues like the difficult process to claim Input Tax Credits (ITC) persist, making finished goods costlier and less competitive compared to imports.

Recent reforms have helped larger companies, but have left many smaller manufacturers behind, with indirect tax compliance still being a heavy load.

Corporate Tax Reforms: While there have been moves toward more attractive tax rates for manufacturing entities, these are often not enough to outweigh other hurdles faced by investors and entrepreneurs.

Red Tapism in Bureaucracy: The Invisible Handbrake

Red tape remains a notorious drag on India’s manufacturing dreams. The labyrinthine bureaucracy is marked by:

Excessive Paperwork and Delays: Manufacturing businesses face long approval timelines and multiple layers of authorization, hampering quick decision-making and project execution.

Digitalization Efforts and Gaps: Moves to digitize government processes (like e-office systems) have reduced some red tape. However, the underlying mindset and lack of accountability within the bureaucracy continue to slow down approvals and add uncertainty for investors.

Impact on Ease of Doing Business: Delays in land acquisition, environmental clearances, and tax refunds disproportionately affect manufacturers, discouraging both domestic and foreign investment.

Import Dependence on China: A Growing Threat

Despite programs like "Make in India" and "Atmanirbhar Bharat," India’s reliance on Chinese imports has grown across critical sectors:

Sector Total Imports (Apr 2023–Jan 2024) Imports from China % Share from China

Electronics, Telecom, Electrical Products $67.8 billion $26.1 billion 38.4%

Machinery $47.9 billion $19.0 billion 39.6%

Chemicals & Pharmaceuticals $54.1 billion $15.8 billion 29.2%

Iron, Steel & Base Metals $39.2 billion $6.9 billion 17.6%

Plastics & Related Articles $18.5 billion $4.8 billion 25.8%

Growth in Import Dependence: From 2017 to 2023, Indian imports from China in key industrial sectors grew by over 200%—far outpacing the growth of imports from the rest of the world.

Key Dependency Areas: Electronics, machinery, chemicals, and pharmaceutical ingredients remain particularly reliant on Chinese suppliers, putting Indian industries at risk of supply disruptions and adverse trade balances.

Policy Response: Ambitious Initiatives, Patchy Execution

Contrary to the belief that no major government policies exist, several initiatives have been launched to boost manufacturing:

National Manufacturing Policy and Make in India: Both target an increase of the manufacturing share in GDP to 25% through regulation reforms, skill building, and infrastructure development.

Production-Linked Incentive (PLI) Schemes: Financial incentives are being extended to select sectors to attract investment and increase domestic output, with a focus on high-growth and strategic industries.

Results and Gaps: While these policies have led to increased foreign direct investment and sporadic success stories, their impact is blunted by implementation delays and ongoing bureaucratic inefficiencies. Many smaller players remain outside the circle of beneficiaries due to complex eligibility criteria and cumbersome processes.

Conclusion

India’s path to manufacturing greatness demands more than policy announcements. The combination of a still-complex tax system, entrenched red tape, and increasing dependence on imports—especially from China—have hindered sectoral growth. While the government has moved to reform some aspects, robust and sustained political will is needed to drastically cut down bureaucratic delays and foster a competitive environment where manufacturers, from SMEs to global players, can thrive. Only then can India hope to reverse its growing import dependence and truly emerge as a manufacturing leader.