India’s growth story contrasts sharply with peers like China and South Korea, as its manufacturing sector failed to emerge as a strong driver of structural transformation.
- India’s manufacturing stagnation can be partly understood through the lens of the ‘Dutch disease’, where rising public sector wages crowded out industrial competitiveness.
- Dutch disease is an economic phenomenon where a natural resource boom weakens manufacturing and other tradable sectors, leading to deindustrialization.
India’s Manufacturing Sector
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Other reason for Stagnant Manufacturing Sector
- Informality and low productivity: A large part of employment is informal limiting training, technology diffusion, quality upgrades and stable industrial relations.
- Lack of Economy Of Scale: Industrial landscape is dominated by micro-enterprises preventing firms from achieving the economies of scale necessary for global competitiveness.
- Low Innovation and Productivity: India’s Gross Expenditure on Research and Development (GERD) as a percentage of GDP is merely 0.6-0.7% which is much below as compared to China, USA etc.
- Divergent architectures of growth: India has largely pursued a consumption-led growth model, whereas China has followed an investment- and export-driven growth pathway.
- Others” Limited automation and technology adoption, High logistics cost etc.
Way Forward
- Strategic Technology Deployment: India should prioritize the large-scale adoption of "Frontier Technologies" such as Artificial Intelligence (AI/ML), Advanced Material, Robotics etc.
- Increase R&D Investment: The private sector must be incentivized and Centralized Research Hubs, Technology Transfer Offices (TTOs) should be developed (NITI Ayog)
- Upskill the workforce: Technical education curricula (ITIs, Polytechnics) must be revamped.
- Develop Industrial Clusters: Developing "Plug & Play" Frontier Technology-enabled Industrial Parks that provide shared R&D, 5G networks, and testing labs.
- Overcoming Structural and Regulatory Barriers: Reducing bureaucratic barriers to the entry of new firms, lower tariffs on raw materials, streamline land access for industrial purposes etc.
