India must accelerate manufacturing growth to at least 10% annually over the next 15 years to lift the sector's share of the economy to 25%, according to Bank of America economists led by Rahul Bajoria. At that pace, manufacturing could reach almost $2.3 trillion by 2040 from about $500 billion in 2024, while India's share of global manufacturing would more than double to 6.3%. India's manufacturing sector grew at an average annual pace of 4.3% in dollar terms over the past 15 years.

India's economic trajectory has been unusual compared with many other developed nations, with services becoming the main growth engine before manufacturing developed into a major source of jobs. Expanding manufacturing is seen as crucial for Narendra Modi's 'Viksit Bharat' ambition of turning India into a developed economy by 2047. India has rolled out more than $26 billion of incentives over the past decade to attract manufacturers, helping draw companies including Apple Inc. and Samsung Electronics Co. Yet BofA said India's manufacturing sector has broadly stagnated at about 17% of GDP.

BofA identified regulatory burdens and high power costs as key constraints, noting India has 92.6 million micro enterprises but only about 40,000 medium-sized firms. Manufacturing MSMEs face as many as 1,400 compliance obligations a year, and industrial users pay 10%-25% above the cost of electricity supply.