India’s manufacturing pivot: Innovation-led growth to scale to $1.6T by FY34

India’s manufacturing sector is undergoing a strategic transformation—from relying on low-cost labour and scale to embracing IP-led, research-driven, and automated production models. According to 3one4 Capital’s report ‘The Future of Production in India’, sectors like semiconductors, aerospace, and specialty chemicals are leading this shift.

India’s manufacturing industry is undergoing a transformation—from traditional, scale-driven models to a future led by intellectual property (IP), research, and automation, as outlined in a recent report by early-stage venture capital firm 3one4 Capital. The report, The Future of Production in India, highlights that while low-cost labour still plays a role, the country’s long-term edge will stem from producing innovation-intensive, high-complexity goods in sectors such as semiconductors, aerospace, and specialty chemicals.

“There is a very fundamental shift in how these businesses are being built in India, and there is a certain maturity that has come up now. That is making this sector very approachable, very realistic for delivering returns within the timeframe of a venture capital fund. I think in the next few years, we will see more and more capital going into this space,” said Anurag Ramdasan, partner at 3one4 Capital.

To capture this transition, 3one4 introduces the “manufacturing innovation spectrum”, which classifies companies into three broad archetypes—process-driven manufacturing, IP-led manufacturing, and a hybrid category that integrates both approaches. According to Ramdasan, pure IP-led models often involve longer gestation periods, making them costlier for venture capitalists. On the other hand, hybrid firms—those blending process efficiencies with research and IP—are more attractive due to shorter timeframes to commercialisation and lower capital requirements.

The firm’s portfolio includes examples like Unbox Robotics, which specialises in warehouse automation, and Fasal, an agri-tech venture applying precision technology to optimise farming operations.

The report also projects that India’s manufacturing gross value added (GVA) will grow 3.6 times—from US$ 459 billion in FY24 to US$ 1.6 trillion by FY34—propelled by emerging industries including electronics, chemicals, semiconductors, and aerospace. Currently, key sectors such as automobiles, pharmaceuticals, textiles, and electronics contribute around 35% to the total manufacturing GVA.

Cost competitiveness remains relevant—India’s average manufacturing wage stands at US$ 1.1 per hour—but productivity gains, infrastructure upgrades, and rising capital expenditure are expected to sustain growth. Labour productivity in India’s manufacturing sector is anticipated to grow at 6.2% annually, surpassing growth rates in China and Vietnam.

Startups are increasingly driving this shift by digitising manufacturing. Innovations are emerging in areas such as factory automation, supply chain traceability, predictive maintenance, and embedded systems, helping accelerate industrial efficiency and competitiveness.

India is also gaining from global supply chain diversification. The report notes 28 recent examples of companies shifting production or expanding capacity in India—more than in Vietnam, Mexico, or Thailand—as global manufacturers reduce reliance on China.

Commenting on trade dynamics, Ramdasan said, “Indian startups have not been stuck with as many tariffs as other countries, and importing from India for US companies is relatively cheaper compared to China.”

However, he stressed the need to scale IP-led innovation. “In every segment, there are only a handful of IP-led companies. But we need more IP-led businesses in the industry in every vertical. It’s not that India cannot do IP-led work, it’s just that we’ve not done it at a grand scale the way maybe, the US and China have.”