India’s Industry Growth: Its Structure and Potential

Abstract

India’s industry is at a crossroads today. Its IT sector is booming. Its global markets are expanding. The manufacturing and service sectors are bearing the impact of IT expansion. Yet the traditional industries and agriculture are yet to mirror the overall growth. The rural sector has reaped little or no benefit from the high growth rate of national income (exceeding 8 per cent). Goldman and Sachs predicted in February 2007 that this high growth rate is likely to continue for the next three decades or more. However, India has to implement some more appropriate to openness in world trade and competitive efficiency and transparency. Three types of strategies are needed in particular. One is to develop and expand the incentive system for export-sensitive industries so that they can compete more easily in the world markets. On the domestic front new markets have to be fostered and developed. Second, the IT sector, with its software network and various ‘outsourcing’ services sold abroad, needs to adopt strategies that will sustain and improve competitive and comparative advantage in the world market. As in the other NICs (newly industrializing countries) of Southeast Asia, also known as growth miracle countries, India’s IT sector has to actively pursue a strategy of technology diffusion to other sectors, such as manufacturing and services like retailing, real estate development and rural development. Finally, India has to look for new market entries on both domestic and international fronts. Expanding export markets and developing new industries for the domestic economy are very critical to maintaining the high growth rate of the Indian economy achieved so far. The growth impact of spillover technology and externality effects have been strongly emphasized by modern growth theorists like Lucas (1993), Romer (1990) and others.