India's 'Top-Heavy' Economic Growth Offers Lessons for Bangladesh

India, now recognized as the world’s fourth-largest economy with an output exceeding $4 trillion and growth rates frequently between 6% and 8%, faces significant structural imbalances. Despite its rapid economic expansion, technological achievements, and a surging stock market, the country's growth model has become 'top-heavy,' according to observations.

This 'top-heavy' approach has fostered elite wealth, modern urban prosperity, and globally competitive service industries. However, it has not generated adequate broad middle-income employment. India reportedly moved into a service-led economy too quickly, bypassing the traditional industrialization phase that historically creates stable mass prosperity through labor-intensive manufacturing.

Approximately 10-12 million young, educated Indians enter the workforce annually, a number comparable to adding a country the size of Belgium to the labor market. The economy has struggled to absorb these numbers through high-end services alone, lacking sufficient factories, warehouses, and medium-sized enterprises that could create jobs by the thousands.

Evidence of this employment scarcity includes high youth unemployment, particularly in urban areas and among graduates. In 2022, around 12 million people applied for 35,000 vacancies in Indian Railways, while in 2024, over 93,000 applicants reportedly sought 62 peon posts in Uttar Pradesh, many holding advanced degrees.

The "Make in India" initiative, launched in 2014 to boost manufacturing's share of GDP from 16% to 25%, has reportedly fallen short, with the sector's share closer to 13-14% a decade later. India’s manufacturing sector lacks a 'missing middle' of large mid-sized factories that employ hundreds or thousands, unlike countries like Vietnam, Mexico, and Bangladesh, which attracted multinationals seeking diversification from China.

Wealth inequality has also widened, with the latest Forbes rankings showing India having 229 billionaires whose combined wealth exceeds $1 trillion. Estimates from the World Inequality Database and Oxfam indicate that the top 1% of Indians own approximately 40% of national wealth, while the bottom 50% own only about 3%. This disparity is reflected in consumption patterns, with robust sales in luxury goods contrasting with sluggish demand for entry-level consumer goods in rural areas.

Challenges persist in the service sector, where AI threatens entry-level IT tasks, and in agriculture, which still employs 45-50% of the workforce but contributes only 15-18% of GDP. Educational outcomes also pose a problem, with many graduates reportedly lacking marketable skills, contributing to 'waithood' among young adults.

Bangladesh's economic journey offers a contrasting perspective, having leveraged labor-intensive manufacturing, particularly garment exports which grew from $12 billion in 2009 to over $45 billion in recent years. This success integrated millions of women into factory employment, reducing poverty and improving social indicators.

However, Bangladesh also exhibits its own 'top-heavy tendencies,' with garment exports accounting for 80-85% of merchandise exports, leaving the economy vulnerable. Other issues include chronic banking sector stress, a low tax-to-GDP ratio, and distorted capital allocation. The country also has many microfirms and large conglomerates but lacks sufficient medium industrial exporters outside of garments.

The lesson for Bangladesh is a clear need for a second-generation growth model focused on diversification, requiring stronger infrastructure, more reliable power, banking reforms, vocational training, and easier scaling for medium enterprises. Both India and Bangladesh have a critical window of 15-20 years before demographic aging becomes more pronounced, urging them to implement reforms that foster balanced and resilient prosperity.

(Source: The Daily Star (BD))