The "Economy: Industry & Manufacturing" sector is the process of physical or chemical transformation of raw materials into finished products on a large scale using machinery. It is considered the backbone of the economy, contributing 27.6% to India's Gross Domestic Product (GDP) under the broader 'Industry' sector in FY 2023–24.
The foundational concept is the Industrial Policy Resolution (IPR) of 1956, a policy declaration that aimed to establish a socialistic pattern of society and accelerate industrialization. It solved the problem of a nascent industrial base by giving the State a predominant role, classifying industries into three schedules, and reserving 17 key industries like arms and atomic energy exclusively for the public sector under Schedule A. The mechanism was the industrial licensing system, or the "License Raj," which required government approval for establishing or expanding industrial units, deriving its legal teeth from the Industries (Development and Regulation) Act, 1951 (IDRA).
This system was largely replaced by the New Industrial Policy of 1991, announced on July 24, 1991, to correct inefficiencies and liberalize the economy. The 1991 policy abolished industrial licensing for most industries, reduced the number of reserved public sector industries from 17 to 8, and allowed up to 51% Foreign Direct Investment (FDI) in 47 high-priority sectors. This shift connects the sector to the principles of Liberalisation, Privatisation, and Globalisation (LPG).
A significant recent change is the introduction of the Production Linked Incentive (PLI) scheme, launched from March 2020. The PLI scheme is a mechanism that offers performance-linked incentives on incremental sales from domestically manufactured products across 14 strategic sectors, with an outlay of ₹1.91 lakh crore (US$ 21.61 billion). This scheme is a key component of the Make in India initiative and aims to boost domestic manufacturing and reduce import reliance.