The Return of Industrial Policy
& India’s
Atmanirbhar Bharat
Once dismissed as a relic, industrial policy is back at the centre of global economics — driven by geopolitics, supply-chain shocks, and the green-tech race. From the US CHIPS Act to “Made in China 2025,” nations are intervening again. India’s answer is Atmanirbhar Bharat, backed by a ₹20 lakh crore push.
For decades, “industrial policy” was treated as a relic — associated with protectionism and state failure, while the dominant “Washington Consensus” favoured free markets and minimal government. That consensus has now shattered. Industrial policy is back at the forefront of global economic debate, driven by geopolitics, supply-chain vulnerabilities, and the race for technological supremacy. This piece maps the global shift, India’s manufacturing puzzle, and Atmanirbhar Bharat — with the latest developments and a Mains answer-framework.
The pandemic taught governments a hard lesson: a supply chain optimised purely for cost is fragile by design. The world has quietly shifted from “just-in-time” to “just-in-case” — and that single change is reviving the state’s role in industry everywhere. — Legacy IAS Faculty
Why is Industrial Policy Back?
Nations are no longer leaving industrial development to market forces. Three forces are driving the move toward strategic state intervention:
Geopolitical Insecurity
The US-China rivalry has turned technology into a battlefield. Export controls on advanced chips show tech being used as a foreign-policy weapon.
Supply-Chain Resilience
COVID-19 exposed extreme dependencies — the global auto industry lost ~$210 billion in 2021 to a chip shortage. Hence the shift from “just-in-time” to “just-in-case.”
The Green-Tech Race
The green transition is creating huge new markets. Countries are racing to build domestic champions in solar, wind, green hydrogen, and batteries.
The Global Shift — How Major Economies Are Responding
| Economy | Flagship Policy | Aim |
|---|---|---|
| United States | CHIPS & Science Act (2022); Inflation Reduction Act (IRA) | Pour billions into domestic semiconductors & green tech to cut reliance on China. |
| China | “Made in China 2025” | A state-led plan to dominate high-tech manufacturing globally. |
| European Union | EU Green Deal; Green Deal Industrial Plan; European Chips Act (~€43 bn) | Climate neutrality, “strategic autonomy,” and preventing industrial flight. |
| Japan & South Korea | Heavy semiconductor & battery subsidies | Maintain their competitive edge and secure critical-technology supply chains. |
India’s Manufacturing Puzzle
A central exam question: why has India’s manufacturing underperformed — especially in creating jobs — despite decades of reforms? Manufacturing’s share of GDP remains stuck at roughly 14–17%, far below the long-standing 25% goal. The reasons fall into three neat buckets (a ready-made answer structure):
Structural Impediments
Difficulties in acquiring land, rigid labour laws, and infrastructure & logistics gaps raise costs and deter scale.
Policy-Related Issues
Anomalies like the inverted duty structure (inputs taxed higher than finished goods) penalise domestic manufacturing.
Global Factors
Intense import competition (especially cheaper Chinese goods) undercuts domestic producers.
Economists warn India risks premature deindustrialisation — its manufacturing share peaking and the workforce shifting to services before the country gets rich, unlike the East Asian path where manufacturing first absorbed millions of workers. This is why creating manufacturing jobs (not just output) is the real challenge.
India’s Answer — Atmanirbhar Bharat
Atmanirbhar Bharat (Self-Reliant India), launched in May 2020, is India’s version of the new industrial policy — aiming to boost economic resilience and self-reliance. Its key focus areas:
- Reducing import dependence: encouraging local manufacturing and self-sufficiency.
- Stimulus package: ₹20 lakh crore across MSMEs, agriculture, healthcare, and infrastructure.
- Promoting innovation: fostering entrepreneurship and technology in key industries.
- Make in India: strengthening domestic manufacturing to compete globally.
The vision is to move India up the value chain — from simple assembly to deep manufacturing — increasing domestic value addition and positioning India as a trusted, reliable partner in global supply chains (the “China + 1” opportunity).
Key Reforms & Recent Developments
1. Labour Codes in force: on 21 November 2025, India’s four Labour Codes (Wages; Industrial Relations; Social Security; OSH) came into effect — the biggest labour reform since Independence, consolidating 29 old laws. They bring a 50% wage rule, gig/platform-worker social security, and a national floor wage; full enforcement (with state rules) is rolling out through 2026.
2. National Manufacturing Mission (NMM): announced in Budget 2025-26, targeting a rise in manufacturing’s GDP share to 25% by 2035, with 143 million jobs and higher exports.
