This blog post was inspired by two commentaries from the Editors of the East Asia Forum blog in which they argued that India should shift to an economic growth strategy that gives priority to manufacturing for export, the kind of strategy that China has followed so successfully. I disagreed mostly because, in my view, such a strategy would go against the steps India will need to take to mitigate the impact of climate change. My reaction was certainly influenced by the two years I spent in India in the mid-1960s working as a Peace Corps volunteer. Even more, however, it was shaped by research I have been doing on youth unemployment in developing countries.
I must also acknowledge the help I got from Bejoy DasGupta, born in Kolkata, who became one of my best friends while I was working at the Institute of International Finance. Bejoy told me about the "Kathal Experiment" led by one of his brothers. This rural-based project was the real life example I needed to make credible my argument for a growth strategy focusing on the rural sector.
The editing process with EAF is also worth mentioning. As always, the draft I submitted was sent to two people for double-blind peer reviews and I substantially revised my draft to reflect their suggestions. The revision I sent back to the Editors still had the flow and poetic rhythm typical of my writing style, but it also directly challenged the views of the EAF Editors. The Editors sent back to me what they proposed to publish; it contained few sentences that I recognized as my own! They had deleted my references to the views I disagreed with and also the example of the Kathal Experiment. Moreover they added a reference to India's "demographic dividend". Happily, they accepted my appeal to add back the Kathal Experiment paragraph and rewrite the last sentence to include a reference to India's "demographic time bomb".
Finally, the phrase "field of opportunities" in the EAF title is their wording not mine. I find it off putting but decided not to make an issue of it.
Published Article: https://eastasiaforum.org/2024/11/30/indias-growth-strategy-can-be-a-field-of-opportunities/
Indian Prime Minister Narendra Modi’s plans for capitalising on India’s abundant factor endowments have grown increasingly controversial. The country would benefit from an unconventional growth strategy centred on rural communities that alleviates the growing pressure on urban development. With 45 per cent of India’s labour force engaged in agriculture, transforming these areas could offer a practical alternative or complement to mass urbanisation.
Modi’s government has focused on service-sector expansion, pulling millions of workers out of its rural labour force into urban-based services. Critics of this approach have advocated focusing now on the kind of manufacturing-sector expansion that has been followed so successfully by China and brought millions of rural workers into urban conglomerations.
A successful economic strategy for the world’s fifth-largest economy will necessarily be multi-faceted. But moving as many people as possible — as quickly as possible — into urban service and manufacturing jobs demands massive infrastructure investment and faces significant obstacles. A better option is provided through a transition where an increasingly smaller share of the rural labour force is engaged in agriculture as new jobs in services and manufacturing are created in their villages.
A strategy focused on urban development has high adjustment costs. It would require massive investment to build the infrastructure — transportation, housing, schools, hospitals — needed to accommodate a large movement of the rural population to the urban service and manufacturing sectors. But even if mobilising this amount of investment is possible, it won’t necessarily efficiently reduce India’s persistent — though declining — 10–20 per cent youth unemployment rate.
A key long-term strategic challenge lies in supporting rural development while the economy continues to urbanise. A strategy focused on rural-sector adaptation could offer comparative advantages in both the required level of investment and practicality.
It would likely increase cost efficiency on energy investment. Increasing decentralised solar power generation across rural India could require less investment and be implemented faster than building the large power plants needed to support millions of new urban jobs.
Expanding existing rural schools would also reduce capital expenditures on social infrastructure relative to the cost of building large new schools and hospitals to account for mass rural–urban migration. The arrival of new communications technology like 5G suggests that the investment required to provide better education and health services in rural villages could be a lot less than the amount required to achieve the same standards in urban India.
Water security presents another challenge for India. The country’s depleted aquifers have shrunk to crisis levels and will struggle to sustain larger urban populations and industrial sprawl. Local, water-efficient agriculture and organic food production for local consumption demand less infrastructure than feeding a growing urban population. India’s rural development is of crucial importance to its national food and water security.
Household well-being may provide the strongest argument for a growth strategy that focuses on rural development. India’s projected population of at least 1.6 billion by 2050 requires broad-based growth to maintain social cohesion. Rural communities can steadily embrace modern technology from the bottom up while alleviating environmental pressures by — for example — reducing demand for single-use plastics.
The success of rural development initiatives demonstrates the viability of a rural-focused strategy. The ‘Kathal Experiment’ launched in 2020 in West Bengal shows how rural households can shift to value-added agricultural production with targeted assistance — beginning by growing nutritious crops like jackfruit on household plots of land. The experiment’s enthusiastic reception suggests the potential for replication across the country.
The existential challenges of climate change, artificial intelligence and falling fertility rates — and their disparate effects — demand attention to rural wellbeing in India and a smoother path to development in the coming decades. Traditional measures of economic progress such as GDP are less applicable to the case for rural-focused development than household well-being.
Modi’s plans for Indian development often lack a coherent strategy and hinder the country’s development. His ‘inward-looking growth strategy’ is unlikely to help shift India’s rapidly growing labour force. Its import barriers restrict access to competitive inputs. India’s goals of becoming a developed economy by 2047 and growing demand to match its massive labour oversupply may require a more comprehensive approach.
India’s unique positioning in the ‘sweet spot’ of development — amid unprecedented global challenges — demands creative and experimental policy approaches. India has achieved increasingly impressive results since the 1990s with a strategy emphasising service sector growth. While the service and manufacturing sectors should remain national priorities, concentrating development in rural India as a facet of a holistic development strategy could provide more sustainable and equitable growth. Such a novel strategy could complement the government’s economic support aimed at lifting agricultural productivity.
India should invest in asset optimisation and leverage its abundant resources to foster technological advancement and environmental sustainability in rural areas. Grassroots efforts can combine with the government’s focus on expanding service and industrial-sector employment to raise rural well-being efficiently. Large-scale investment in rural development can help to address India’s excess of low-skilled labour and geographical divides on the path to India’s manufacturing future. A rural-centred approach could save India’s demographic dividend from becoming a demographic time bomb.
Lex Rieffel is founder of the From the Bridge Foundation and a former US Treasury Department economist based in Washington, DC.
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