Manufacturing holds great promise for India’s growth, but the current regulatory approach requires several tune-ups, writes Sanjit Kaur Batra, the legal head at engine manufacturer Cummins India
Alan Mulally, the former president and CEO of Ford Motor Company, once said: “No country is ever successful in the long term … without a really strong and vibrant manufacturing base.” Manufacturing is the cornerstone of the global economy and has driven economic transformation since the first industrial revolution. It contributes directly to GDP through goods for domestic use and export, and also boosts infrastructure, logistics and services.
The global manufacturing market was valued at USD14 trillion in 2024, and is expected to grow at a compound annual growth rate of 4.9%. According to World Bank data gathered from the UN Statistics Division, India accounts for only 2.9% of global manufacturing output, with China and the US leading. Historically, India’s service sector has been its growth driver, while manufacturing has lagged.
India now plans to raise manufacturing’s share of GDP from 12% to 23% in the next two decades, driving economic growth and job creation. Foreign direct investment in India’s manufacturing sector has reached USD165.1 billion, a 69% increase in the past decade, and the sector is projected to reach USD1 trillion by the fiscal year 2026.
Government initiatives are reinforcing this shift. The Make in India initiative has attracted investment and boosted domestic manufacturing. The Production Linked Incentive schemes, launched in 2020, incentivise production in specific sectors. Local content requirement regulations also mandate a minimum percentage of domestically sourced materials, labour or manufacturing in goods and services procured by the government and public sector entities.
Another initiative is the Ministry for Heavy Industries and Public Enterprises’ SAMARTH Udyog Bharat 4.0 (Smart Advanced Manufacturing and Rapid Transformation Hubs), to increase competitiveness in the capital goods market.
Technological advances and data-driven decision making are driving a new wave of industrial change, termed the “fourth industrial revolution” or “Industrial Manufacturing 4.0”. Investment decisions now weigh geopolitical conditions, ESG (environmental, social and governance) factors, infrastructure, technology, workforce, and fiscal and regulatory environment.
The government’s focus, incentives and trade agreements are positioning India as a global manufacturing and trade partner.
Opportunity in crisis
With the current uncertainty in the global geopolitical environment, India’s initiatives not only reduce import dependencies but also enhance its potential to be seen as a manufacturing hub and a country that can build a reliable, competitive global supply chain. These efforts are starting to reflect in enhanced investor confidence and have led to companies including Foxconn, Tesla and Apple to set up bases in India. These initiatives have also helped with reliance on domestic sourcing of components and benefitted the country’s manufacturing capabilities.
One of the imperative preconditions for building investor confidence and ease of doing business in any country is its legal and regulatory framework. Strong regulatory frameworks are essential for establishing the rules of the game for industries, while helping them identify risks and plans to mitigate them. The ecosystem plays a critical role in shaping the manufacturing industry, especially in a complex and evolving market like India.
It helps shape industry dynamics, build credible brands, maintain business and operational certainty, enhance consumer, product and worker safety, reduce environmental impact and improve innovation. Reforms relating to digitisation, decriminalisation of some legal provisions, the National Single Window clearance portal, and the introduction of the Regulatory Compliance Portal are welcome moves that are helping improve the legal and regulatory ecosystem in India.
Despite various regulatory reforms in the past few years, setting up a manufacturing facility in India is still no easy task. Depending on the type of industry, multiple laws including corporate, finance and tax, labour and employment, commercial, environmental, health and safety, land and construction-related become applicable at both the central and state levels.
For the pre-commissioning phase including acquiring land, construction approvals, consent to establish and operate, finance and tax approvals, and environmental clearances, the journey is a protracted one.
The commissioning phase brings its own set of approvals, including labour and employment-related, followed by more approvals and compliances for the post-commissioning phase. The whole process could take several months to a few years, depending on the complexity of the project, the industry, and the location of the facility. The number of initial approvals required across the process is numerous and segregated under different government and regulatory authorities.
Creaky system
Regulatory uncertainty and bureaucratic delays add layers of complexity to the manufacturing landscape. It is the need of the hour to have transparent and time-bound regulatory processes. Delays in getting approvals, amendments and renewals sometimes extend to several years and make organisations vulnerable to regulatory uncertainty and associated risks.
Fast-changing laws and their many amendments further increase the ambiguity and impact on operational certainty. In the past few years, there has been a significant increase in regulations across multiple areas including corporate governance, environmental laws, product quality, customs and labour regulations.
Complying with different laws across multiple jurisdictions, each with its own nuances, interpretations and agencies, adds a tremendous burden to the functioning of an organisation. The cost of compliance for doing business has increased manifold. Thousands of compliance requirements, some with outdated provisions, create financial as well as a people-resource burden on organisations.
The TeamLease RegTech 2025 report, titled Decoding Compliance for Manufacturing MSMEs in India, states that the cost of compliance for micro, small and medium enterprises in the manufacturing sector can range from INR1.3 million (USD14,700) to INR1.7 million annually, covering more than 1,450 regulatory obligations across various laws. As businesses become more diverse and expand their facilities, the associated costs and compliance requirements rise significantly.
Even though digitisation has taken place across many states in India, approvals still often require visits by regulators and agencies. With limited officials in these departments, this can lead to delayed approvals.
While digitisation has been implemented in many places, the process of getting approvals is still not seamless and time-bound. Approvals filed through portals still get delayed and sometimes denied without reasoned orders. It might be helpful for the government to consider allowing organisations to self-certify and undergo third-party inspections to improve efficiency.
Discouraging tech transfers
Counterfeiting and IP infringement remain rampant in India. While there is more awareness and sensitisation both in courts and among the public, India is still considered a high-risk country for the transfer of the latest technology. This is an impediment to the expansion of the manufacturing industry. Added to this is the prolonged adjudication process, whether in dispute resolution or contract enforcement, leading to uncertainty for businesses.
Fully functional judicial and quasi-judicial authorities, and time-bound dispute resolution processes, have the potential to strengthen India’s legal and regulatory ecosystem. Many laws still include criminal provisions that further discourage investment. Decriminalising minor offences, including through the Jan Vishwas (Amendment) Bill, 2025, is a step in the right direction.
It is imperative that labour laws in India be simplified and notified, with a focus on temporary workers, unions, and the reduction in the number of compliance organisations. An efficient, time-bound and transparent system of single-window clearances would also be a major step towards simplifying legal and regulatory processes.
Domestic regulations should be harmonised with global benchmarks to bring consistency in the regulatory framework. Simplification of regulations and compliance is therefore not just an operational issue but a strategic enabler to help increase India’s manufacturing footprint.
The world is undergoing a profound transformation, with global value chains being reshaped by shifting geopolitical dynamics, rising international conflicts, accelerated technological adoption, and a growing focus on sustainability. Decisions that once focused solely on relocating to the lowest-cost countries now require consideration of environmental standards, regulatory frameworks, and national policies aligned with a company’s strategic vision and priorities.
In this environment, India has a chance to leapfrog and be viewed as a global manufacturing hub. But for this to happen, alongside upgrading its infrastructure and incentives, India must improve its legal and regulatory environment to make it more investor-friendly, simpler, and more time-sensitive. This will help India build its manufacturing story and become a global manufacturing hub, and also accelerate the holistic development of the country.
Sanjit Kaur Batra is the group vice president – legal, and legal head at manufacturing company Cummins India.
