A Case Study of India

Introduction

The process of Industrialization is considered at the core of economic growth in any economy and it is critical for development and progress. Since the Industrial Revolution, secondary sector development is regarded important for mass production, provision of employment opportunities, gaining advantage of technological advancements. The development of industrial sector has had spillover effects and brought about innovative solutions for other sectors as well such as agriculture, infrastructural development, trade and even the service sector. Thus, industrialization is considered as the ultimate engine of economic growth in an economy. This essay aims to provide insight into why Industrialization is critical for economic growth and how it results in creating development prospects in an economy. The essay will begin with exploring literature that highlights that Industrialization improves the GDP growth rate in an economy and absorbs labor surpluses created by other sectors of the economy. Literature also shed light on the popular Lewis Model. The essay then follows by presenting the case of India and how Industrialization has led to economic growth in India. The essay however pays little focus on the role of primary and tertiary sectors in the growth of economy.

Industrialization as an Engine of Economic Growth: Literature Review

Industrialization and its significance have been discussed by various scholars since the Industrial Revolution. While the debate has been taken to various fields of study, it is frequently mentioned in Economics to discuss the structural changes and the resultant economic effects it has caused. A large pool of literature has consensus over the stance that Industrialization is critical for development. Various scholars tend to prove their stance with the help of empirical analysis carried out in both developed and developing country. The core model supporting this stance was introduced by Arthur Lewis in 1950s in which explains why economies should shift from agricultural base to an industrial base. Lewis presented his theory of “Development with Unlimited Supplies of Labor” and claimed that as the agricultural sector of the economy experiences labor surplus and low productivity, an economy should shift these surpluses to the industrial sector (Ranis, 2004). The growing manufacturing sector of the economy will tend to offer higher wages to the unemployed to provide them with an incentive to shift towards the manufacturing sector as well as to compensate them for the expenditures of moving to urban areas. Thus, the resultant increase in productivity and capital accumulation will lead to growth of industrial sector and this will generate sufficient employment opportunities to absorb unemployment in other sectors of the economy (Guru, 2016). Lewis’s model however, assumes that all the wages provided are used up and all the profit earned is reinvested. Thus, this would lead to expansion of the industrial sector. Conclusively, saving and investments as a ratio of national income in an economy will tend to rise, leading to growth and development in an economy (Guru, 2016).

Lewis aims to directly address the issue of development through proposing the expansion of industrial sector. However, the theory is subject to various loopholes. Lewis’s model is criticized for ignoring the surplus absorption capacity of the agriculture sector. Guru (2016) argues that developing nations like China and Bangladesh have an increasing population rate so the shift of labour from agriculture to manufacturing or “smaller fraction of total population being employed in agriculture” is difficult in labour surplus economies. Hence, development of agrarian sector through capital accumulation, reforms and technological advancement will generate opportunities within the sector to absorb any surpluses (Guru, 2016). Criticism however, still fails to undermine the contribution of the Lewis Model in Development Economics. Industrialization still tends to be the key towards development in various economies of the world.