The Hindu:- Published on 25 December 2025
Why in News
Subramanian’s analysis has gained relevance amid renewed focus on Make in India 2.0, structural reforms, and budget 2025–26 discussions. The study highlights challenges such as Dutch Disease, low technological upgrading, labor-productivity gaps, and the need to prepare India for global opportunities like the China+1 strategy.
India began the 20th century with manufacturing potential comparable to China and South Korea, yet the sector never became a growth engine. While China and South Korea built manufacturing-driven GDP growth, India’s share stagnated around 15–17%, with services overtaking in contribution. Economist Arvind Subramanian’s book A Sixth of Humanity explores the structural and policy reasons behind this underperformance.
Performance Highlights
- Industrial Growth: Index of Industrial Production (IIP) rose 3.5% YoY in July 2025; manufacturing grew 5.4%.
- Exports: Merchandise exports reached US$184.13 billion (April–August 2025), driven by electronics, pharmaceuticals, automobiles, and textiles.
- Electronics: Mobile manufacturing scaled from 2 units in 2014–15 to 300 units in 2024–25; exports rose 127 times. India is now the world’s second-largest mobile manufacturer.
- Pharmaceuticals: Supplies over 50% of global vaccines; projected market: US$450 billion by 2047.
- Automobiles: India is the 4th largest global producer; contributes 7.1% to GDP and 49% to manufacturing GDP.
- Textiles: Employs 45 million people; projected to reach US$350 billion by 2030, generating 3.5 crore jobs.
Policy Interventions
- PLI Scheme: ₹1.97 lakh crore for 14 key sectors, promoting global competitiveness.
- National Manufacturing Mission (NMM): Mission-mode framework integrating policy, governance, and sustainability, focusing on clean-tech manufacturing.
- PM MITRA Parks: Seven mega textile parks with ₹4,445 crore investment to attract ₹70,000 crore and create 20 lakh jobs.
- Skill Development: ₹8,800 crore under Skill India, integrating PM Kaushal Vikas Yojana 4.0, National Apprenticeship Promotion Scheme, and Jan Shikshan Sansthan.
- GST 2.0: Simplified rates reduce costs and compliance; benefits MSMEs and export-oriented industries.
- Global Integration: FDI inflows of USD 748.78 billion (2014–25), with a target of USD 100 billion annually.
Key Challenges
Dutch Disease and High Public Sector Wages
High government salaries drew skilled labor away from manufacturing, creating a shortage of productive workers. Rising domestic wages increased product costs, while cheap imports under free trade hurt local industries. As a result, India’s manufacturing GDP share remained low, unlike China and South Korea, where manufacturing drove employment, exports, and economic growth.
Technological Upgrading Issues
Despite potential incentives, India failed to adopt capital-intensive automation:
- Private sector growth focused on software and labor-intensive unicorns, limiting automation.
- Cheap labor reduced productivity-driven investment.
- Uneven wage growth and slow adoption of modern technology prevented large-scale efficiency gains.
Comparison with China and South Korea
India’s manufacturing contributes about 15% of GDP and employs roughly 12% of the workforce, whereas China and South Korea maintain 28–32% of GDP from manufacturing and 25–30% employment. Export growth in India has been sluggish compared to the rapid expansion in these nations.
Way Forward
- Public Sector Reform: Align wages with productivity, not populism, to reduce Dutch Disease effects.
- Technological Push: Strengthen PLI schemes, Skill India, and promote capital-intensive, high-productivity manufacturing.
- Focus on Manufacturing Employment: Despite services contributing over 55% of GDP, manufacturing is crucial for generating over 10 crore jobs.
- Export-Oriented Strategy: Shift from import substitution to globally competitive manufacturing to leverage opportunities like China+1.
