Jaitley was speaking in Sydney during his four-day visit to Australia.
Inviting Australian businesses to "invest and make in India", Finance Minister Arun Jaitley said sectors like railways, defence and manufacturing now offer huge scope for foreign investments with liberalised FDI norms.
"India could manage to become a very low-cost service provider but failed to transform into a low-cost manufacturing", Jaitley said here, adding there is an opportunity now for the same.
Launching 'Make in India' conference here on the second day of his four-day visit to Australia, the Minister invited Australian businesses to be a part of India's growth story.
Separately during a bilateral meeting with Australian Foreign Minister Julie Bishop, Jaitley said there is a lot of scope for foreign investment in India in various sectors which have now been opened for FDI including railways, defence and manufacturing.
He also listed out various reform measures undertaken by the Modi government in the last 22 months and asked Australian businesses to "invest and make in India".
He also said India faces three major challenges -- it needs to boost exports in view of shrinking global trade, increase private investment and is hoping for a better monsoon this year after insufficient rains for two consecutive years.
Jaitley said India has shown a great resilience despite global economic downturn.
"For two consecutive years, we are the fastest growing economy in the world. When we measure ourselves by our own standards, we believe that 7.5 per cent does not reflect our true potential," Jaitley said.
India has to invest in its infrastructure in a bid to prepare a base for an economy of this huge size, he said.
"Manufacturing must occupy a space," he said, adding that global investors must look at India.
Speaking on the occasion, Bishop said Australia can play a major role in providing various services to India especially in field of innovations, R&D and designing, vocational training and skill development, among others.
Jaitley thanked the Australian Foreign Minister for concluding the administrative arrangements on civil nuclear cooperation to facilitate the flow of uranium.
He will also meet Australian Prime Minister Malcolm Turnbull tomorrow.
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 "Finance Minister Arun Jaitley")
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