Indian industry has immense potential for further strengthening the agro-processing, textiles and garments, and leather and footwear sectors with good prospects for sustained employment generation. But the medium-term challenge for Indian manufacturing is to move from lower to higher-tech sectors, from lower to higher value added sectors, and from lower to higher productivity sectors. Medium-tech industries are primarily capital intensive and resource processing and high-tech industries are mainly capital and technology intensive. In order to push the share of manufacturing in overall GDP to the projected 25 per cent, Indian manufacturing need to capture the global market in sectors showing a rising trend in demand. These sectors are largely high technology and capital intensive. Such high-tech industries may perform a less important role in sustaining employment but are critical for capital accumulation and skills development and for improving the knowledge base. To gain a firm footing in these sectors, the policy thrust should be on pushing up the level of public and private expenditure on technology upgradation, research and development, innovation, and skill development.

Structural shift to higher-tech manufacturing: prioritize investment in technology, R&D and skills to boost competitiveness and exports. Promote a medium-term structural shift in manufacturing toward higher-tech, higher value-added, and higher-productivity sectors by increasing public and private investment in technology upgradation, research and development, innovation, and skill development; balance employment needs by strengthening labour-absorbing sectors while building capabilities in capital- and technology-intensive industries to capture global demand and support capital accumulation and the national knowledge base.