The road to Viksit Bharat runs on capability, not cost arbitrage

This article was published in The Economic Times Edge Insights.com on June 15 2026. Please click here to read the article.

The global economic order is being reshaped in real time. Supply chains are evolving, trade corridors are being redefined, and manufacturing today is driven not just by cost, but by resilience, capability, and strategic positioning. For India, this presents a pivotal moment of opportunity.

As the country advances toward its Viksit Bharat 2047 vision, at the heart of this transformation lies its vast MSME ecosystem, millions of enterprises that contribute nearly a third of India’s GDP, account for 40 per cent of exports, and provide employment to around 60 per cent of the 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 That perception, while partially rooted, is increasingly outdated.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. 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 the manufacturing ecosystem, and yet they remain vulnerable, with access to credit, technology, and markets continuing to be a key challenge. They bear a disproportionately higher burden due to fragmented processes, regulatory complexities, and logistics cost, for example, while headline logistics cost is now estimated at 8 per cent of GDP, smaller firms face a logistics cost of 16.9 per cent of their output v/s 7.6 per cent for larger firms (₹250+ crore turnover). 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 and 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.

Where does India stand in this shifting landscape?

The journey to becoming a global hub for trade, investment, and manufacturing will not be shaped by a single policy or industry. It is a systemic challenge, one that demands coordinated progress across infrastructure, talent, capital, and institutions.

India does not need to mirror another nation’s path. It must craft its own model, one that leverages its vast domestic market, entrepreneurial dynamism, and expanding technological strengths.

The opportunity is significant, and the momentum is evident. But success requires deliberate focus. In a world where nations are racing to attract capital and strengthen resilience, ambition must be backed by effective execution. India has moved past the question of whether it can compete. The real question now is whether it can lead.