RESEARCH

“Sluggish Growth or Premature Decline? A Comparative Study of Indian Industrialization with China”

Abstract:  Indian manufacturing has remained stagnant in terms of its share in value-added and employment despite India and China starting their growth journeys around the same time. While China underwent rapid industrialization, India’s manufacturing sector stagnated, and its services sector boomed. This paper uses a dynamic open economy general equilibrium model with endogenous capital accumulation and income and price effects to compare the structural transformations of India and China. The findings reveal that India’s sluggish manufacturing growth is largely due to slow productivity growth and low investment rates. However, Indian manufacturing has not prematurely declined but has yet to take off. If India's TFP had grown at the same rate as China’s, the manufacturing share would have increased by 1.5 fold, and per capita income would have risen by more than double. Export-promoting industrial policies and increased investment could drive further growth in the manufacturing sector.

“Stagnant Manufacturing in India: The Role of TFP and Trade” 

Abstract:  Manufacturing is crucial for economic development, yet it faces stagnation or decline in many developing and underdeveloped countries today. India, in particular, has experienced stagnant manufacturing while its services sector has thrived. This paper employs a three-country, three-sector open economy general equilibrium model to investigate the reasons for India’s manufacturing stagnation. The findings indicate that while trade has provided some compensation, sloppy total factor productivity (TFP) growth is the primary cause. Moreover, TFP growth and trade liberalization alone cannot fully account for the prolonged stagnation of India's manufacturing sector in this model environment.