3. PLI scheme: the Production-Linked Incentive covers 14 sectors (~₹1.97 lakh crore), rewarding incremental output in electronics, pharma, autos, and more — a core Atmanirbhar tool.
4. India Semiconductor Mission: moving from intent to infrastructure — Micron’s ATMP plant in Sanand became operational (Feb 2026) and Tata Electronics’ ₹91,000-crore Dholera fab is materialising (50,000 wafers/month).
How to Answer Questions in This Theme (Mains)
- Diagnosing manufacturing failure: structure your answer under three headings — (1) Structural impediments (land, labour, infrastructure), (2) Policy-related issues (e.g., inverted duty structure), and (3) Global factors (import competition).
- Evaluating a specific policy (Labour Codes, MSME support): present a balanced merits-and-demerits view — e.g., how it eases doing business and addresses worker concerns.
- Conclude with constructive, forward-looking suggestions to make policies more effective.
UPSC Previous Year Questions (Mains)
Q1 (2017, 15 marks). “Industrial growth rate has lagged behind the overall growth of GDP in the post-reform period.” Give reasons. How far are recent changes in industrial policy capable of increasing the industrial growth rate?
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Q2 (2023, 10 marks). Faster economic growth requires an increased share of the manufacturing sector in GDP, particularly of MSMEs. Comment on present government policies in this regard.
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Q3 (2024, 15 marks). Discuss the merits and demerits of the four ‘Labour Codes’ in the context of labour-market reforms in India. What has been the progress so far?
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Q4 (2023, 10 marks). What is the status of digitalisation in the Indian economy? Examine the problems faced and suggest improvements.
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Probable Prelims MCQs (Application-Based)
Q1. The “CHIPS and Science Act” and the “Inflation Reduction Act” are industrial-policy initiatives of:
(b) The United States
(c) China
(d) Japan
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Q2. With reference to India’s four Labour Codes, consider the following:
2. They came into force on 21 November 2025.
3. Labour is a subject in the Union List, so states have no role in framing rules.
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
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Q3. The “inverted duty structure,” often cited as a problem for Indian manufacturing, refers to a situation where:
(b) Raw materials/inputs are taxed higher than finished goods
(c) Exports are taxed higher than imports
(d) Services are taxed higher than goods
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Frequently Asked Questions
Q1. Why is “industrial policy” making a comeback globally?
Because the free-market consensus (the “Washington Consensus”) proved fragile against three shocks: US-China geopolitical rivalry (tech as a weapon), COVID-era supply-chain breakdowns, and the race to dominate green technologies. Governments now actively intervene to build strategic domestic capabilities.
Q2. What is Atmanirbhar Bharat?
Launched in May 2020, Atmanirbhar Bharat (Self-Reliant India) is India’s new industrial-policy framework, backed by a ₹20 lakh crore package. It aims to cut import dependence, boost local manufacturing (Make in India), promote innovation, and move India up the value chain into deep manufacturing — while positioning it as a trusted supply-chain partner.
Q3. Why has Indian manufacturing struggled to create jobs?
Due to structural impediments (land, labour, infrastructure), policy anomalies (like the inverted duty structure), and stiff import competition. India also risks “premature deindustrialisation” — shifting toward services before manufacturing could absorb its large workforce, leaving the sector stuck around 14–17% of GDP.
Q4. What are the four Labour Codes?
The Code on Wages (2019), the Industrial Relations Code (2020), the Code on Social Security (2020), and the Occupational Safety, Health and Working Conditions Code (2020). They consolidate 29 older laws and came into force on 21 November 2025, simplifying compliance and extending social security (including to gig workers).
Key Takeaways
- Industrial policy is back: the “Washington Consensus” has given way to strategic state intervention, driven by geopolitics, supply-chain resilience, and the green-tech race.
- The global shift: US (CHIPS Act, IRA), China (“Made in China 2025”), EU (Green Deal, European Chips Act ~€43 bn), and Japan/Korea (chip & battery subsidies).
- India’s puzzle: manufacturing stuck at ~14–17% of GDP due to structural, policy, and global factors — with a risk of “premature deindustrialisation.”
- Atmanirbhar Bharat (May 2020): a ₹20 lakh crore push to cut imports, boost Make in India, spur innovation, and climb the value chain.
- Recent reforms: the four Labour Codes in force (21 Nov 2025), the National Manufacturing Mission (25% of GDP by 2035), the PLI scheme (14 sectors), and the Semiconductor Mission (Micron Sanand, Tata Dholera).
