Govt plans factory clusters, big reforms to boost economy amid US tariff jolt
The proposals under discussion include interest subventions, the development of manufacturing clusters near infrastructure hubs, and measures to attract more private capital, the people cited earlier said on the condition of anonymity.
The measures are also expected to focus on creating jobs, boosting exports, and strengthening domestic consumption.
'Beyond targeted incentives, the government is weighing structural reforms, ranging from tweaks in the GST (goods and services tax) framework to fresh manufacturing pushes, to raise the sector's weight in GDP," said the first person.
'Importance is also being given to sectors like engineering, electronics, textiles, steel, and construction, with a sharper focus on 'Make in India' and 'Vocal for Local.' New PLI (production-linked incentive) schemes for heavy machinery in mining and construction are also under discussion to curb import dependence," this person added.
Last week, Prime Minister Narendra Modi announced a Reform Task Force in his Independence Day speech on 15 August, aimed at driving next-generation reforms to steer India toward a $10 trillion economy by 2047.
India's manufacturing sector, which accounts for about one-sixth of the economy, is projected to expand by 3.8% in fiscal year 2026 (FY26), slower than the 4.3% estimated for FY25, according to the Centre for Monitoring Indian Economy (CMIE).
The deceleration reflects the impact of US tariffs, moderating domestic demand, and a high base effect, with some sub-sectors expected to cool after last year's unsustainably strong growth. The US has imposed a 50% tariff on Indian goods entering the world's largest economy.
The spokespersons of the ministries of finance, and commerce, and the Prime Minister's Office didn't respond to emailed queries.
Meanwhile, new PLI schemes aimed at reducing import dependence have also been discussed.
The Centre is looking to fire up manufacturing activities, a crucial engine of economic growth, the second person said.
'The government is also exploring the creation of factory clusters strategically located near major infrastructure projects, such as roads, railways, and ports, to create manufacturing hubs that boost logistics efficiency and generate large-scale employment," this person added.
'These clusters are aimed at raising manufacturing's share in India's GDP. Linking these clusters with key infrastructure projects will help create seamless value chains, drawing both domestic and foreign investment and giving a strong push to the economy," the person said.
'The cluster-based approach to manufacturing, where firms and industries operate within an integrated ecosystem, rests on strong theory and is backed by compelling global evidence," the person added.
Experts say the government is adopting a broad-based strategy to strengthen Indian manufacturing and boost global competitiveness, with an emphasis on scale, value addition, and market diversification to reduce vulnerability to tariff shocks.
'The government is taking a comprehensive approach to strengthen fiscal measures, such as targeted incentives and credit support, which are being matched with non-fiscal steps, including logistics upgrades, regulatory simplification, skilling programs, and increased investment in research and innovation," said Hardik Shah, partner, Deloitte India.
'These initiatives are designed not merely as quick fixes but as part of a long-term vision of Viksit Bharat to build resilience, reduce external dependence, and position India as a reliable, trusted, and globally competitive manufacturing hub," Shah added.
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