Indian Economy
Ensuring Balanced Industrial Distribution in India
- 25 Aug 2025
- 12 min read
For Prelims: India's Industrial Sector, Information technology, Service sector, Production-Linked Incentive, PM Gati Shakti- National Master Plan , Start-up India, Make in India 2.0, Special Economic Zones
For Mains: Challenges Associated with the Industrial Sector in India, Recent Government Initiatives for Growth of the Industrial Sector
Why in News?
The Standing Committee on Finance (SCoF) has urged the Government to develop an action plan to evenly distribute industries across all States to ensure balanced and equitable economic development.
- The Committee observed that while industry is a State subject, the Central Government’s role remains vital in shaping national industrial policy.
Key Observations & Recommendations of SCoF
- Key Observations:
- Stalled Disinvestment & PSE Policy: Despite the Dec 2021 policy to privatise/close loss-making CPSEs in non-strategic sectors for fiscal prudence, no proposals have been approved; disinvestment plans remain stagnant.
- Low Investment Rate vs Growth Needs: India’s investment rate is around 31% of GDP over the next decade.
- Weak State Incentives: While industry is a State subject, central initiatives are crucial, however, incentives for States to reform their PSUs have been underutilised and largely ineffective.
- Fiscal Stress of States: High indebtedness of many States constrains their ability to invest in infrastructure, industrial development, and balanced growth.
- Key Recommendations:
- Structural & Industrial Reforms: Fast-track disinvestment/closure of non-strategic, loss-making CPSEs, strengthen central incentive packages for State PSU reforms.
- Also prepare a national action plan to ensure balanced industrial growth, reducing regional disparities and promoting equitable development.
- Fiscal & Investment Strategy: Mobilise public & private investment to raise the investment rate to 35% of GDP (for sustaining 8% GDP growth) while introducing tailored fiscal reforms for highly indebted States that balance debt reduction with continued infrastructure & social sector investment.
- Structural & Industrial Reforms: Fast-track disinvestment/closure of non-strategic, loss-making CPSEs, strengthen central incentive packages for State PSU reforms.
What are the Key Factors Responsible for Uneven Industrial Growth?
- Historical Factors: Uneven industrial growth in India traces back to the British colonial era, which concentrated industries in select regions for strategic trade and port access.
- Eg: Jute was centred in Bengal (Kolkata) and cotton textiles in Maharashtra (Mumbai). Post-independence, this regional industrial imbalance persisted, leaving many areas underdeveloped.
- Geographical & Infrastructure Factors: Industrial growth is influenced by geography and infrastructure. Difficult terrains like the Himalayan states and North-East face poor connectivity, power shortages, and high setup costs, limiting large-scale industries.
- In contrast, coastal and plain regions like Tamil Nadu, Gujarat, and Maharashtra benefit from better infrastructure such as major ports (Mumbai, Kandla), highways, and industrial corridors, creating favourable conditions for industrial expansion and supporting their industrial leadership.
- Skilled Manpower Availability: Industrial clusters like Bengaluru (IT sector) and Chennai (automobiles) attract skilled workers supported by universities and technical institutes.
- States like Jharkhand and Chhattisgarh, with limited educational infrastructure and vocational training, struggle to grow skill-intensive industries.
- Policy & Planning Disparities: Industrial growth is influenced by targeted policy support. The Green Revolution benefited Punjab, Haryana, and western UP, fostering agro-industrial expansion, while eastern and central regions lagged.
- States with proactive industrial policies, like Tamil Nadu, attract industries, unlike those with less supportive frameworks.
- Agglomeration Effects: Industries tend to cluster to leverage scale economies, skilled suppliers, and logistics advantages, reinforcing regional disparities.
- Eg: Tamil Nadu’s automobile and electronics industries and Gujarat’s textile clusters. Peripheral states like Odisha and Assam, lacking these advantages, struggle to develop industrial hubs and attract investment.
What are the Key Implications of Industrial Imbalance in India?
- Regional Inequality & Developmental Gaps: States with higher industrial concentration, like Maharashtra, Gujarat, and Tamil Nadu generally have higher income, employment, infrastructure, and GDP (Maharashtra (Rs 45.3 lakh cr, 2024-25), UP (Rs 25.5 lakh cr, 2023-24), and Tamil Nadu (Rs 17.3 lakh cr, 2024-25)
- In contrast, states like Bihar ( GDP 8.5 lakh cr, 2023-24), Jharkhand (Rs 2.9 lakh cr, 2023-24), and most North-Eastern regions having fewer industries and lower industrial output, result in uneven economic development and wider gaps in living standards.
- Migration & Urban Stress: Industrial hubs attract workers from underdeveloped regions for jobs, higher wages, and better amenities, causing inter-state migration.
- Cities like Mumbai, Bengaluru, and Delhi face overcrowding, housing shortages, traffic congestion, pollution, and slum expansion, leading to social and environmental pressures.
