Although it has achieved relatively high economic growth in recent years and the government has been committed to industrial development, India's industrialization efforts have still hit a wall.

Despite the glamour and growth of its high-tech industries, India's economy is besieged by seemingly insurmountable structural problems. Pending issues include lack of employment opportunities, low productivity, the lack of synergy between industries as well as poor social integration. For example, India's economy grew at an average rate of 9 percent a year between 2004 and 2009. However, only about 1 million jobs were created per year during that period, when at least 10 million were needed. This type of "jobless growth" has translated into enormous social and economic pressure at home.

Therefore, the key problem that the Indian government must tackle is job creation at scale through industrialization of its economy and improvement of total factor productivity through moving workers to more productive sectors. However, without the right financing channels, India's efforts in this regard have been crippled by a lack of capital.

Prime Minister Narendra Modi has been relaxing market access requirements for foreign investors since taking office, but India still has a long way to go in terms of the effectiveness of its efforts to attract foreign investment and the scale of foreign investment remains relatively small, especially given the current land restrictions and labor policies and regulations.

Due to ineffective land reform, land in India remains in the hands of a few landowners, and the government is unable to consolidate it for large-scale projects. Additionally, unsuccessful land reforms have made it impossible to increase productivity in its massive agricultural sector. As a result, poverty has remained widespread, and people have failed to generate sufficient domestic consumption demand to make industrialization possible.

Additionally, high inflation has been eating up savings and investments. The Indian economy has been suffering from a severe mismatch between supply and demand due to the lack of effective policy enforcement on the one hand, and weak market forces on the other. Additionally, inflation has been squeezing the economy hard except for a brief period from 1951 to 1956. As a result of rapidly rising prices, Indians have been reluctant to save, which has translated into very low levels of capital formation. Government policies aimed at encouraging people to save, such as increasing the sales tax, encouraging and even requiring saving have been by and large ineffective.

The reason behind India's poor resource mobilization has to do with powerful lobby groups, which have rendered the government's attempts at social integration ineffective so far, and they have created tremendous difficulties for spontaneous market consolidation. In more specific terms, there are several kinds of lobby groups that stand in the way of India's path to industrialization.

The powerful landed gentry makes it hard for the government to appropriate land. For industrialization to happen, it is necessary to break down land concentration which is characteristic of traditional societies through land reforms and redistribution to enable productivity growth in the agricultural sector. But India's private landowners remain very powerful. As private property is considered inviolable, land owners have the power to demand astronomical prices, making land appropriation impossible, which is one of the main obstacles to India's industrial development.

Powerful trade unions also make it hard for companies to hire the right people. India has a massive population, a largely unskilled work force and inadequate capital, but it has not been able to take advantage of these endowments and comparative advantages in developing labor-intensive industries. Here, powerful trade unions are to blame. Indians who work at medium and large companies have all kinds of rights at the workplace; workers in the formal economy band together in unions, which then come together to form political alliances. In an electoral democracy, highly organized workers are a political force to be reckoned with, no matter the opponent. Rigid and restrictive hiring laws and powerful unions have suffocated productivity growth and made it extremely hard for workers to move into the industrial sector from the agricultural sector. As a result, India's labor market is highly inefficient.

At the same time, powerful alliances of small business create difficulties for scaling up. Economies of scale increase efficiency, which is a prerequisite for industrial development. The Indian economy, however, remains fragmented. Small business owners - mainly owners of small shops or of small factories - are the majority, and they have taken advantage of the democratic system to vote into power politicians who represent their interests to pressure the government into enacting policies in favor of small-scale production.

For example, the Indian government has introduced many restrictions on large supermarkets in the interest of protecting small grocery stores. Policies like this have led to a type of "reverse selection" in India, as the result of which small and micro enterprises without incentive to scale up are in the majority. Lack of scale means that these companies cannot leverage economies of scale to improve efficiency and competitiveness, which is yet another key reason why India has struggled so much in its attempts to industrialize its economy.

India's winding path to industrialization tells us that for latecomers to the development game, industrialization is not a spontaneous process that grows out of effortless deployment of mechanized production and economic growth. The true story is the complete opposite. Industrialization requires having the will to fight against inertia, a highly organized and effective leadership, continuous operational capacity, and the right historical or social conditions to generate opportunities. In light of this, India's industrialization is more than just an economic project, it is a multipronged challenge - economic, social and political. Thus, even though having specific economic policies is important, sweeping social and political reforms are indispensable if India wants to improve its capacity and make industrialization happen, and to help its huge population thrive.

The author is an assistant researcher of International Cooperation Center at the National Development and Reform Commission.

The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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