India is the world's fastest growing large economy, with GDP increasing by 7.5%, according to the Asian Development Bank (ADB). But, looking back over the past couple of decades, India's economic performance has been a disappointment, according to the ADB, especially compared with China and some other East Asian economies, in part due to an inability to develop its manufacturing sector.
"The only successful model of modern economic development is that of east Asia," said Hun Kim, director-general for south Asia at the ADB. "The east Asian model involves a structural transformation of the economy as low-productivity rural labour moves to urban areas to work in export-oriented factories."
But, east-Asian style urbanisation and industrialisation has not taken place in India, despite the country’s relatively strong economic performance. "India's manufacturing sector has been stuck at about 15% of GDP", said Mr Kim. "The services sector, especially business process outsourcing and tourism, has been a key driver of the economy".
Today, industrialisation could play an important role in India’s development, since the country faces the challenge of creating jobs for millions of semi-skilled young people entering the labour market. “Fortunately, prime minister Narendra Modi’s government wants to develop its manufacturing sector”, said Mr Kim. “India is very keen to join the global value chains of south-east and east Asia, following in the footsteps of Bangladesh’s success.”
“Major investments are being made in improving the country’s logistics in areas such as coastal shipping, highways and railways, which would help move products around”, said Mr Kim. “Inspired by the government’s 'look East' policy, these efforts are being concentrated on the eastern side of the country, which is close to fast-growing Bangladesh and south-east Asia. Special economic zones and economic corridors are also being developed… At last, India, Bangladesh, Bhutan and Nepal are now gradually becoming more connected through road and other links.
“We are optimistic about India’s future”, concluded Mr Kim. “A lot remains to be done. But India’s economic performance will only continue to improve, though not at the pace of east Asia. In India, things move more slowly. Even when there is new direction from the country’s leadership, for things to really move, everyone must be on board in India. And this takes time.”