Amit Kapoor & Jagjeet Sareen, Respectively chair, Institute for Competitiveness, and partner, Dalberg Advisors
As India charts its journey towards becoming Viksit Bharat by 2047, two priorities are emerging as the pillars of its transformation: Economic resurgence through manufacturing and climate leadership without trading off India’s development priorities. The convergence of these priorities places sustainable manufacturing at the heart of India’s development agenda. However, manufacturing accounts for a meagre 16-17% of GDP compared to China’s 27% and Vietnam’s 23%, so it lags behind the benchmarks set by high-growth Association of Southeast Asian Nations economies. Additionally, post-pandemic labour market shifts have seen the share of agricultural employment rise from 41% to 46%, highlighting continued dependence on low-productivity sectors. In the current global landscape, India faces significant challenges from the climate crisis and geopolitical tensions to volatile supply chains. The question is no longer whether India can become a manufacturing powerhouse, but if it can do so by building a sustainable, circular, and globally competitive manufacturing ecosystem.
Yet, this industrial transformation cannot follow conventional paths. Global markets are rapidly recalibrating around decarbonisation. As the European Union’s Carbon Border Adjustment Mechanism and similar tools reshape trade, carbon intensity is becoming a determinant of market access. China dominates this landscape, controlling over 80% of global solar module manufacturing and 95% of wafer production. India, by contrast, holds just 5% of planned and existing module capacity. In battery manufacturing, India’s 12% share of committed global capacity places it among the top three emerging contributors but still reflects a relatively shallow industrial footprint. Moreover, India’s borrowing costs remain steep, with utility-scale solar financing averaging around 9.9% compared to 4-5% in Europe/China, while sovereign yields run ~6.36% versus 3-4% elsewhere. While emulating China’s trajectory might not align with India’s development needs, India’s opportunity lies in innovating early in alternative technologies, investing early in emerging solutions, and designing industrial policy around the systemic integration of innovation, not just output volume. Technologies such as sodium-ion batteries, perovskite photovoltaics and solar thermal applications, and bio-based materials offer viable alternatives. The challenge is not at the level of scientific capability where India performs respectably, but at the stage of industrial deployment. Promising innovations routinely stall at the pilot phase due to risk-averse capital and unclear commercialisation pathways. Addressing this gap requires a shift in financing architecture favouring blended capital models, outcome-based subsidies, and risk-sharing mechanisms.
Moreover, clean technologies are not stand-alone verticals—their value lies in how they complement and reinforce one another. Renewables with storage, smart grids enabled by digital infrastructure, and green hydrogen linked to hard-to-abate sectors are critical to create a powerful ecosystem. India’s success hinges on industrial co-evolution through simultaneous development of interconnected industries that share technologies, expertise, and supply chains. Without enabling infrastructure, returns from individual technologies will diminish. Public R&D and private-sector deployment need closer alignment; academic institutions must connect with industry; and national missions should prioritise system integration over technology silos. A comprehensive ecosystem approach with right-sized financial incentives, as envisaged in the recently unveiled Research and Development Initiative, with an allocation of Rs 1 lakh crore, could be a game-changer for building next-gen cleantech in India. The volatility of global supply chains adds a layer of complexity as India remains dependent on the import of critical minerals and advanced manufacturing inputs. The government’s critical minerals strategy is still in its early stages of execution and lacks clear linkages to downstream manufacturing capacities. Full value-chain integration from exploration and refining to recycling and reuse will be necessary to mitigate strategic risks and achieve scale.
An equally significant constraint lies in human capital. India’s formal skilling levels remain alarmingly low, with only 3.74% of the workforce aged 12-59 receiving vocational and technical training in 2023-24, compared with 24% in China, 75% in Germany, and over 90% in South Korea. Cleantech manufacturing demands multidisciplinary capabilities in materials science, data systems, and environmental systems thinking. This requires vocational upskilling and reconfiguring tertiary education and public training systems, with close industry collaboration to align curricula with market needs. The potential of India’s demographic dividend depends on translating it into productive capabilities. Part of the Rs 60,000 crore recently approved for Industrial Training Institute upgrade can help build the cleantech workforce.
The same logic extends to circularity. While India’s policy on the circular economy has matured with extended producer responsibility frameworks, implementation remains uneven. Often mistaken for end-of-pipe recycling, circularity demands redesigning production systems from material selection and product design to take-back logistics and secondary markets. Without traceability systems like digital product passports, circular manufacturing will remain marginal. Finance cuts across all these constraints. India’s green finance has largely flowed into energy and transport, with manufacturing excluded. The green industrial transition will require over $10 trillion by 2070, with a significant share directed to manufacturing ecosystems: industrial clusters, technology adoption, skills, and material innovation. Policymakers must make cleantech the default choice. Outcome-linked incentives, tax credits for industrial decarbonisation, and concessional capital pools can mitigate investor risk. Cleantech manufacturing must also be recognised as a Tier 1 green activity in India’s Climate Finance Taxonomy, signalling its importance to financial institutions.
Above all, India’s cleantech transition needs institutional coherence and coordinated execution. Industrial policy remains fragmented across ministries. Cross-sectoral working groups with implementation authority, not advisory roles, are essential to align mandates, cut regulatory friction, and speed projects. The state’s role must shift from controller to enabler by co-investing where necessary, de-risking where possible, and regulating where essential. What is needed now is deliberate statecraft, not another announcement. The National Manufacturing Mission announced in the Union Budget for FY25, with cleantech manufacturing central to India’s competitiveness, is a significant step. India has a rare chance to define a green industrialisation model for the Global South: Clean yet scalable, competitive yet inclusive, export-ready yet locally grounded. The question is not if India can build factories, but if it can build the institutional and technological capacities to compete in a world where low-carbon production is a precondition for participation.