Why India needs deep industrialisation
- The COVID-19 pandemic has reshaped the economic perspectives, leading to a retreat from globalisation and a resurgence of industrial policy and state-led interventions worldwide.
- Initiatives like the Inflation Reduction Act in the US, the European Green Deal, and India’s Atmanirbhar Bharat highlight this shift.
India's Growth Trajectory
- India's economy has shown resilience in recovering from the pandemic, but it faces challenges of "premature deindustrialization."
- Despite growth, disparities persist, with benefits primarily shared by a small minority, worsening pre-existing gaps.
- While luxury items like high-end cars sell well, ordinary citizens are struggling with rising food prices.
Industrial Stagnation
- Despite decades of efforts, India has struggled to industrialise significantly, with manufacturing's share in output and employment remaining stagnant and below 20%.
- Even reforms in 1991 failed to boost labour-intensive industrialization.
- India now grapples with stagnant industrial investment, high unemployment with chronic disguised unemployment, and widening trade deficits.
Unconventional Perspective: Services-Led Growth
- Economists Raghuram Rajan and Rohit Lamba propose a departure from traditional manufacturing-led growth.
- In Breaking the Mould: Reimagining India’s Economic Future, they advocated for high-skill services driven by information technology.
Challenges of Services-Led Growth
- Poor Employment Elasticity
- Services-led growth struggles to absorb labour, particularly from agriculture, and exacerbates inequality due to the demand for highly skilled workers.
- Periodic Labour Force Survey, 2021-22: The Gini index of inequality for regular wages in the services sector was 44 compared to 35 for manufacturing.
- Inequality in Education
- Early emphasis on higher education neglects mass schooling, perpetuating inequality in access to quality education and exacerbating societal divisions.
- India is one of the world’s most unequal countries in terms of education.
- Despite high school enrollment rates and improved accessibility to higher education, there are significant disparities in educational quality and subsequent labour market outcomes.
- These disparities exacerbate existing class divisions in India, which are deeply rooted in the caste system.
- Early emphasis on higher education neglects mass schooling, perpetuating inequality in access to quality education and exacerbating societal divisions.
A Culturally Rooted Diagnosis
- Industrial stagnation in India is attributed to a lack of mass education, hindering technological progress and cultural attitudes towards labour and innovation.
- India's historical undervaluation of certain occupations and lack of emphasis on vocational skills hinder organic innovation and industrial progress.
- Mass education and a revaluation of vocational skills are necessary for deep industrialization and societal transformation.