Pour resources into rural India for a manufacturing boom
Subscribe to enjoy similar stories. A major explanation for India’s manufacturing sector remaining stagnant despite policy efforts to stimulate its growth lies in the changing traits of industrialization, with India being a latecomer only making it more challenging. In China and the US, industrialization and urbanization took place together.
Urbanization and investments in cities promoted the manufacturing sector as well as factories located in or around major cities. They benefited from improved infrastructure, supply chains and agglomeration economies. This is not happening in India, as the paths of urbanization and industrialization have diverged.
They did move together in the 1990s, but then diverged later. The manufacturing sector is de-urbanizing and relocating to small towns and rural areas to stay cost competitive. The sector’s share in employment, output and the number of enterprises in mega cities and urban areas has been declining, while it is growing in small towns and rural areas.
Inadequate physical and human infrastructure in these geographies, however, has prevented the sector from growing rapidly. So, has the de-urbanization of manufacturing become a binding constraint on the country’s industrialization? No, it hasn’t. An empirical analysis of the spatial location of manufacturing enterprises in 600 districts shows that the dispersion of the sector away from urban to rural areas has been associated with more efficient allocation of enterprises by geography, and this is good for economic growth and job creation.
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