Walking on Two Legs

Abstract

This chapter asks whether India can rely on an export-led, manufacturing-fed growth model. The question stems in part from suggestions that, given its success in the software industry, India can jump the manufacturing stage and go straight to specializing in services. It is argued that India has no escape from manufacturing, though it should also continue to exploit its strength in certain services. The argument for manufacturing is that only it can create good jobs for the vast majority of the workforce, which has limited or no skills. Tradable services such as software cannot employ these workers, and demand for non-traded services depends on domestic income. Manufacturing, being tradable, can expand by exploiting the vast global market. Moreover, as well-paid workers in manufacturing spend their incomes, demand for non-traded services rises as well. The chapter also explains why rising protectionism and the threat of automation do not make an export- and manufacturing-led model unviable.