India’s manufacturing sector is witnessing a structural transformation as it pivots away from traditional scale-based production to a more research-driven and innovation-led model, according to a new report by early-stage venture capital firm 3one4 Capital. The report, titled The Future of Production in India, outlines how the country’s manufacturing competitiveness is gradually moving beyond the long-standing advantage of low-cost labour to embrace sectors requiring high intellectual property (IP) intensity, advanced research, and automation.
3one4 Capital’s findings come at a crucial juncture when India is actively pushing for self-reliance in critical sectors like semiconductors, aerospace, and specialty chemicals through flagship initiatives such as Make in India and Atmanirbhar Bharat. The report suggests that India’s future growth in manufacturing will depend largely on its ability to build and scale companies that produce high-complexity goods anchored in deep tech and innovation.
“There is a very fundamental shift in how these businesses are being built in India, and there is a certain maturity that has come up now,” said Anurag Ramdasan, Partner at 3one4 Capital, in an interview with The Economic Times. “That is making this sector very approachable and realistic for delivering returns within the timeframe of a venture capital fund.”
Mapping the New Manufacturing Landscape
3one4 Capital classifies India’s evolving manufacturing companies under a framework it terms the “manufacturing innovation spectrum.” This spectrum includes three key archetypes:
- Process-driven manufacturing – companies focusing on operational efficiency and scale.
- IP-led manufacturing – businesses driven by proprietary research, innovation, and protected technology.
- Hybrid manufacturing models – a blend of process-driven efficiency and IP-backed differentiation.
The firm’s analysis suggests that while pure-play IP-led companies are critical for long-term value creation, they often require longer gestation periods and substantial capital—factors that may not align with traditional VC timelines. However, hybrid models that blend process efficiency with innovation and IP are becoming increasingly attractive to investors due to their potential for faster commercialisation and capital efficiency.
“The potential here is massive,” said Ramdasan. “What used to be considered capital-heavy or inaccessible is now becoming viable due to better infrastructure, maturing entrepreneurial talent, and the evolution of venture capital in India.”
Venture Capital’s Changing Playbook
Historically, Indian venture capital investments have leaned toward consumer-facing startups in fintech, edtech, or e-commerce. But the report signals a rising investor appetite for more sophisticated, innovation-heavy manufacturing ventures. While these businesses may carry higher technological risk, they also promise defensible moats, export potential, and long-term sustainability.
According to Ramdasan, VC firms are now more willing to explore these areas as India’s manufacturing landscape matures. The hybrid manufacturing model—balancing cost-efficiency with innovation—fits well into the risk-return frameworks of many investors.
“In the next few years, we will see more and more capital going into this space,” he added.
Challenges and Policy Needs
Despite the promising trends, the shift toward IP-led manufacturing is not without challenges. High capital requirements, lack of skilled labour in frontier technologies, and regulatory bottlenecks continue to hamper growth in some subsectors. Additionally, IP protection and technology transfer frameworks remain weak compared to global benchmarks, the report notes.
To accelerate the transformation, 3one4 Capital recommends a multi-pronged approach involving:
- Increased investment in R&D and skill development.
- Stronger IP protection laws.
- Incentives for private players in core industrial sectors.
- Enhanced university-industry collaboration to bridge the research-commercialisation gap.
A New Era for Indian Manufacturing
As global supply chains diversify and nations seek alternatives to China-centric production, India has a historic opportunity to reposition itself as a hub for innovation-led manufacturing. The move toward IP and research-centric models represents not just a shift in business strategy but also a change in how India perceives its industrial future.
3one4 Capital’s report underscores that the next decade could be a defining one for Indian manufacturing—where competitive advantage is shaped not by cost alone but by knowledge, creativity, and technological leadership.
