MAINS Current Affairs includes Reassessing Manufacturing Growth in India & India Needs a Grid Revolution for Clean Energy Transition

Economy

1. Reassessing Manufacturing Growth in India

Context: As China’s export competitiveness intensifies, India is seeking to benefit from the China-plus-one strategy while addressing the “China Squeeze” on manufacturing in developing economies.

• This has renewed concerns about the reliability and interpretation of India’s manufacturing data.

About Manufacturing Sector and Measuring Growth in India

• Manufacturing is crucial for India’s structural transformation as it can:
  • Generate large-scale employment;
  • Build technological capabilities; and
  • Strengthen exports.
• Manufacturing performance in India is mainly assessed through two indicators:

1. Gross Value Added (GVA)

• Measures the value added by manufacturing activities and contributes directly to GDP estimation.
• It includes estimates relating to the informal sector.

2. Index of Industrial Production (IIP)

• Measures changes in the volume of industrial output.
• Manufacturing constitutes the largest component of IIP.
• It primarily captures output in the organised industrial sector.
• Therefore, GVA and IIP measure different aspects of manufacturing:
  • GVA → value added
  • IIP → volume of industrial production
• The recent divergence between the two has important implications for national income accounting, industrial policy and data governance.

Why Do Manufacturing Numbers Matter?

• Reliable manufacturing data is essential for determining whether government policies are achieving their intended objectives.
• The Make in India Programme (2014) seeks to promote domestic manufacturing and investment.
• The Production Linked Incentive (PLI) Scheme aims to encourage production in strategically important sectors.
• The issue has become more significant because of increasing global competition:
  • China’s strong export capacity puts pressure on manufacturing in developing economies.
  • At the same time, multinational companies are diversifying supply chains through the China+1 strategy.
• India’s ability to benefit from this opportunity depends not merely on headline growth but on whether manufacturing is actually improving in terms of output, productivity and employment.

Related Issues and Concerns

1. Manufacturing GVA Deflator

• The new GDP estimates reportedly show a decline in the manufacturing GVA deflator for nine consecutive quarters between 2023 and 2025.
• This appears difficult to reconcile with broader price trends, particularly when consumer inflation did not indicate sustained economy-wide deflation.
• The Wholesale Price Index (WPI) is influenced by input and commodity prices, whereas a GVA deflator is intended to capture prices relevant to value added.

2. Divergence Between Real GVA and IIP

• A significant gap has emerged between real manufacturing GVA and IIP.
• By 2025–26, real manufacturing GVA was around 15 percentage points above the IIP level.
• Between 2022–23 and 2025–26:
  • Real GVA recorded average annual growth of roughly 11%.
  • IIP recorded average annual growth of around 6%.
• One important difference is that:
  • GVA includes the informal sector;
  • IIP largely excludes it.
• However, recent informal-sector estimates have themselves been proxied using formal-sector information.
• A persistent divergence therefore raises questions about:
  • Productivity gains;
  • Measurement methodologies; and
  • Underlying data sources.

3. Weakening Relationship Between GVA and IIP

• Historically, manufacturing GVA and IIP generally moved in the same broad direction.
• Following methodological changes associated with the 2011–12 base framework, their relationship appears to have weakened.
• Recent GVA growth has also displayed greater volatility compared with the relatively stable IIP series.

Related Efforts and Initiatives

• Make in India: Promotes investment, innovation and domestic manufacturing.
• Production Linked Incentive (PLI) Scheme: Provides incentives linked to incremental production in selected sectors.
• Atmanirbhar Bharat: Promotes resilient domestic supply chains and strategic self-reliance.
• National Logistics Policy: Seeks to reduce logistics costs and improve supply-chain efficiency.
• PM Gati Shakti: Promotes integrated infrastructure planning and better connectivity.
• Ease of Doing Business and Infrastructure Reforms: Aim to improve the competitiveness of Indian businesses.

Way Forward: Reassessing Manufacturing Growth

• India should avoid treating a single indicator as the final verdict on manufacturing performance.
  • Instead, policymakers should triangulate GVA, IIP, exports, employment, capacity utilisation and corporate investment data.
• MoSPIshould publish a detailed methodological note explaining the new GDP calculations, including the construction of manufacturing deflators and estimates for the informal sector.
• Greater transparency would enable independent scrutiny and improve public trust.
• Regular reconciliationbetween IIP and national accounts data would help identify whether divergences reflect genuine productivity improvements or statistical issues.
• Ultimately,India’s manufacturing challenge is strategic as well as statistical. As global supply chains adjust to Chinese competition and China+1 diversification, credible data is indispensable for judging whether India is genuinely gaining manufacturing strength, or merely measuring it differently.

Conclusion

• India’s manufacturing challenge is both strategic and statistical.
• As global supply chains adjust to Chinese competition and companies pursue China+1 diversification, reliable manufacturing data becomes essential.
• India must therefore ensure that improvements in manufacturing are real, broad-based and employment-generating, while simultaneously making the statistical framework more transparent and credible.
• Credible data is indispensable for determining whether India is genuinely strengthening its manufacturing base or simply measuring it differently.

Energy Infrastructure

2. India Needs a Grid Revolution for Clean Energy Transition

Context: India’s renewable energy capacity is expanding rapidly, but transmission and energy-storage infrastructure are not growing at the same pace.

• This creates a need for stronger grid integration to ensure that clean electricity remains reliable, affordable and accessible.