- As per EAC-PM (2023), India had 40.2 crore domestic migrants, with major migration hubs including Mumbai, Bengaluru Urban, Howrah, Central Delhi, and Hyderabad.
- Fiscal Disparities & Resource Imbalances: States with concentrated industries earn higher tax revenues, royalties, and investment inflows, boosting their ability to fund infrastructure, healthcare, and education.
- Less-industrial states mostly depend on central transfers, face budget deficits, and have limited public investment, widening inter-state developmental gaps.
- Eg: Top 5 industrial states- Maharashtra, Karnataka, Delhi, Tamil Nadu, Gujarat contributed 72% of direct taxes in FY24, while UP, Bihar, MP contributed just 5%, revealing severe fiscal imbalances.
- Less-industrial states mostly depend on central transfers, face budget deficits, and have limited public investment, widening inter-state developmental gaps.
- Federal Friction & Policy Challenges: Uneven industrial growth can cause tensions between the Centre and States over resources, investment policies, and financial incentives.
- Advanced states may seek greater autonomy, while lagging states demand special packages, challenging cooperative federalism and coordinated economic governance.
- Socio-Political & Economic Implications: Persistent industrial imbalance can cause regional discontent, political marginalisation, and social unrest.
- It also shapes investment patterns, as businesses prefer areas with better infrastructure, skilled labour, and industrial ecosystems, creating a cycle of underdevelopment in lagging regions.
What are the Key Government Initiatives for Boosting Industrial Growth in India?
- Production-Linked Incentive (PLI): To scale up domestic manufacturing capability.
- PM Gati Shakti- National Master Plan: Multimodal connectivity infrastructure project.
- Bharatmala and Sagarmala Project: To Improve connectivity (road & sea)
- Start-up India: To catalyse Startup culture in India
- Make in India 2.0: To transform India into a global design and manufacturing hub.
- Atmanirbhar Bharat Campaign: To cut down import dependence
- Special Economic Zones: To create additional economic activity and boost the export of goods and services.
- MSME Innovative Scheme: To promote the complete value chain from developing ideas into innovation through incubation and design interventions
What Measures Should be Taken for Ensure Balanced Industrial Growth in India?
- Industrial Location Policy & Incentives: Formulate a comprehensive industrial location policy to guide investments toward underdeveloped and lagging regions, including priority zones and strategic sector allocation.
- Offer tax breaks, capital subsidies, concessional loans, reduced GST, and investment-linked deductions to make less-industrial states competitive with industrially advanced hubs like Maharashtra, Gujarat, and Tamil Nadu.
- Targeted Infrastructure Development: Invest in transport corridors, industrial parks, logistics hubs, reliable power, and digital infrastructure in industrially-backward states.
- Initiatives such as Industrial Corridors, Special Economic Zones (SEZs), and Dedicated Freight Corridors can reduce industrial setup costs and attract industries to remote regions, including the North-East and Eastern India.
- Skill Development & Human Capital: Set up technical institutes, vocational centres, and reskilling programs in less-developed regions.
- Schemes like Skill India and PM Kaushal Vikas Yojana can provide a ready workforce for industrial clusters, supporting skill-aligned growth.
- Cluster-Based & Ecosystem Development: Promote sector-specific industrial clusters for economies of scale, supply chain integration, and innovation.
- Eg: Textile clusters in Bihar, electronics in the North-East, and agro-industrial hubs in Eastern India, boosting local entrepreneurship, employment, and sustainable development.
- Policy Coordination & Centre-State Collaboration: Strengthen cooperative federalism by aligning central policies with state industrial plans, ensuring resources, regulatory support, and investments.
- Provide incentive packages and reforms as per state capacities to promote equitable industrialisation.
Conclusion
India’s uneven industrial growth arises from historical, geographical, infrastructural, and policy factors. Ensuring balanced industrialisation needs Centre–State coordination, with focus on infrastructure, skill development, fiscal incentives, and cluster-based growth, reducing regional disparities and boosting competitiveness.
Drishti Mains Question: Industrial imbalance in India has perpetuated regional inequality and fiscal disparities, hindering inclusive growth. Discuss its key implications and suggest policy measures for achieving balanced and equitable industrialisation. |
UPSC Civil Services Examination, Previous Year Questions (PYQs)
Prelims
Q. In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight? (2015)
(a) Coal production
(b) Electricity generation
(c) Fertilizer production
(d) Steel production
Ans: (b)
Mains
Q.1 “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product(GDP) in the post-reform period” Give reasons. How far are the recent changes in Industrial Policy capable of increasing the industrial growth rate? (2017)
Q.2 Normally countries shift from agriculture to industry and then later to services, but India shifted directly from agriculture to services. What are the reasons for the huge growth of services vis-a-vis the industry in the country? Can India become a developed country without a strong industrial base? (2014)