Morgan Stanley has upgraded its 2035 forecast for India's manufacturing output to $1.5 trillion, up from a previous estimate of $1.1 trillion. The report predicts the sector’s GDP contribution will reach 20% by 2035, driven by government incentives and global supply chain shifts. Investors may monitor export trends and infrastructure development as key indicators of this long-term growth.
Detailed Coverage
Investment banking firm Morgan Stanley has significantly increased its long-term growth forecast for the Indian manufacturing sector. In its latest outlook, the bank now expects the country's manufacturing output to reach $1.5 trillion by 2035. This revised target is notably higher than the firm's previous projection of $1.1 trillion and reflects a potential increase in manufacturing’s contribution to India's GDP from the current 15% to 20%.
Drivers of Industrial Expansion
The upgraded forecast is centered on three primary factors that the firm believes are reshaping the industrial landscape. First, consistent government industrial policies introduced since 2019 are providing a stable foundation for capital investment. Second, there is a clear global trend of multinational corporations diversifying their supply chains away from China to reduce operational risks. Third, India’s large and expanding working-age population is expected to offer a competitive labor advantage over the next decade.
Success in Electronics and PLI Schemes
Recent data highlights that this shift is already reflected in specific high-growth areas. The government's Production-Linked Incentive (PLI) scheme, which allocated approximately $33 billion to various sectors starting in 2020, is cited as a major catalyst. Electronics manufacturing has been a standout performer, with production rising sevenfold since the 2014-15 fiscal year. Mobile phone exports, in particular, have seen a massive climb, growing from $260 million in 2015 to $29.6 billion in the current fiscal year. This category has now become India’s single largest export product.
Evaluating Potential Risks
While the outlook is optimistic, the report also outlines several risks that could impact this trajectory. A slowdown in global demand remains a significant concern, as it could temper the growth of Indian exports. Additionally, the bank notes that India continues to face challenges in fully integrating into global value chains. In 2024, India's participation index stood at 0.387, which is lower than regional competitors like Vietnam at 0.575 and the Philippines at 0.412. Execution delays regarding ongoing industrial reforms and infrastructure bottlenecks are other factors that could influence whether the sector reaches the $1.5 trillion goal.
What Investors Should Monitor
Looking ahead, the actual growth will depend on how effectively the country can bridge these gaps in global value chain participation. Investors may continue to track the performance of companies heavily involved in the electronics assembly ecosystem and monitor government updates regarding the extension or expansion of PLI programs. The firm’s analysis provides a wide range for 2035, with a base estimate of $1.45 trillion, while acknowledging that a bear-case scenario could see the figure reach $904 billion if structural or demand challenges persist.