Infrastructure

India hasn’t deindustrialized, but stagnated

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Deindustrialization refers to a decline in the share of the manufacturing sector in GDP and employment. Countries typically deindustrialize once they reach an advanced stage of industrialization. Given its modest industrial performance, has India then deindustrialized prematurely?

In an article in Economic and Political Weekly, Judhajit Chakraborty of Michigan State University and R. Nagaraj, formerly of Indira Gandhi Institute of Development Research, show that India’s industrialization has stagnated for three decades now. The all-India ratio of manufacturing output to GDP has remained unchanged since 1991. The employment share of the sector also remained more or less constant during 1991-2011.

The authors use data from the National Sample Survey (NSS) and the Census for the analysis, covering 14 to 17 major states and 362 districts, accounting for over 90% of India’s population. District-level data is limited to employment as their output estimates are either unavailable or unreliable.

Most states, such as Maharashtra, deindustrialized by the output measure, but not by employment share. Gujarat industrialized on both counts, while West Bengal stagnated in both.

Interestingly, manufacturing employment grew in roughly 50% districts during 1991-2011. About 20% deindustrialized. Surprisingly, most districts that saw a rise in their manufacturing employment are in northern and eastern India, not the parts with major industrial states. This happened because household manufacturing, which employs more labour and has lower labour productivity, was widespread in these parts, whereas non-household manufacturing dominated in the western and southern states.

During the analysis period, the share of manufacturing employment increased in consumer goods and light manufacturing and decreased in metals and machinery. This seems different from successful examples of Asian countries.

Given the conflicting evidence, it is difficult to say that India has deindustrialized. It has stagnated and appears to be at the crossroads of the successful Asian industrialization path and the Latin American trajectory of deindustrialization.

Also read: Has India Deindustrialised Prematurely?: A Disaggregated Analysis

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