Viksit Bharat will be built on capability, not just cost advantage

This article was first published in The Economic Times Online on May 13 2026. Please click here to read the article.

The global economic order is being rewritten in real time. Supply chains are shifting, trade routes are being recalibrated, and manufacturing is no longer just about cost, but also about resilience, capability, and strategic positioning. For India, this is a defining opportunity. As India moves towards its Viksit Bharat by 2047 ambition, at the core of this journey sits millions of MSMEs that already contribute a third of India’s GDP, 40 per cent to exports and employ roughly 60 per cent of the total workforce.

For decades, India has been perceived primarily as a cost-efficient destination, more of an assembly platform than a source of original value creation. That perception , while partially rooted, is increasingly outdated. The real question today is not whether India can participate in global manufacturing, but whether it can lead, and leadership will be determined by how MSMEs can become more productive, competitive, and globally integrated.

The answer depends on how India navigates three interconnected transitions:

From cost to capability

The first shift from cost to capability is already underway. Industries such as automotive components offer a compelling blueprint. What began as ‘build-to-print’ manufacturing has evolved into deep localisation, engineering-led design, and increasingly, product innovation.

The lesson is clear: cost advantage alone is not sustainable. Competitiveness must be built on engineering depth, process excellence, and the ability to innovate. But this transition is uneven. The World Bank estimates that India’s Gross expenditure on research and development (GERD) remains under 1 per cent of GDP, significantly lower than advanced manufacturing economies like South Korea (4.9 per cent), Japan (4.4 per cent), Germany (3.1 per cent), China (2.5 per cent). Additionally, the private sector’s contribution remains at slightly more than a third, versus the global average of 50 per cent. Without sustained investment in R&D and increasing private sector involvement, the move up the value chain will remain incremental rather than transformational. The ambition must shift from assembling what others design to designing what the world uses.
From scale to value

The second shift from scale to value is more nuanced, but equally critical. India’s domestic market gives it significant scale, but scale by itself is not enough. The real advantage lies in how that scale is leveraged to create globally competitive ecosystems. China’s manufacturing success was not driven by scale alone, it was built on integrated supply chains, logistics efficiency, and relentless focus on quality. India must develop its own version of this model. This means strengthening the entire ecosystem of tier-one suppliers, MSMEs, logistics networks, and infrastructure. It also means addressing long-standing inefficiencies. MSMEs form the backbone of India’s manufacturing ecosystem, yet they continue to face disproportionate challenges related to credit access, technology adoption, regulatory complexity, and logistics efficiency. A DPIIT–NCAER study found that small firms bear logistics costs equivalent to 16.9 per cent of output, versus 7.6 per cent for firms with turnover above ₹250 crore. For MSMEs operating on thin margins, even small frictions can be the difference between fresh investment inflows and getting excluded from global supply chains. While policy interventions, from credit guarantees to cluster development are moving in the right direction, the real test lies in execution. MSMEs must not just survive but thrive.
From participation to ownership

The third and perhaps most critical shift is from participation to ownership. India has demonstrated global excellence as a service provider, particularly in software and IT-enabled services. But the next phase demands something more enduring i.e., ownership of products, platforms, and intellectual property. Whether in software-defined vehicles, advanced manufacturing, or emerging technologies, Indian firms including MSMEs must increasingly move from executing global designs to creating and owning them.

This is as much a mindset shift as it is a capability shift. Ownership will require risk-taking, long-term investment, and the confidence to build original products. It also requires deeper alignment across industry, academia, and government, an alignment that is improving, as evident from India’s rise in the World Intellectual Property Organisation (WIPO) Global Innovation Index rank to 38 (2025) from 48 (2020) but still incomplete.

Talent is at the core of this transformation

India’s demographic advantage is often cited as a strength, but it comes with its own set of challenges. The gap between available talent and industry-ready skills remains significant. India produces more than a million engineering graduates annually, but industry-ready specialised capability remains a constraint with a significant portion of graduates not ‘job-ready’ especially in high-precision manufacturing, electronics, and automation. Bridging this gap requires a multi-layered approach. In the short term, stronger industry-academia partnerships can make graduates more employable, initiatives like Skill India Mission, National Apprenticeship schemes are a step in the right direction. In the medium term, curriculum design must anticipate future skill requirements rather than react to current demand. But the most critical intervention lies in the long-term reforming foundational education.

Additionally, India’s shift from participation to ownership will also require a culture that encourages risk-taking, that needs strong structural mechanisms such as insurance to price, transfer, and absorb risk. According to IRDAI-linked industry estimates, less than 15 per cent of MSMEs are currently adequately insured and most are vulnerable and exposed to various shocks and risks. Insurance plays a key role in transforming risk-taking from a balance-sheet constraint into a system-level capability, enabling firms to invest, innovate, and own outcomes with confidence. In that sense, insurance is not just a financial product; it is an enabler of economic confidence.

So, where does this leave India?

The path to becoming a global hub for trade, investment, and production is not defined by a single policy or sector. It is a systemic challenge, one that requires alignment across infrastructure, talent, capital, and institutions. India does not need to replicate another country’s model. It needs to build its own, one that combines its domestic scale, entrepreneurial energy, and growing technological capabilities. The opportunity is real. The momentum is visible. But the outcome is not guaranteed. Because in a world where every nation is competing to attract capital and build resilience, intent must be matched with execution. India has moved beyond the question of whether it can compete. The question now is whether it can lead.