Urban Infrastructure Crucial for India's Manufacturing Growth

India's manufacturing sector is poised for a significant transformation, as highlighted by Neelkanth Mishra, executive director at the World Bank, during a recent interview. The country has increased its electronics assembly capabilities and the number of active companies while also managing to lower inflation rates. However, Mishra emphasises that the next phase of growth in manufacturing will largely depend on urban areas generating sufficient demand through various construction and infrastructure initiatives.

Mishra, who oversees India, Sri Lanka, Bangladesh, and Bhutan at the World Bank, discussed these insights ahead of the Hindustan Times Leadership Summit. He noted that fiscal discipline has played a crucial role in reducing the cost of capital for businesses. According to Mishra, this decrease has created an environment conducive to private investment, enabling companies to expand and generate employment.

"The government is creating conditions where capital can be more efficiently used by private enterprises than by the state," said Mishra. This government shift is encouraging private investment, reflected in the increase of active companies in India, which grew from 1.6 million to 2.2 million in just three years.

The fiscal environment supports lower inflation, reducing consumer inflation from 10.5% in the financial year 2012-2013 to a decadal low of 2.06% in the last financial year. While this progress does not automatically translate into new factories or employment opportunities, it alters how investments are evaluated.

Another critical factor for urban centres is the potential of technology to change the landscape for small and medium-sized enterprises. Mishra highlighted the transformative influence of artificial intelligence and Aadhaar-based digital public infrastructure, which could enable millions of users to enhance their productivity.

Historically, India has produced a significant workforce of skilled software engineers, estimated at five to six million. Mishra envisions that digitisation could empower 100 million people to utilise technology effectively, affecting various sectors beyond just technology firms.

However, manufacturing policy is facing challenges related to scale. Mishra mentioned that while the electronics sector has benefited from production-linked incentive schemes, the same approach may not yield identical success in other sectors. He likened manufacturing's scale requirements to those in the footwear industry, noting that partnerships with major global buyers often require large-scale production capabilities.

Mishra stated, "A global buyer, such as Nike, will be less inclined to engage with suppliers who can only produce half a million or one million pairs of shoes. They need manufacturers who can accommodate orders of 20 million or more."

To support the manufacturing sector, Mishra insists on the necessity of urban development to provide serviced land, reliable power, transportation infrastructure, and worker housing. He identifies construction, real estate, infrastructure, and power generation as key sectors capable of boosting domestic demand, which in turn could fuel manufacturing growth.

The current performance of the electronics industry illustrates both India's advancements and constraints. According to government data, India accounted for around 20% of global phone production in December 2025. While Mishra acknowledges that assembly jobs do not contribute significantly to value addition, he believes that manufacturing is a starting point for building a robust industry.

Mishra pointed to India's substantial pool of talent, with around 300,000 out of 1.5 million global chip design engineers residing in India. This capability has evolved over the years, with engineers transitioning from basic tasks to working on advanced technologies, such as two-nanometre chips.

Mishra anticipates that India could align its demographic advantages with the demands of countries facing ageing populations, such as Japan and the United Kingdom. He proposes that carefully managed migration tailored to specific skills could absorb a significant portion of India's expanding workforce.

Despite the potential benefits, challenges remain. Some nations perceive labour from India as a burden, leading to social resistance. Mishra argues for international agreements to establish standards for quality and skills rather than focusing solely on numbers.

As India navigates this landscape, its manufacturing sector must evolve beyond assembly and address broader systemic requirements for growth, incorporating the need for integrated infrastructure and strategic urban development.