Why in the News?

Since liberalization opened up new opportunities, there has been a lot of excitement about India’s demographic dividend, which is the advantage of having a large working-age population but there are major challenges like the middle-income trap.

Can India leverage its sustained economic growth?

• Harnessing the Demographic Dividend: With a large working-age population, India has a potential advantage, but it must ensure that this workforce is employed in productive sectors, particularly by shifting labor from low-productivity agriculture to higher-productivity manufacturing and services.
• Strengthening the Manufacturing Sector: The manufacturing sector, especially labor-intensive industries like textiles, has the potential to create millions of jobs. By addressing barriers such as complex regulations, high tariffs, and infrastructure constraints, India can boost manufacturing growth, empower women, and drive economic mobility.
• Reforming Infrastructure and Business Environment: Improving ease of doing business, simplifying trade and labor regulations, and increasing investment in infrastructure are critical for unlocking India’s potential for sustained growth. These reforms will enable large-scale job creation and enhance India’s global competitiveness.

Challenges arising due to the middle-income trap

• Declining Demographic Dividend: The proportion of working-age individuals in India’s population is set to decline in the coming decade, marking the potential end of the demographic dividend. Fertility rates have dropped across various states, which means India may face an aging population sooner than expected.
• Stagnation in Key Sectors: India has struggled to reduce its agricultural workforce in the same way China did after liberalisation, making it harder to transition people to higher-productivity industries. Despite some growth in the services sector, manufacturing has stagnated and failed to generate the necessary number of jobs, especially in labor-intensive industries.
• Limited Economic Mobility: High levels of youth unemployment and the lack of opportunities for individuals to move up the economic ladder have hindered India’s economic progress. The country’s labor force participation rate (LFPR) remains low, particularly among women, and urban job creation has not been sufficient to absorb the growing population.
• Infrastructure and Regulatory Bottlenecks: The business environment is constrained by complex regulations, high tariffs, cumbersome licensing procedures, and a lack of access to land, all of which prevent the manufacturing sector from thriving. India’s slow regulatory reforms have stifled growth in manufacturing, which is essential for absorbing the workforce.

How the Manufacturing sector can help India grow?

• Job Creation: Manufacturing, especially in labour-intensive sectors like textiles and apparel, can create large numbers of jobs. This is vital for absorbing the surplus labour from agriculture and providing employment opportunities for the youth.
  • For example, the textile and apparel industry employs 45 million people compared to just 5.5 million in IT-BPM, highlighting its potential for mass employment.
• Women’s Empowerment: Manufacturing, particularly industries like textiles, offers significant employment to women (60-70% of factory workers), helping reduce gender disparities in the labour force.
• Economic Mobility: By creating better job opportunities, manufacturing helps people transition from low-productivity agricultural jobs to higher-wage, more stable positions in the industrial and service sectors. This transition is key to achieving sustained economic growth and avoiding the middle-income trap.
• Global Competitiveness: Reducing barriers to manufacturing — such as simplifying business licensing, lowering tariffs on inputs, improving access to land, and streamlining trade regulations — can help India increase its competitiveness globally. Expanding market access through free trade agreements and making the business environment more conducive to manufacturing can unlock the potential of this sector.

Steps taken by the government: 

• “Make in India” Initiative: Launched in 2014, this initiative aims to transform India into a global manufacturing hub by promoting domestic production, reducing regulatory hurdles, and attracting foreign direct investment (FDI) in key manufacturing sectors such as electronics, textiles, and automobiles.
• Atmanirbhar Bharat (Self-reliant India): This program focuses on reducing dependence on imports by boosting local manufacturing, especially in strategic sectors like defense, electronics, and pharmaceuticals.
  • It includes initiatives such as the Production-Linked Incentive (PLI) scheme, which offers incentives for manufacturing and exporting specific products like electronics, textiles, and solar panels.

Way forward: 

• Enhance Skill Development and Workforce Transition: India must invest in targeted skill development programs to equip its labor force, particularly those transitioning from agriculture, with the necessary skills for higher-productivity manufacturing and services sectors.
• Accelerate Regulatory and Infrastructure Reforms: To unlock the full potential of the manufacturing sector, India should expedite regulatory reforms, simplify land acquisition processes, and enhance infrastructure.

Mains PYQ:

Q Can the strategy of regional-resource-based manufacturing help in promoting employment in India? (UPSC IAS/2019)

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