Indian manufacturing: The promise and perils of technology

In an era defined by innovation, India’s manufacturing sector stands at a crossroads, where embracing advanced technologies could cement its position as a global powerhouse. From the promise of automation to the potential of artificial intelligence (AI) and Internet of Things (IoT), technology-driven solutions offer Indian manufacturers a chance to reimagine operations, reduce costs, and boost competitiveness. “The push towards smart manufacturing is not only enhancing productivity but is also setting the stage for India to emerge as a global manufacturing hub, with the potential to elevate the country’s manufacturing GDP share to 25% in the near future,” says a recent report by the Confederation of Indian Industry (CII). However this transformative journey is fraught with challenges.

Drivers of technological investment

As per the CII report, cost savings and efficiency gains remain the top priorities for manufacturers investing in technology. These factors are particularly pronounced in capital-intensive industries such as chemicals, steel, and metals & mining. Automation, robotics, and predictive analytics are increasingly deployed to streamline operations, reduce waste, and optimise resource use.

The emphasis on efficiency extends beyond cost management. Over 80% of surveyed companies highlighted efficiency and productivity as crucial factors influencing their decision to invest in technology. Sectors with complex supply chains, such as automotive and electronics, rely heavily on digital tools for real-time monitoring and agile decision-making, enabling them to respond swiftly to market demands.

Key findings reveal that while most manufacturers recognise technology adoption as a critical driver of profitability and competitiveness, current investments remain modest, with many allocating less than 10% of their budgets. However, a shift towards higher investment—targeting 11-15% of budgets—is expected in the next two years, particularly in IoT, robotics, and Big Data.

“The manufacturing sector is undergoing a profound transformation, driven by rapid technological advancements that are reshaping how companies operate, produce, and compete... The rise of smart manufacturing practices, automation, and digitalisation has created unprecedented opportunities for manufacturers,” says Chandrajit Banerjee, director general of CII.

Another significant driver is sustainability. Increasingly stringent environmental regulations and a growing awareness of climate change have prompted companies to prioritise green technologies. While sustainability goals rank behind cost and efficiency, the report notes a growing commitment from high-turnover industries like steel and chemicals to reduce their environmental footprint through technology.

Challenges in adoption

However, the transition to a tech-enabled future is anything but smooth. High implementation costs remain a critical barrier, particularly for small and medium enterprises (SMEs). Unlike larger corporations that can absorb the initial expenses of adopting cutting-edge systems, SMEs face resource constraints that often force them to delay or scale down technological upgrades.

Resistance to change within organisations further complicates the adoption process. Many manufacturers are hesitant to overhaul legacy systems or disrupt established workflows. Concerns about ROI also weigh heavily, with decision-makers often cautious about committing to technologies whose long-term benefits remain uncertain.

“Many manufacturers face hurdles in implementing new technologies, from limited resources to the need for upskilling the workforce,” says Deepak Shetty, chairman CII Council on manufacturing excellence, and CEO & managing director at JCB India Limited, while adding, “Despite these hurdles, the government is actively promoting innovative initiatives, such as the development of hydrogen fuels, which will unlock new opportunities for growth and investment. To remain competitive globally, India must continue to invest in emerging technologies.”

The skills gap is another pressing issue. Advanced manufacturing technologies demand a workforce adept in AI, IoT, robotics, and data analytics. Yet, the availability of skilled technicians remains limited. Without targeted upskilling initiatives, this gap risks becoming a bottleneck for India’s aspirations in smart manufacturing.

Legacy systems pose a unique challenge, particularly for traditional industries like textiles and food processing, which have been slow to adopt digital solutions. The integration of modern technologies into outdated infrastructure is not only technically challenging but also costly, often deterring companies from fully embracing digital transformation.

Implications for India’s manufacturing ambitions

The interplay between these drivers and barriers underscores the need for a strategic and collaborative approach to technology adoption. The CII report recommends creating shared technology hubs through public-private partnerships (PPPs) to lower the cost of access for SMEs. Such hubs could provide smaller manufacturers with affordable opportunities to experiment with and adopt advanced systems, fostering a culture of innovation across the sector.

Aligned with these goals, CII is actively enabling the industry to adopt a National Technology Mission. The initiative sets ambitious targets, including increasing R&D investment from 0.7% to 2.5% of GDP by 2030 and raising the industry’s share in national R&D expenditure from 37% to 60%. It also aims to foster collaboration among industry, academia, research labs, and start-ups to accelerate the manufacturing sector’s growth while nurturing innovation competitiveness. Furthermore, the mission prioritises enhancing gender equality in the STEM workforce, targeting 35% representation by 2030 and 50% by 2047.

Workforce development is equally critical. Programmes designed to upskill and reskill employees for Industry 4.0 technologies can help bridge the talent gap while empowering workers to thrive in a technology-driven environment.

Despite the challenges, the potential rewards of overcoming these barriers are immense. “As India aims to establish itself as a global manufacturing hub, it is crucial for companies to adopt technology-driven solutions that align with international standards of quality and productivity. A focused investment in technology will not only elevate our competitive position but also create high-skilled jobs, contribute to GDP growth, and reinforce our commitment to sustainable and responsible manufacturing,” opines Banerjee.

India’s ambition to become a global manufacturing leader hinges on its ability to integrate advanced technologies across industries. While capital-intensive sectors like chemicals and metals are making strides, the challenge lies in bringing traditional and SME-heavy sectors into the fold.

A shift in investment strategy is already underway, with more companies planning to allocate higher percentages of their budgets to technology in the next two years. However, targeted interventions at the policy and industry levels are essential to ensure that the benefits of digital transformation are accessible to all.