A New Tryst with Destiny (GS Paper 3, Economy)
Context: The Challenge of Prosperity
- India, despite its many achievements, has struggled to translate economic growth into mass prosperity.
- While the country has made significant strides since independence, the question remains: how can it create a more inclusive economic landscape?
- The opportunity for transformation is still at hand.
Economic Outcomes in India and China
Comparative Analysis
The economic trajectories of India and China reveal stark contrasts:
- China has experienced robust wage growth but disappointing public market returns, averaging around -13% over the last two decades.
- India, conversely, has seen public market shareholder returns soar by approximately 1,300% in the same period, yet it struggles with stagnant wage growth.
These contrasting outcomes highlight India’s historical challenges related to job creation and economic structure, particularly since 1947 and 1991.
India’s Achievements
Since gaining independence in 1947, India has accomplished remarkable feats:
- It has established the world’s largest democracy amid a complex social hierarchy.
- Life expectancy has risen dramatically, from 31 years to 68 years.
- The nation has transitioned into a middle-income country, reflecting significant economic development.
Challenges Facing India
Social Mobility
- India’s middle-income status presents unique challenges, particularly concerning social mobility.
- Research indicates that social mobility in India is approximately 40% lower than in high-income countries, suggesting systemic barriers that need addressing.
Employed Poverty
The phenomenon of employed poverty—where individuals are employed but still live in poverty—remains pervasive in India. A significant portion of the labor force is trapped in low-wage, informal jobs:
- Only 11% are employed in manufacturing.
- 14% in construction.
- 45% in agriculture, with many farmers engaged in self-exploitation through informal employment.
- 30% are in the services sector.
To foster economic transformation, India must facilitate the transition of its labor force from agriculture to manufacturing, a sector that traditionally offers better wages and stability.
Factors Impacting Manufacturing Growth
Infrastructure Investment
- The development of robust infrastructure is crucial for enhancing manufacturing capabilities.
- India requires massive investments in infrastructure to support this shift.
Skills Development
India boasts an increasing number of children in school, with improvements in both years of education and learning outcomes. The National Education Policy (NEP) 2020 outlines a comprehensive 15-year roadmap for higher education, aiming to improve employability and embrace holistic learning. Key areas include:
- Vocational Training: Enhancing skills training to meet the demands of a changing job market.
- Human Capital Reforms: Addressing quality constraints to prepare the workforce for future opportunities.
Regulatory Challenges
- Excessive regulatory compliance—referred to as "regulatory cholesterol"—impedes manufacturing growth.
- While larger firms can navigate these challenges, small and informal businesses often struggle, hindering productivity and factory creation.
Leveraging Domestic Consumption and Strategic Protectionism
Domestic Consumption as an Asset
- The services sector, encompassing sales, customer service, and logistics, is expanding, driven by strong domestic demand.
- Harnessing this demand is key to stimulating further economic growth.
Smart Policy for Manufacturing
- India can strategically employ tariffs to nurture domestic manufacturing capabilities, reducing reliance on imports and building competitive local supply chains.
- The success of the automobile industry in India exemplifies how protective measures, combined with fostering competition, can spur industrial growth and scalability.
Conclusion: A New Appointment with Destiny
- While India may have missed its initial opportunity for mass prosperity post-independence, it stands at a new crossroads.
- By focusing on high-productivity firms and revitalizing its manufacturing sector, India has the potential to fulfill its promise of mass prosperity.
- With strategic investments in infrastructure, skills, and regulatory reform, coupled with smart economic policies, India can ensure that its growth translates into broad-based prosperity for all its citizens.
- This is a pivotal moment for India to not only reshape its economic landscape but also to truly live up to its democratic ideals.
