FOR AN ECONOMY THE SIZE OF INDIA, IT SEEMS ABSURD THAT THE NATION HAS SUCH AN ABYSMAL MANUFACTURING SECTOR. HERE'S WHY.
Economies have a stipulated path of growth. Conventional wisdom suggests a nation on the rise will follow the tried and tested method of transitioning to a developed nation:
Development of Agriculture & Establishment of labor-intensive Industry (Underdeveloped)
Advancement in Agriculture & Establishment of a more heavy goods based Industry along with setting up roots of the Service sector.
Establishment of Tech-Based Industry & Transition to Service Sector with high level of automation in Agriculture.
Nations like the USA, UK & Germany have followed this conventional path to economic development. However, it seems like our nation has directly transitioned from A to C without modernizing Agriculture & setting up a robust base for Industrial development.
When NEP was announced in 1991, ushering in a new era in the economy, the service sector attained cataclysmic growth. This was due to the fact that India had a skilled workforce in abundance at comparatively cheaper remuneration. Aided by international investment, the service sector grew at a frightening pace driving India’s economy forward However, at the same time it seemed like agriculture as well as more importantly, the industrial sector was ignored. On analyzing the chart given below, we will notice how the gap between the Industrial & Service sector has widened dramatically post ’91.
I like to call this India's "Leap of Faith" where the policymakers accelerated the Service Sector & paid less heed to the Industrial Sector, breaking economic conventions.
However, this unusual strategy may pay off in the long run as economies around the world accelerate digitization & isolation (dubbed as de-globalization). The rise of populist leaders & right-wing nationalism across democracies around the world have contributed to this shift. Furthermore, future trends like AI, blockchain & IoT are destined to prosper better in economies having skilled human capital & innovation, ingredients India possesses in abundance. Maybe 25 years from now on, India's leap of faith may be heralded as an economic genius rather than a circumstantial decision!
A RATHER SHORT ONE TODAY. HOPE IT GAVE YOU A NEW PERSPECTIVE.
GOODDAY!