WHY INDIA NEEDS DEEP INDUSTRIALISATION

THE CONTEXT: The COVID-19 pandemic changed the way we think about our economic future and globalisation is now in retreat as well. Though, India recovered relatively quickly from the pandemic, yet it has entered a phase of ‘premature deindustrialisation’.

ISSUES:

• Sustained growth: Industrial policy and strategic state-led economic interventions are back in the world everywhere. The Inflation Reduction Act in the U.S., the European Green Deal, and India’s Atmanirbhar Bharat are prominent examples. However, India’s growth momentum has sustained without much growth.
• Unequal distribution of growth: The fruits of high growth were shared by a small minority which worsened pre-existing gaps of already unequal society. On the one hand, High-end cars get sold out and on the other hand common people struggle to cope with high food prices. This fault line is built into the structure of India’s growth.
• Stagnant manufacturing sector: India has not been able to industrialise sufficiently in last 75 years. Its manufacturing share in output and employment has always been stagnant and below 20%, except during the ‘Dream Run, 2003–08’. Even the 1991 economic reforms, which came with the promise of labour-intensive industrialisation, didn’t alter this reality. India’s industrial investment is stagnating, with high levels of unemployment and chronic disguised unemployment. Its trade deficit largely driven by imported goods, has been widening. India is not able to export goods and even lagging in producing the goods its consumers.
• Poor employment elasticity of services-led growth: India’s experience with services-driven growth since the late 1980s had two negative implications. First, it could not absorb the labour exiting agriculture in the same way that manufacturing would have. Second, the service sector required a large highly skilled workforce that India could not adequately supply. Inequality from services-driven growth is thus much higher than from manufacturing-led growth. The Gini index of inequality for regular wages in the services sector was 44 compared to 35 for manufacturing (Periodic Labour Force Survey, 2021-22).
• Unequal investment in human capital: Early investments in higher education contributed to the near abandonment of mass school education. These higher education institutions cultivated self-serving elites who played a role in India’s IT “revolution” while contributing to industrial stagnation. Thus, investments in human capital were deeply unequal.
• Differ in returns to education: The returns to education differ across classes and social groups. School enrolment is high. Higher education is not as inaccessible as it was earlier. But the differential quality of schooling feeds into the quality of higher education, which feeds into labour market outcomes. The high-skill services pitch would suit the traditional elite but not the majority first generation graduates from colleges in rural areas and small towns. The majority of these students reap poor returns on their investments in education. The poor quality of most state-run schools and colleges is closely linked to the elites renunciation of public education. Even as these fault lines are new forms of class divide in India, they reflect older ones rooted in the caste system.
• A culturally rooted diagnosis: The lack of mass education meant that an important cultural prerequisite for industrialisation was missing. India has looked down upon certain occupations, particularly those that are essential as electrical, welding, etc., partly impeding organic innovation in manufacturing. Industrialists say that India undervalues the vocational skills needed for manufacturing. Certain skills are not valued even if they command higher wages. Artisanal knowledge doesn’t enjoy as much social respect as scholasticism or metaphysical abstraction. Increasing returns and efficiency come from innovation and its diffusion, which are based on mass education and collective absorptive capacity.

THE WAY FORWARD:

• Need of deep industrialisation: India needs deep industrialisation, not just the service sector, that has the power of changing the foundations of society.
• Rise of useful knowledge: Economic historian Joel Mokyr suggests that the rise of useful knowledge is key to technological progress and growth in modern economies.
• Revaluation of culture of growth: A culture of growth also requires the revaluation of labour, production, and technology.
• High skill driven growth: Focusing on skill development programs tailored to the manufacturing sector can address the skill mismatch and enhance the capabilities of the workforce.
• Reviving demand: Supply-side efforts and regulatory reforms will certainly help but the key to the manufacturing-sector revival lies in reviving demand across the economy particularly discretionary spending.
• Boost Investments: Encouraging both domestic and foreign investments in the manufacturing sector can help upgrade infrastructure, improve technology adoption, and enhance productivity. This can be achieved through attractive investment policies, tax incentives, and easing of regulatory procedures.
• Regulatory Reforms: There is a need for streamlining regulatory processes by reducing bureaucratic complexities, and simplifying labour laws can create a business-friendly environment. It can attract investments, foster innovation, and enhance productivity in the manufacturing sector.
• Research and Development: Encouraging R&D activities and innovation in the manufacturing sector can lead to technological advancements and productivity gains.

THE CONCLUSION:

Despite the policy push and various state incentives, the industries in India has been hurt by a decline in its consumer base which has seen incomes come under stress. The industrial sector needs a major revival not just for the sustainability of economic growth, but also for income and employment generation, both of which have been under stress for some time now.

UPSC PREVIOUS YEAR QUESTIONS

Q.1 What are the salient features of ‘inclusive growth’? Has India been experiencing such a growth process? Analyse and suggest measures for inclusive growth. (2017)

Q.2 “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product (GDP) in the post-reform period” Give reasons. How far the recent changes in Industrial Policy are capable of increasing the industrial growth rate? (2017)

MAINS PRACTICE QUESTIONS

Q.1 There is a continuation of a trend of weakening of industrialisation over the past decade. Analyse the reasons and suggest measures to boost industrial growth in the country.

Q.2 The declining share of manufacturing in overall economic output as well as employment is a worrying sign for the economy’s long-term growth prospects. Comment.

SOURCE: https://www.thehindu.com/opinion/op-ed/why-india-needs-deep-industrialisation/article67841633.ece