States can play a crucial role in India’s developed economy vision

India has set itself two ambitious targets: first, to become a developed economy by 2047, and second, to achieve carbon net neutrality by 2070. Currently, India is the fifth largest economy in the world, with a GDP of USD 3.4 trillion and a GDP per capita of USD 2,410. While there are no official standards to determine the economic categorization of a country, a GDP per capita of over USD 12,000 is generally considered indicative of a developed economy. Using this benchmark and adjusting for inflation, experts agree that India may need to increase its GDP tenfold, from USD 3.4 trillion to USD 34 trillion, to achieve its goal of becoming a developed economy. India will need to sustain an average growth rate of over 7% to reach these targeted GDP figures. To maintain such a high growth rate for an extended period, India must leverage the expansion of both its manufacturing and services sectors.

Supporting Manufacturing

Since liberalization, India’s service industry has performed exceptionally well. The share of the service industry in India’s total Gross Value Added (GVA) has risen from 47% in FY1992-93 to 64% in FY 2023-24. While the share of manufacturing in India’s GVA has also increased from 14.5% to 17.2% during the same period, this growth has been more moderate compared to the growth in the service industry. Nevertheless, India, with its young and large pool of skilled, semi-skilled, and unskilled labor force, has enormous untapped potential in the manufacturing industry. In recent years, the Union government has renewed its focus on promoting manufacturing in India under the ‘Aatmanirbhar Bharat’ initiative through various schemes such as the Production Linked Incentive (PLI), Startup India, and the Technology Upgradation Fund Scheme.

Role of States

While the Union government is making efforts to promote manufacturing, the respective state governments must also play their part by providing necessary policy support to complement the Union government's efforts. State government policy initiatives have focused on developing the manufacturing industry through targeted sectors, incentives, and infrastructure development. However, state policies need to be dynamic and incorporate emerging trends to promote sustainable manufacturing practices in their regions.

Sustainable Growth

With the threat of climate change looming large, it is crucial for states to prioritize sustainable industrial practices to mitigate environmental degradation and build climate-resilient economies. Incorporating renewable energy initiatives, promoting eco-friendly technologies, and incentivizing green manufacturing processes should be central to state industrial policies. For example, Maharashtra initiated the circular economy parks project to promote sustainable industrial development. States may also consider providing tax incentives to businesses adopting sustainable practices.

Additionally, states could collaborate with advanced economies to facilitate technology transfer tailored to their specific needs. Allocating special funds to provide financial support for small businesses in adopting new and sustainable technologies may also be considered.

Key Sustainable Policy initiatives by major industrial states