India’s manufacturing sector entered the first quarter of fiscal year 2026-27 with a stabilizing PMI and a surge in foreign investment facilitation. The industrial economy saw a string of project commitments. These ranged from semiconductors and AI infrastructure to automotive components, specialty chemicals, and renewable energy. The manufacturing PMI rose to 54.7 in April, up from 53.9 in March. This marks the 46th consecutive month of expansion. New export orders grew at their fastest pace in nine months. Job creation hit a 10-month high. For the first time in six months, finished goods inventories rose. This signals that manufacturers are preparing for stronger order volumes ahead.
India’s index of industrial production (IIP) for March 2026 recorded 4.1% year-over-year growth, led by manufacturing, mining, capital goods, and infrastructure segments.
Electronics and Semiconductors
This structural evolution in electronics complements the wider industrial transition observed across sectors, setting the stage for further developments in related manufacturing domains.
India approved two additional semiconductor manufacturing projects worth about $470 million under the India Semiconductor Mission (ISM). Both projects are backed primarily by domestic investors, with supplementary technology partnerships from foreign firms. The projects include the country’s first commercial mini/micro-LED display manufacturing facility, based on gallium nitride (GaN) technology. Indian ownership is significant, with some international technical collaboration, and includes a semiconductor packaging facility in Gujarat, which is also financed primarily by domestic investors. These investments continue to strengthen India’s long-term semiconductor ecosystem, especially in packaging, advanced displays, materials, and design-linked manufacturing.
Digital Infrastructure and AI: Google’s $15B Commitment
On April 28, Google began work on its AI hub in Visakhapatnam, Andhra Pradesh. This is the company’s largest foreign direct investment globally. The project involves a $15 billion investment over five years (2026-2030). The initiative aims to establish a gigawatt-scale AI ecosystem across three data center campuses on 600 acres. Partners include AdaniConneX and Nxtra by Airtel. The project includes three international subsea cable landing stations, metropolitan fiber networks, and dedicated clean energy transmission infrastructure. It also involves large-scale energy storage. Analysts estimate the project will directly create over 20,000 construction and operations jobs. It will also catalyze about 50,000 indirect jobs in supporting sectors. The project is expected to boost Andhra Pradesh’s GDP, strengthen the regional technology supply chain, and position Visakhapatnam as a leading hub for AI and digital infrastructure investment in South Asia.
Automotive and Electric Vehicles
The passenger vehicle segment remains on track for 6%-7% growth in FY2026. GST rationalization measures and the Federal Bank’s rate reductions have improved vehicle affordability. Several capacity investments confirmed during the period reinforce India’s role as both a domestic demand market and a global manufacturing base.
Auto component exports are expected to reach about $30 billion for FY2026. This suggests India’s increasing integration into global supply chains in North America, Europe, and Asia. Continued support through the prime minister’s E-DRIVE scheme, extended to July 31, has further sustained momentum in the EV sector.
Royal Enfield announced plans to invest around $232 million in a new manufacturing facility in Andhra Pradesh to expand motorcycle production capacity and support long-term growth plans.
Aerospace and Defense
The India-EU aviation production pact signed in late March is expected to strengthen regulatory cooperation and expand joint aerospace manufacturing opportunities. The agreement is expected to support programs such as Tata Advanced Systems’ helicopter assembly line in Karnataka and the evolving Embraer-Mahindra transport aircraft program, a joint initiative between the Brazilian company Embraer and Mahindra Group.
The Defense Procurement Board’s March clearance of the $12 billion Medium Transport Aircraft program is expected to create long-term opportunities for subsystem and component manufacturing. The program will reach its initial contract award and vendor selection phase by Q3 FY2026-27. Production is expected to begin in late 2027. Key beneficiaries will include private-sector aerospace firms such as Tata Advanced Systems and Mahindra Aerospace. Several Tier 2 and Tier 3 suppliers in Karnataka, Maharashtra, and Telangana will also benefit. The initiative will drive demand for avionics, aerostructures, composite materials, and specialized machining, creating substantial business opportunities for domestic MSMEs (micro, small, and medium enterprises) and engineering clusters. These opportunities will gradually unfold across the private-sector aerospace supply chain as the program progresses through development, assembly, and eventual fleet induction stages.
ITP Aero, a major Spanish aerospace company, commenced construction of a new facility in Hyderabad to manufacture aerospace engine components, with an investment of approximately $54 million. The facility will manufacture fabricated and machined parts for commercial aviation engines and is expected to create over 350 skilled jobs.
Energy, Power Equipment, and Industrial Machinery
Premier Energies commissioned its 5.6 GW TOPCon (tunnel oxide passivated contact, a type of high-efficiency solar module) module facility in Telangana. The company’s broader $1.44 billion Mission 2028 program aims to establish 10 GW of integrated solar manufacturing capacity by FY2028.
In addition, India’s Union Cabinet approved a $4.3 billion coal gasification incentive scheme in early May, reflecting the country’s continued focus on energy diversification (a mix of sources such as coal, renewables, and natural gas) alongside renewable energy expansion.
Large-scale investments in power generation, renewable energy, grid infrastructure, and energy storage continue to drive demand. These investments create a sustained need for heavy engineering systems, turbine equipment, fabrication technologies, large-format machining solutions, and industrial automation systems.
Steel, Metals, and Core Manufacturing
Core manufacturing sectors remain stable, supported by infrastructure, automotive, and industrial demand.
The steel sector continues to grow at 8%-9% in FY2026. Public infrastructure investments and industrial expansion provide support. Continued investments in fabrication, forming technologies, downstream processing, and metal component manufacturing are expected to sustain demand. Machining, inspection, and forming equipment are needed across the steel supply chain.
Chemicals, Specialty Materials, and Advanced Manufacturing
India’s specialty chemicals sector is valued at about $64.5 billion. Its continued steady growth is driven by the China Plus One realignment strategy. Global buyers are diversifying sourcing for agrochemicals, pharmaceutical intermediates, electronic chemicals, and advanced coatings.
The India Pharma 2026 event in New Delhi on April 13-14 reinforced the government’s push to move India from volume-based pharmaceutical manufacturing to value-driven, innovation-led production. This is backed by the $1.15 billion Biopharma Shakti program and a network of 1,000 accredited clinical trial sites.
Overall Outlook
The April-May 2026 period reflects an industrial economy that continues to expand with increasing breadth and depth. This comes despite ongoing input cost pressures linked to global energy markets and geopolitical disruptions.
Policy continuity remains strong, notably through impactful policies such as the Production Linked Incentive (PLI) schemes across sectors. The recent extension of the country’s Foreign Trade Policy 2023 streamlines export promotion and manufacturing incentives. The PLI schemes have driven a significant increase in investment. Approved outlays now reach $26.5 billion. Committed investments exceed $12 billion as of May 2026. For example, the electronics sector increased its exports by 40% year over year in FY2026. Both the pharmaceutical and automotive segments have recorded double-digit increases in exports and domestic manufacturing output since joining the scheme. Specialty steel and solar module projects have added incremental production capacity and attracted new global supply chain partners.
Trade frameworks with the United States and the EU continue to advance. Recent approvals helped Indian exports to the EU grow by 18% in Q1 2026. Negotiations also continue for the India-EU Free Trade Agreement and the India-U.S. Initiative on Critical and Emerging Technology (iCET). These developments have supported export diversification by easing access to new markets and investment flows. Together, these agreements drive investor confidence in India’s manufacturing outlook.
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