Answer: 

Introduction:

Normally countries shift from agriculture to industry and then later to services. But India didn’t see a growth phase in industries, rather it shifted directly from agriculture to services. This may be termed as Premature deindustrialization. Premature deindustrialization in India refers to the decline of the industrial sector in the country before it has reached its full potential.

Enroll now for UPSC Online Course

Body:

There are several reasons for premature deindustrialization in India:

• Lack of investment in infrastructure: India has a poor infrastructure, which makes it difficult for industries to operate effectively. This lack of infrastructure has led to a decline in the growth rate of the industrial sector.
• High cost of doing business: India has a high cost of doing business, which includes high taxes, bureaucratic red tape, and high energy costs. These high costs have made it difficult for industries to operate profitably in the country, resulting in a decline in the growth rate of the industrial sector.
• Lack of access to credit: Indian industries often have difficulty accessing credit, which makes it difficult for them to invest in new technologies and expand their operations. This has led to a decline in the growth rate of the industrial sector.
• Protectionism: India has a long history of protectionism, which has led to a decline in the growth rate of the industrial sector. Protectionism has created a closed market, which has prevented foreign companies from competing with domestic companies, resulting in a lack of innovation and productivity.
• Low labour productivity: India has low labour productivity compared to other developing countries, which has led to a decline in the growth rate of the industrial sector. The low labour productivity has made it difficult for industries to compete with other countries, resulting in a decline in the growth rate of the industrial sector.

Premature deindustrialization leads to a decline in GDP growth, increased poverty, and increased unemployment. But as soon as computers where introduced in India and the economy was opened up by the LPG reforms, services sector began to expand exponentially in India. There are several reasons for the huge growth of services vis-a-vis industry in India:

• Liberalization of the economy: India’s economy was liberalized in 1991, which led to an increase in foreign investment. The service sector was able to take advantage of this liberalization, particularly in the areas of IT and BPO.
• Skilled labour force: India has a large well-educated labour force, which is best-suited for the service sector and works at relatively low wages compared to the workforce in developed countries. The service sector, particularly the IT and business process outsourcing (BPO) sectors, has been able to take advantage of this skilled labour force.
• Low capital requirement: The service sector requires relatively low capital investment compared to the industry sector. This has made it easier for entrepreneurs to set up service-based businesses, leading to a growth in the service sector.
• Government policies: The Indian government has implemented several policies to support the growth of the service sector, including tax breaks, subsidies, and investment in infrastructure.

A strong industrial base is considered to be an important indicator of a country’s development because it can generate more employment opportunities, increase productivity, and create a more diversified economy. It can employ millions of youth who have emerged due demographic dividend and are moving away from agriculture due to lower productivity. They do not have the skill sets for the service sector. Such employment in industries would allow growth in India to be more balanced among all sections of society.

Conclusion:

Therefore, although India can become a developed country without a strong industrial base, it would be highly unequal. It would be beneficial for the country to have a strong industrial base to provide a more balanced, robust and inclusive development.

DOWNLOAD PDF