The Sinews of an Industrialised Economy

The industrial sector, manufacturing, in particular, plays an important role in transforming a country from a low-income one, with agriculture dominating the Gross Domestic Product (GDP) composition, to a high-income, services-oriented country. The industrialisation of a country is a crucial phase in this transformation. Industrialisation is not only about a country becoming a manufacturing hub. There is a huge societal transformation that accompanies such industrialisation. 

Though the process of industrialisation is disruptive, it results in an increase in the income of the people. People become more refined in their behaviour, and education becomes a top priority in industrial society. Thus giving top priority to human investment. The state gains a monopoly over violence, the institutions of the state become more competent, and many other changes are observed. But the initiation of the process of industrialisation begins with the sectoral composition of the GDP moving from agriculture to industry, along with a similar shift in employment patterns.

The transition from agriculture to an industrial economy is an important transformation that places a country on a high growth path. There is a tranche of changes that occur in different domains that facilitate a country in kick-starting its progression into a developed country. 

First, emerging as an industrial society increases the income of the people. There will be a guaranteed income flow for the average person in the society, unlike an agrarian economy where there is too much uncertainty in income generation. 

Second, with large scale migrations from rural to urban areas, whole new sectors emerge on the stage (e.g. daycare centres, dog walkers etc.) and the demand in the economy as a whole goes up. 

Third, as people become more urban there is a deep social change that occurs, a change for good; this includes an increase in women's participation in the labour force, women becoming more independent and having a say in many things. Industrialisation can also be a factor that eases out the population pressure on society. Industrialisation also paves the way for education to become a major aspect in society. People hitherto employing their children on fields will send their kids to school because their income will suffice to support the family without the children having to work in the fields. But in all this, it is important to remember that industrialisation is a very disruptive activity. It, therefore, demands a strong state with strong enforcement mechanisms.

The initial stages of industrialisation are, however, characterised by a population that has had only the experiences of a pre-industrial society. Literacy levels are generally low, most people are uneducated. This is where manufacturing comes into the picture. Manufacturing has the potential to absorb a large pool of labour. This is because of its fundamental characteristic of being dependent on labour for various reasons, despite the onset of technology. 

An increase in manufacturing also leads to a division of labour which increases mamifold the productivity of all sectors. To encourage manufacturing, however, there are a set of factors that need to be set in place. To discuss the factors that have to be put in place we may take the example of India, a textbook example of a country in the midst of the transformation from an agrarian society to an industrial one. 

First, India has reformed its archaic labour laws, which are a nightmare to anyone starting an industry. While regulation is desirable anytime, Indian labour laws are a case of over-regulation and need reform. 

Second, India has to bring about land reforms. The Land Acquisition Bill, which was introduced in the Indian Parliament in 2014, was withdrawn due to a lack of political will. It is high time now that India passes that bill and makes land acquisitions easier. 

However, a consistent effort must be made to transition from an agricultural economy to an industrial economy. For this, a two-fold approach may be recommended. The Indian government should take all necessary steps to encourage industry, especially manufacturing; at the same time, it must improve the urban facilities of the country so as to accommodate the migration that occurs in the process of urbanisation.

In the context of transforming India into an industrial economy, looking at China may offer some lessons. China began its reform process with agriculture by moving from the commune-based system to the household responsibility system, and by revising agricultural prices upwards by more than 20%, the results were for everyone to see. The agricultural growth rate jumped to 7.1% per annum during 1978-84, up from 2.5% during the pre-reform period of 1966-1977. This was followed by a dramatic reduction of poverty from 33% to 15% in the reform period between 1978 and 1984. Farm income in China grew by almost 14% per annum. It is high growth in farm incomes that boosted demand for manufacturing goods produced by town and village enterprises, kick-starting the manufacturing revolution in China. 

In this context, Indian farm reforms are a welcome first step; though, a lot more could be done. India also has the necessary requirements in place. For instance, the Make in India scheme encourages the setting up of industries in India. It is imperative to back it up with other necessary steps. Initiatives like Skill India can be used for this purpose.

Today, the Indian industry is complaining that rural demand is collapsing. One reason for that is the consistent reduction in rural population in India since the 1991 economic reforms. Another reason for this outcome is that India never had any major reforms with respect to its labour laws, land laws and agriculture laws; and farmers’ incomes have remained very low. However, it is also important to note that industry is not a substitute for agriculture, rather they are complementary to one another. Both these sectors are so intertwined that it is not possible to increase the growth of one sector without the improvement of the other sector. Industrialisation is also important to increase farm incomes in the country. This is because industrialisation moves people from farms to industries, thus consolidating the land holdings and thereby increasing productivity in the agriculture sector.

In the long term, it is also imperative that India plan to address the issues of education and employment. There is a two-way correlation between industrialisation and education. In education, India seriously lacks skills-based education as the primary focus is always scoring marks rather than problem-solving and skills enhancement. To address this issue the government can partner with the industry to tailor the curriculum to suit the needs of the industry. The focus should shift to develop problem-solving skills. The government can also ask companies to spend their CSR amount on skills development programs. 

The elasticity of employment generation has been constantly falling and has come down to near zero in the last decade. This shows the grave danger that is in store in regards to job creation. In India, more often than not, entrepreneurs focus on price controls to cut down costs rather than on efficiency. In many cases, producers compete on the basis of price rather than efficiency. This should also change and for that, the government should incentivise firms to focus on efficiency rather than prices. India should act fast to take advantage of the changing scenario on the world stage.

The economic reforms of 1991 have transformed the lives of the Indian people in many ways. The reforms led to new aspirations among the people, as the expectation was that the Indian economy would grow and India was going to be the next big thing on the world stage. Since the 1991 economic reforms were not adequately followed up, India has witnessed jobless growth for most of the period of its golden economic period of 2003-2008. Despite this, the Indian economy remained among the fastest-growing large economies of the world. Yet, it might appear paradoxical that with respect to achievements in human development, India is ranked at 129 out of 189 countries, according to the human development report 2019. 

Manufacturing has been the engine of modern economic growth, be it in Britain and the USA of the 19th century or Russia of the 20th century or China of the 21st century. India’s first plans to industrialise go as far back in time as the 1950's. The second Five-Year Plan spoke at lengths about the need for industrialisation and outlined the steps for the same. Unfortunately, India failed to industrialise. The Nehruvian model that the Indian state adopted subsequently proved disastrous for the country. Today, the time frame for India to take off and reap benefits of its demographic dividend is too small. India should act fast. Else, the future might be bleaker than we imagine today.


Kartik Balaji Kundeti

A low-key individual with keen interest in Economics and Policy making. Currently pursuing Economics from SRCC, University of Delhi.

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