Why does India, despite having the best conditions, fail to become an industrial powerhouse?

By Boss Gu, rewritten in English by Mr. Y

India has the best conditions to develope industry in the world

As of today (September 22, 2025), India has a population of 1.45 billion, making it the world's most populous country. However, its industrial output is only about one-eighth that of China's.

Chinese demographer Jianzhang Liang once said that India had the best demographic structure - a pyramid-shaped population - with a large young people, making it ideally suited for industrial development.

Furthermore, India has a large pool of educated talent, as evidenced by the significant presence and influence of Indian immigrants in big Western corporations.

In 2019, China's industrial added value was $5.59 trillion, accounting for 24.06% - approximately one-quarter of the global total. India ranked fifth in the world in terms of industrial added value, with a value of $0.72 trillion in 2019, representing 3.10% of the global total. Meanwhile, the average wage for Indian workers is around 1,000 RMB (140 USD), roughly one-third of the average wage for manufacturing workers in China.

Furthermore, India's GDP per capita is less than $3000, which is less than 20% of China's.

India has a large pool of young, low-cost labor, and has undergone reforms for four decades, just like China. So why hasn't its industrial sector developed? To fully understand this issue, we need a deeper understanding of India's situation.

The primary reason is the overly restrictive labor laws in India.

In 2020, the Modi government reformed India's labor laws.

Under the previous labor laws, for factories with more than 100 employees, if an employer wanted to conduct large-scale layoffs, any mishandling could lead to a series of problems, including union opposition, worker strikes, and lawsuits.

Furthermore, if the company lost the lawsuit, it would be required to pay the workers' wages for the entire duration of the litigation. In other words, even with government approval, if the compensation offered by a company with more than 100 employees for layoffs did not satisfy most workers, the union could still deliberately sue the government in labor court.

Both parties could then appeal the labor court's decision to the industrial court, and then further to the state high court, and ultimately to the Supreme Court of India. The litigation process could last 7-8 years, and in cases where the union was very powerful, protracted legal battles against the company were not out of the question.

What did this mean? It meant that layoffs in companies with more than 100 employees were virtually impossible. Therefore, many Indian businesses found ways to keep their workforce below 100 employees, otherwise, labor costs would become unmanageable. This resulted in the Indian industrial structure was dominated by small workshops, unsuitable for large-scale production. Statistics shows that 84% of the manufacturing companies in India have fewer than 50 employees, while in China this figure is 25%.

This inadvertently encouraged companies to remain small to avoid layoff restrictions. This not only failed to protect workers' rights but also prevented many potentially successful businesses from growing and becoming larger and stronger.

Is Modi’s reform significant? Let’s say not bad. The threshold has been raised to 300 employees. Is a factory with 300 employees considered large or small? Still small.

This means that large factories in India still face significant risks related to labor affairs.

But has there been any improvement? Certainly, there has been some improvement. India's previous labor laws contained many harsh provisions; the following excerpts illustrate some of the restrictive provisions in it.

1. The "Severance Pay Act" applies to businesses employing 10 or more workers. Under this law, employers are required to pay severance benefits to employees who have worked for the company for over 5 years upon their death, retirement, or termination of employment.

This rule significantly increases the costs and burdens for businesses and also apparently reduces employees' wages.

2. Any business employing 100 or more workers is subject to the “Employment Law”; and any dismissal of workers requires approval from the government labor department.

"No problem, we're not planning to run a large business anyway."

3. Female workers, whether permanent or contract employees, who have worked for at least 80 days within the past 12 months are entitled to maternity leave under the Maternity Leave Act, regardless of whether the leave is for pregnancy, childbirth, miscarriage, or related illnesses.

If an employer needs to provide maternity leave to women who have only worked for them for two months, then "it's easy- just don't hire any women!"

4. Prohibiting women from working more than 9 hours a day and prohibiting them from working between 7 PM and 6 AM.

The consequence, as expected, is that businesses either refuse to hire women or hire fewer of them.

5. The factory must repaint the walls every 14 months and completely repaint them every 5 years.Seriously? Are you just trying to waste time and resources? Repainting every year and a complete repaint every five years? That's just causing unnecessary trouble for the businesses!

6. If the number of employees reaches or exceeds 150, the company must provide a restaurant; and if it reaches 250, it must provide a cafeteria.

7. If a company employs more than 30 women, it must provide childcare facilities.

"So, is it okay for us to just run a small workshop? Problem solved."

These are just minor issues; the more serious problem is this: Indian workers only need two weeks' notice to launch a strike. What is a strike, essentially? It's blackmail!

Suppose a factory just receives an order and needs to ramp up production to meet the deadline. Then, the union organizes a strike demanding a wage increase. If you don't grant the increase, you can't fulfill the order, and you'll go bankrupt, losing everything. So, which would you choose: going bankrupt or raising wages?

Being an employer in this situation is utterly miserable; it's better to just give up and not run a business at all.

The new labor law has also been improved; strikes are still allowed, but employers must be notified two months in advance. If there's a labor dispute, it can be taken to court, and no strikes are allowed for 60 days after the case is settled. This at least imposes some restrictions on strikes.

The second reason why industry struggles to develop in India is the land issue.

India is somewhat like a federal state system, with each state having its own land laws. Many people assume that all land in India is privately owned and can be freely traded. If that were truly the case, how could the India‘s industrial development be hindered? Couldn't businesses simply purchase large tracts of land and quickly build massive industrial park? But that's not how it works.

In India, land ownership falls into four categories: old land, new land, government land, and tribal land.

• Old land: After India gained independence in 1947, the Indian government designated land owned by individuals before independence as "old land." This land can be freely traded without requiring governmental approval, provided the usage of the land remains unchanged,

• New land: This refers to land allocated free of charge by the government to landless Indians after independence. While the usage of the land cannot be changed, the sale of this land requires government permission.

Furthermore, before selling the land, a fee must be paid to the government; otherwise, the government will seize the land after 21 days for failure to comply with legal procedures. This type of land is similar to state-owned land allocated by the government in China.

This land ownership system is quite similar to China's.

Whether it's new or old, the buyer has no right to change the land use. Most land in India is agricultural land, and its use cannot be changed. What kind of "private landownership" is that?

Chinese farmers can also lease their land for long periods, but can the lessee change the land use for real estate development? Of course not. So, this is essentially still a system of state-owned land.

The Indian constitution stipulates that India is a socialist state; that's not just words on paper.

• Government Land: A small portion of land in India is owned by the government.

• Tribal Land: Ownership of this land belongs to the tribes; it is generally very difficult to buy, and the government also faces difficulties in managing it. As such, it is usually not considered by investors.

Furthermore, India lacks a unified land law; each state has its own set of rules governing land transactions.

When the government approves land sales or changes in land use, it often faces significant protests and opposition. Often, the protesters are not the landowners themselves, but rather the owners of surrounding land. This makes acquiring land in India, or dealing with government land acquisition, extremely difficult.

In short, with the exception of a small portion of land, most of India's land is subject to strict regulations and is not open for development. The democratic system also leads to bureaucratic inertia, with officials preferring to avoid taking any action. As a result, many factories face significant hurdles simply in acquiring land to build their facilities.

Industry requires land and labor; therefore, labor laws and land issues are the core factors hindering industrial development in India. India cannot become an industrial powerhouse unless it addresses these two issues.

Source & Copyright Notice

This article is adapted and translated from the Chinese original with the author’s permission. Translation © 2025 Mr. Y. All translation rights reserved.

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