The government is exploring fresh measures to boost the manufacturing sector as part of preparations for the FY26 Budget. A proposed scheme would tie government support to employment generation and new capital investments, according to officials.
India has long aimed to raise manufacturing’s contribution to GDP to 25%, but the sector’s share has remained stagnant at around 16% since FY12. “The government is likely to roll out a scheme focused on capital expenditure and job creation, not just production,” a senior official mentioned, emphasizing that discussions are still in the initial stages.
The administration has been urging companies to expand their production capacity by leveraging employment initiatives, production-linked incentives (PLIs), and the corporate tax cuts introduced in 2019. As part of the Prime Minister’s initiatives announced in the 2024-25 Union Budget, three schemes aimed at employment-linked incentives were introduced, targeting skill development and job creation for 41 million youth over five years with an allocation of ₹2 lakh crore.
However, due to a delayed budget following general elections, the schemes are yet to be implemented. The government’s corporate tax cuts in 2019, which reduced the base tax rate for existing companies from 30% to 22% and for new manufacturing firms from 25% to 15%, led to revenue losses exceeding ₹1 lakh crore annually. Despite the lower tax rates, corporate investment growth has not matched expectations.
With only 11.4% of India’s workforce engaged in manufacturing, compared to over 45% in agriculture, there is a pressing need to boost the sector. While the PLI schemes launched in 2021 for 14 sectors with a budget of ₹1.95 lakh crore have seen mixed results, industry leaders are calling for additional incentives to drive manufacturing investments.
