India's Development Policy Challenge

Abstract: This paper argues that India must prioritize labor-intensive manufacturing and exports to productively employ its growing workforce. Despite strong economic growth, India faces challenges in providing quality jobs for its expanding labor force, particularly young workers with lower education levels. Comparing India’s productivity and endowments to its competitors’, the paper finds that exports can drive job creation by enabling firms to achieve economies of scale and international competitiveness. However, the country’s exports have stagnated due to increasing trade protectionism and insufficient participation in free trade agreements. The paper highlights the need for reforms in trade policy, labor regulations, land acquisition, credit markets, and infrastructure development to boost manufacturing exports. Emphasizing the urgency of generating employment that meets workers’ aspirations, it asserts that India’s demographic dividend could become a curse if policymakers fail to enact bold reforms that facilitate the growth of large-scale, export-oriented manufacturing.

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