Reversing India’s Industrial Decline Need for Redesigning Policies

In the 2010s, India’s industrial output growth and fixed investment rates have declined, compared to the previous decade, with clear signs of premature deindustrialisation. Policy efforts have failed to stave off the hollowing out of manufacturing, with an unabated rise in India’s import dependence. There is a need to reconfigure industrial policy beyond tariffs and subsidies to acquire a dynamic comparative advantage in strategic industries and retake labour-intensive sectors for employment generation. The strategy needs to have four pillars: boost fixed investments pragmatically to augment domestic capabilities and encourage modernisation; align trade and industrial policies to promote and incentivise domestic value addition; offer location-specific infrastructure and technical support for small firms; and boost R&D investments to support indigenous production—all of which call for development banks to supply long-term credit at low and stable interest rates.