Why India needs deep industrialisation

Why India needs deep industrialisation


Examining Raghuram Rajan and Rohit Lamba’s pioneering research, the article explores the core factors behind India’s industrial inertia and provides perspectives on alternative strategies for fostering sustainable economic development.


GS-02 GS-03 (Growth and Development, Economic Growth)

Mains Question:

If economic development and not growth were India’s priority, manufacturing that takes along the service sector maybe the solution to the country’s problems, Comment (250 words)

Dimensions of the Article:

  • Industrial Stagnation
  • Reimagining Economic Growth
  • Challenges of Services-led Growth
  • Socioeconomic Implications
  • Cultural Prerequisites for Industrialization
  • History of India’s industrial policies since Independence

Industrial Stagnation:

  • Despite sustained economic growth, India has grappled with persistent industrial stagnation that is characterized by stagnant manufacturing shares and chronic unemployment.
  • With the manufacturing sector not being able to absorb the surplus labor, traditional models of industrialization have failed to catalyze sustained growth that increases socioeconomic disparities.
  • Against this backdrop, the need for innovative economic strategies to break the cycle of industrial stagnation becomes imperative.

Reimagining Economic Growth:

  • In their seminal work, Raghuram Rajan and Rohit Lamba advocate for a paradigm shift towards high-skill services-driven growth as a viable alternative to traditional manufacturing-led approaches.
  • This unconventional perspective challenges the prevailing notions that services growth is contingent upon manufacturing expansion.
  • By leveraging information technology and promoting high-skill services, India can potentially stimulate manufacturing while addressing structural inequalities inherent in traditional growth models.

Challenges of Services-led Growth:

  • The transition to services-led growth poses significant challenges, particularly in terms of employment generation and socioeconomic inclusivity.
  • Unlike manufacturing, which historically provided avenues for mass employment, services-led growth exhibits poor employment elasticity, exacerbating labor market disparities.
  • Moreover, the unequal distribution of educational resources and the focus on elite-centric higher education exacerbate social inequalities, hindering the equitable distribution of economic opportunities.

Socioeconomic Implications:

  • The emphasis on high-skill services highlights existing fault lines within the education system, perpetuating socioeconomic disparities along class and caste lines.
  • The differential quality of education further heightens the disparities in labor market outcomes as it affects the marginalized communities disproportionately due to inadequate access to quality education.
  • This increases the challenges of economic inclusivity and perpetuates social hierarchies which ultimately hinders the realization of equitable growth.

Cultural Prerequisites for Industrialization:

  • The stagnation of industrialization in India is attributed, in part, to the absence of mass education and a culture conducive to technological progress. The undervaluation of certain vocational skills and artisanal knowledge impedes organic innovation in manufacturing, perpetuating reliance on traditional economic structures.
  • To catalyze deep industrialization and transformative societal change, India must prioritize mass education and collective absorptive capacity, fostering a culture of innovation and equitable economic growth.

History of India’s industrial policies since Independence:

Industrial Policy Resolution of 1948:

  • Outlined India’s mixed economic model.
  • Classified industries into four categories: Strategic Industries (Public Sector), Basic/Key Industries (Public-cum-Private Sector), Important Industries (Controlled Private Sector), Other Industries (Private and Cooperative Sector).
  • Industries (Development and Regulation) Act of 1951 enacted to implement the resolution.

Industrial Policy Statement of 1956:

  • Revised the 1948 policy.
  • Emphasized expanding the public sector and preventing private monopolies.
  • Classified industries into three schedules: A (State responsibility), B (open to private and public sectors), C (open to private sector).
  • Stressed importance of cottage and small-scale industries.
  • Faced criticism for limiting private sector expansion and implementing licensing system.

Industrial Policy Statement of 1977:

  • Focused on promoting cottage and small industries.
  • Classified small sector into three groups.
  • Restricted dominance of large business houses.
  • Encouraged worker participation in management.
  • Criticized for lacking measures against large-scale dominance and socio-economic transformation.

Industrial Policy of 1980:

  • Aimed at economic federation, public sector efficiency, and reversing industrial production trends.
  • Affirmed faith in Monopolies and Restrictive Trade Practices Act and Foreign Exchange Regulation Act.

New Industrial Policy During Economic Reforms of 1991:

  • Liberalized industrial policy introduced amidst economic instability.
  • Objective: to enhance efficiency and accelerate economic growth.

Way Forward:

  • Promoting Inclusive Growth: India should prioritize inclusive economic growth and equitable access to educational opportunities. Policymakers must focus on enhancing vocational training, expanding access to quality education, and fostering a culture of innovation to empower marginalized communities and promote socioeconomic inclusivity.
  • Harnessing Technological Innovation: Investments in information technology and high-skill services offer avenues for stimulating manufacturing and driving economic transformation. By leveraging technological innovation, India can enhance its competitive advantage in the global market while fostering job creation and sustainable economic development.
  • Fostering Social Cohesion: Efforts to address industrial stagnation must be accompanied by initiatives aimed at bridging socioeconomic divides and fostering social cohesion. Reducing disparities in educational access, promoting vocational training, and empowering marginalized communities are critical steps towards realizing an inclusive and equitable economic future.