About Power Infrastructure and Grid Integration in India

• India has emerged as one of the world’s fastest-growing clean-energy markets.
• India has deployed around 297 GW of non-fossil capacity, with substantial solar and wind capacity under development.
• However, the energy transition is not simply about adding renewable generation capacity.
• Grid integration refers to the ability of the electricity system to absorb, transmit, balance and reliably supply power generated from variable renewable sources.
• Solar and wind generation varies according to weather conditions and time of day, unlike conventional power plants.
• Therefore, renewable integration requires:
  • Modern transmission networks;
  • Energy storage;
  • Flexible generation;
  • Efficient electricity markets; and
  • Digital grid management.
• India’s energy transition is consequently shifting from capacity addition towards effective capacity utilisation and integration.

Current Status and Significance of the Grid

• Non-fossil sources now constitute a significant share of India’s electricity generation.
• Their contribution has occasionally exceeded 50% during daytime hours, reflecting the increasing penetration of renewable energy.
• A modern and resilient grid is important because it can:
  • Maintain stable electricity supply despite fluctuations in renewable generation;
  • Transfer electricity from renewable-rich regions to high-demand areas;
  • Reduce renewable-energy curtailment;
  • Lower the overall cost of meeting growing electricity demand; and
  • Strengthen energy security while reducing dependence on fossil fuels.
• Expansion of transmission infrastructure, including renewable-energy evacuation systems and Green Energy Corridor-type initiatives, is therefore essential for achieving India’s long-term clean-energy objectives.

Issues and Concerns in Grid Infrastructure

1. Inflexible and Outdated Grid Architecture

• India’s conventional electricity grid was largely designed for one-way power flows from large generating stations to consumers.
• The growth of:
  • Rooftop solar;
  • Distributed generation; and
  • Electric vehicles
    requires a more dynamic, decentralised and two-way grid.

2. Transmission Capacity Lag

• Renewable projects can often be developed faster than the transmission infrastructure required to evacuate their electricity.
• Transmission projects may face delays due to:
  • Land acquisition;
  • Regulatory clearances; and
  • Construction-related challenges.
• This can result in renewable electricity being stranded or curtailed.

3. Insufficient Storage and Flexibility

• India’s energy-storage capacity remains inadequate compared with the rapid expansion of solar and wind power.
• Solar generation falls sharply after sunset, while electricity demand may remain high.
• Without sufficient storage and flexible generation, excess daytime solar power may have to be curtailed.

4. Inadequate Market Signals

• India’s electricity sector continues to rely significantly on long-term bilateral contracts.
• Existing markets primarily reward energy generation, while services such as:
  • Flexibility;
  • Reserves;
  • Grid stability; and
  • Dispatchability
    do not always receive adequate price signals.

5. Limited Digital Visibility at Distribution Level

• Many DISCOMs lack sufficiently detailed, real-time information regarding:
  • Consumer demand;
  • Distribution-network conditions;
  • Rooftop solar generation; and
  • Electric-vehicle charging.
• This limits effective real-time grid management.

Related Efforts & Initiatives

• Expansion of Inter-State Transmission Networks: Connects renewable-rich regions with major electricity-demand centres.
• Green Energy Corridor Projects: Facilitate evacuation and integration of renewable electricity.
• Battery Energy Storage Systems (BESS): Promote storage of renewable electricity for use when required.
• Pumped Storage Projects: Provide large-scale energy storage and grid-balancing capabilities.
• Smart Meter Deployment: Supports electricity-sector modernisation and better demand management.
• Electricity Exchanges: Enable more efficient electricity trading and price discovery.
• Ancillary Services Markets: Help procure services necessary for grid stability and balancing.
• Competitive Renewable-Energy Auctions: Encourage cost-efficient renewable capacity addition and improve price discovery.
• These measures indicate a gradual transition towards a more flexible, digitally enabled and market-oriented electricity system.

Way Forward: Strengthening the Green Grid

1. Deploy Advanced Grid Technologies

• Modernise existing transmission infrastructure through:
  • Reconductor­ing of transmission lines;
  • Dynamic grid management;
  • Grid-forming inverters; and
  • Co-location of battery storage with renewable projects.
• Such measures can increase effective grid capacity without relying solely on new infrastructure construction.

2. Build Storage and Flexible Capacity

• Expand:
  • Battery storage;
  • Pumped-hydro storage; and
  • Flexible thermal generation.
• Existing thermal power stations can increasingly provide reserve and balancing services during the transition.

3. Reform Power Markets

• Electricity markets should reward not only energy generation, but also:
  • Capacity;
  • Flexibility; and
• Appropriate market mechanisms and innovative contracts can attract investment in resources that support renewable integration.

4. Adopt Technology-Neutral Procurement

• Instead of procuring solar, wind, thermal and storage independently, utilities should identify the required system services—capacity, flexibility and reliability.
• Different technologies should then compete to provide these services on a least-cost basis.

5. Accelerate Digitalisation and Consumer Participation

• Expand:
  • Smart meters;
  • Real-time electricity-data systems; and
  • Time-of-use electricity pricing.
• Consumers can be encouraged to shift electricity consumption away from periods of peak grid stress.
• Digital consumer platforms can also improve transparency regarding electricity consumption and electricity prices.

Conclusion

• India has made significant progress in expanding its clean-energy generation capacity.
• However, the next phase of the energy transition will depend not simply on the megawatts added, but on the megawatts effectively integrated into the grid.
• Modern transmission networks, energy storage, flexible generation, efficient electricity markets and digital infrastructure are essential to convert renewable capacity into reliable and affordable electricity.
• The true measure of India’s green transition will therefore be its ability to build a power system in which clean energy is not only generated but efficiently transmitted, balanced and fully utilised.

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