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| Abstract: One of India’s persistent development problems has been the relatively small size of the country’s manufacturing sector and its low labour absorption. Even after removing much of the supply-side constraints on growth over the years, beginning with the economic reforms in 1991, industrial investments in the country have been lacklustre, except for a brief period during the 2000s. Given such a context, this paper argues that the low and stagnant wages in the country may have held back both innovation and the growth of the domestic market for Indian industry. Of all workers who newly joined India’s factory sector after 2011-12, 56% are contract workers. As wages have been pushed downward, profits as a share of value added in India’s factory sector have soared, from 31.6% in 2019-20 to 46.4% in 2021-22, in the aftermath of the outbreak of the Covid-19 pandemic. The overreliance on the limited advantages that low wages offer them in segments of the domestic and export markets has stymied innovation and growth for the Indian industry, especially globally. Given the growing tide of protectionism in the developed world, India cannot count on a future growth strategy led exclusively by exports. Once the domestic market is seen as the anchor for its future growth, the Indian industry will realize that rising wages and incomes of informal workers could provide the basis for a revival of mass demand, fuelling broad-based industrial growth in the country. |