India’s Growth Model Needs Structural Transformation

Recent developments such as China’s restrictions on rare earth exports and the withdrawal of Western chipmakers from China have reignited debates on India’s economic direction and overdependence on trade-led growth.

India’s Development Trajectory Must Diversify Beyond Trade-Led Growth

1. The Current Economic Strategy and Its Vulnerabilities

• Overdependence on Trade: India’s current growth model largely relies on exports, especially in services. However, global trade is witnessing a deceleration post-2010s due to rising protectionism, technological fragmentation, and strategic decoupling.
• Geopolitical Risks: Global tensions, e.g., US-China rivalry, expose the fragility of a trade-centric development model. India’s integration into global value chains (GVCs) may remain constrained due to geopolitics and structural limitations.

2. Structural Challenges in India’s Growth Model

• Lack of Industrial Deepening: Unlike China and East Asian economies, India has struggled to build a strong industrial base or create large-scale employment via manufacturing.
• Uneven Growth Distribution: Post-1991 liberalization yielded pockets of prosperity, but core issues like informal employment, underemployment, and agrarian distress remain persistent.
• Institutional and Governance Gaps: India continues to face inefficiencies in governance, public service delivery, and state capacity, which hampers equitable and sustainable growth.

3. Socioeconomic Impacts of a Limited Growth Model

• Widening Inequality: Trade and capital-intensive growth have failed to generate mass employment, leading to wealth concentration and rising rural-urban divides.
• Stalled Social Mobility: Education, healthcare, and skill development are not keeping pace with population needs, limiting upward mobility for large sections of the population.

4. Reorienting India’s Development Path

• Focus on Human Capital: Investment in public health, education, and nutrition is critical to build a healthy, productive workforce capable of supporting long-term growth.
• Enhance State Capacity: Greater institutional efficiency, decentralization, and fiscal empowerment of state governments are necessary to implement grassroots-level reforms.
• Strategic Industrial Policy: India must promote industrial deepening through targeted support to MSMEs, green energy sectors, and domestic R&D innovation.
• Urbanization as a Growth Lever: Sustainable and well-planned urbanization can become a driver of job creation and economic clustering, as seen in global examples.

Way Forward:

• Revamp Skill Development Programs to align with future employment demands (green jobs, digital economy).
• Accelerate Public Health & Education Spending to enhance workforce productivity.
• Boost Agricultural Reforms focusing on value addition, farmer collectivization, and agro-processing.
• Create Urban Growth Clusters through tier-2 city infrastructure investment.
• Strengthen Cooperative Federalism to empower state-led innovation in policy implementation.
• Invest in Technological Sovereignty—especially in semiconductors, rare earths, and AI—to reduce import dependency.