Written by Nidhi Parihar
Fact Checked & Verified
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Written by Nidhi Parihar
Fact Checked & Verified
There is a general consensus among development economists—a rare phenomenon—that rapid industrialisation holds the key to economic growth, as productivity levels in industry are much higher than in agriculture. Industrialisation is also seen as a critical policy to trigger fundamental economic and social changes in developing economies, viewed as prerequisites for increasing their growth potential.
India, like other nations, has also pursued industrialisation as a developmental goal, despite associated challenges like pollution, resource depletion, unemployment, and income inequality.
Across the world, no country has achieved high per capita income levels comparable to industrially developed Western nations solely through agriculture. Industrialisation is essential for transitioning from a developing to a developed economy. Exceptions include petroleum-rich nations like Saudi Arabia, Kuwait, and the UAE.
The extent of industrial activity and national output from the industrial sector are key indicators distinguishing developed from developing countries.
Definition: Industrialisation is the process by which the economic focus shifts from agriculture to industry.
Key Elements:
Adoption of technologically superior production techniques to transform raw and intermediate materials into manufactured goods.
Application of modern management and organisational techniques such as accounting, planning, and economic calculations.
Industrial productivity is generally higher due to:
Greater capital intensity.
Continuity in production processes.
Higher specialisation and division of labour.
Reduced dependence on natural factors.
Availability of internal and external economies.
Technological advancement occurs faster in industry than agriculture. For any meaningful effort to reduce poverty, more resources must be directed towards industrial development.
Higher productivity in industry leads to more employment opportunities, attracting labour from less productive sectors. This increases national output, purchasing power, and aggregate consumption, further stimulating employment creation.
Resource scarcity is a major constraint in developing economies, caused by:
Low absolute national output and savings.
Difficulty in mobilising available surpluses—especially in agriculture, where most national income originates but lacks proper organisational structures for surplus extraction.
The industrial sector is better positioned for surplus mobilisation. Focusing resources on industrialisation accelerates economic development.
The classical growth theories recognised the role of capital accumulation as a determinant of economic growth. The Harrod-Domar model emphasised the influence of savings and investment in creating demand as well as productive capacity in explaining the growth process.
The role of productivity in the growth process was recognised by Solow in a growth accounting framework in the late 1950s.
Evolution of endogenous growth theory towards the end of the 1980s highlighted the role of advances in human capital, technology, and factor accumulation in sustaining economic growth despite diminishing returns.
The process of industrialisation in a developing economy faces various barriers which must be systematically addressed.
There is capital scarcity due to low per capita income and productivity, which adversely affects industrial investment and infrastructure.
Developing economies lack adequate infrastructure like transport, power, and communications.
The absence of complementary industries causes wastage of by-products.
There is a lack of institutions to provide skill development and training to labourers.
Repair and maintenance facilities are limited, affecting efficient machinery use.
The absence of institutions offering credit facilities, insurance, and banking support hampers industrial growth.
Adoption of inappropriate foreign technology substitutes capital for labour without matching technical and managerial skills, leading to inefficiency.
Low purchasing power and small market size reduce the viability of industrial production in many developing economies.
A rapidly growing population acts as a barrier in two ways:
It increases consumption, leaving minimal savings for investment, given low productivity.
The rise in labour force without matching employment pushes more workers into agriculture, reducing its productivity. This impacts industry in two ways:
Lower rural productivity limits savings that could support industrial investment.
Industrial demand from agriculture remains weak due to low income and purchasing power.
Social attitudes and organisational structures in developing economies also constrain the supply of labour, capital, and entrepreneurship.
Inefficient public sector administration leads to mismanagement and resource loss.
Frequent changes in tax and trade policies create investment uncertainty.
Poorly designed labour laws contribute to industrial unrest.
Intense foreign competition from imported goods.
Imposition of custom barriers by developed nations.
High import costs of technology, machinery, and raw materials.
However, these challenges are not insurmountable. Some may need simple solutions, others require State planning. In many cases, State involvement is essential for successful industrialisation in developing countries.
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