Munich Personal RePEc Archive

The Low Wage Trap of Indian Manufacturing

Mazumdar, Surajit (2015): The Low Wage Trap of Indian Manufacturing.

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The period since the turn of the century appears at first sight to have been one of great ‘dynamism’ in the Indian manufacturing sector in the sense of the sector exhibiting or experiencing significant movement, but without that really adding up to a process of full-fledged industrialization. Though output and employment in manufacturing haves grown but unevenly and investment too has fluctuated, the sector has been unable to raise its share in Indian output and employment. The unorganized segment has actually experienced a sharp relative shrinkage. India’s trade in manufactured products – both exports and imports - has also grown significantly during this period accompanied by significant changes in the composition of trade and its geographical distribution. A shift towards more capital-intensive exports and a declining labour-intensity of Indian manufacturing have been some of the paradoxical features of Indian manufacturing. Real wage stagnation and increasing informalization and contractualization of labour have accompanied these changes. This paper argues that this stagnation in wages in fact underlies both the ‘successes’ as well as the failures of India’s manufacturing performance in the last two decades. India’s low wage road to industrial development has also been fraught with contradictions that may be now coming to a head as a result of which it is caught in a trap.

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