By Rohit Inani/Frontline
New Delhi, November 30 – South Korean economist Ha-Joon Chang warns that India has never properly matured its infant industries—protection froze producers instead of making them globally competitive.
Donald Trump announced the “Liberation Day” tariffs from the White House Rose Garden, thereby upending a decades-old global economic order. “It will forever be remembered [as] a day when the American industry was reborn,” Trump said. To reignite manufacturing in the US and reduce its trade deficits, Trump imposed a 10 per cent baseline tariff on all imports, in addition to country-specific tariffs. India faced a 27 per cent tariff rate, which was increased to 50 per cent in August after he accused India of buying Russian crude oil, and thereby funding the Russia-Ukraine war.
Even as Union Commerce Minister Piyush Goyal has made assurances to businesses and exporters of an imminent trade deal with the US which would bring down the tariff rate, Ha-Joon Chang, one of the world’s leading economists, says that is not enough.
In an exclusive interview with Frontline, Chang, who is the author of more than a dozen books on global development and industrial policy, and teaches economics at School of Oriental and African Studies (SOAS) in London, talks about India’s long term economic development, its failure to industrialise, and how India can still do it in the face of threats from automation, rising protectionism, and artificial intelligence.
Q Earlier this year, responding to Trump’s Liberation Day tariffs, you told Jacobin m-agazine that “there should be no return to free trade”. For economists, policymakers, and a generation that came of age over the last three decades in India and Asia, free trade and globalisation drove economic growth. Why shouldn’t the world return to it?
Ans -In all of this, there are terminological confusions, if I may put it like that. Engaging in international trade, being able to export to global markets, is essential for economic development. Because as a developing country, you need to import advanced technologies whether it is in the form of machines, or intermediate inputs, or technology licensing, and you have to pay for them with foreign exchanges. You need to earn hard currency. Without international trade, there will be no economic development. But that is not the same as free trade. Even if there is some degree of trade barrier, you can still export. For example, international trade as a proportion of GDP grew much faster in the 1970s than in the 1980s—[a time] when there was a lot of trade liberalisation—because trade barriers are only one of many things that determine the level of trade.
But more importantly, developing countries cannot develop with free trade. I mean, this is something that I have said in many different ways—with historical record, from a theoretical perspective. South Korea was a very poor country until the early 60s. In 1961, India’s per capita income was $88 and South Korea’s was $94. Essentially, the same level of development. But then, South Korea wanted to be a serious player in all sorts of high-tech industries—automobile, shipping, electronics. Of course, when they started these industries, they had to protect them very, very heavily. Otherwise, they would have been wiped out.
For example, when South Korea started producing its self-designed cars, the biggest company that was producing them was Hyundai, which [today] also has quite a big presence in India. In 1976, Hyundai produced 10,000 cars. That year, Ford produced 1.9 million cars. General Motors was approaching 4.8 million cars. Now if South Korea had free trade in cars back then, Hyundai would have disappeared overnight. So until 1988, the South Korean government not only put up high tariffs, they banned the import of all foreign cars. And until 1998, they had banned the import of Japanese cars. And then they gave a huge amount of direct and indirect subsidies. This is what is called infant industry protection. They developed automobile, electronics, shipbuilding, all these industries through similar measures.
Q -Before economic liberalisation in 1991, India, too, exercised strong protectionist measures. What went wrong with that approach?
Ans- In India, until the 1980s, protection was used to preserve existing producers rather than giving them the space to accumulate production capabilities and go out in the bigger world to fight. Look at the Indian car industry. Earlier, the Indian government believed that trying to produce things like nice cars was giving into Western consumerism. They kept producing the same Austin ambassador car. In the 1950s, this was okay because everyone had cars like that. But by the 1980s, it became a joke. And then they had to bring in Suzuki and all these Japanese producers to give the country better cars. That kind of protectionism doesn’t work. Protection only works when you use it to develop your own infant industries, so that they can export to the global market.
When I say “Developing countries need infant industrial protection”, people say, “But how about India in the 1960s and 1970s.” That is not what infant industry protection is, because India’s earlier economic strategy froze the infant industry in the infant stage. There was no ambition to make that infant grow up, go out in the bigger world, and fight the big boys, which is what South Korea has done with companies like Hyundai. The whole point is that you need a mixture of protectionism and active international trade in order to propel your economy forward.
Q -After the infant industry protection phase, a particular industry or economy goes through a virtuous cycle of manufacturing. That did not happen in India.
Ans– Exactly. A lot of developing countries have experienced what is called premature deindustrialisation. But I would say that India hasn’t even experienced industrialisation in the first place. In the early 1960s, the manufacturing sector’s share of gross domestic product (GDP) in India was 14 per cent, and then it went up to 18 per cent [in the 2000s], and today it is 12 to 13 per cent.
Consider Brazil. It had, by the mid 1980s, a manufacturing sector that accounted for about 35 per cent of GDP. Now, it is about 10 per cent. That is what premature deindustrialisation looks like.
But India, very worryingly, has not been able to maintain even the relatively low level industrial development that it had achieved by the 2000s.
India still has ambitions of becoming a global manufacturing hub. Governments have tried to push it for two decades—Prime Minister Narendra Modi launched “Make in India” in 2014. Yet India has failed. It missed both waves of manufacturing diversification out of China; those investments went to South East Asia instead. Why does India repeatedly fail to industrialise?
I think, ultimately, that has to do with the political economy. Your business elites do not want serious industrialisation. The business elites are either in the financial sector or, even if they are in the industrial sector, they still have very strong links with financial capital which doesn’t like industrialisation because, for them, the most important thing is the rate of return.
In the short run, if you want to develop a serious industrial base, you need to go through a period when finance is repressed. Because if shareholders keep asking for money [in the form of return on investment], companies would not have the money to invest.
Arguably one of the most famous Indian companies—though I do not know whether it is still legally Indian—is steel manufacturer ArcelorMittal. But Lakshmi Mittal built the company through clever mergers and acquisitions rather than by coming up with innovative technologies. Your elites do not want to wait for 10 or 15 years and sacrifice short-term financial returns to build productive capabilities.
You need to invest in worker skills, infrastructure, and research and development (R&D). I looked up the latest data on R&D in India, and as a proportion of GDP, it is barely 0.6 per cent, compared to the OECD (Organisation for Economic Co-operation and Development) average of 3 per cent, and South Korea’s 5.2 per cent.
I am afraid that there is no serious attempt to develop manufacturing in India. Yes, earlier India built manufacturing industries, but there was no ambition to join the global economy. And later, [the government and companies] did say that they want to develop manufacturing, but they did not do anything serious because they did not want to forego their short-term interests in order to have a more dynamic, industrially driven economy.
Extreme financialisation and shareholder capitalism divert capital from productive capacity. After the pandemic, India witnessed a financial boom that appears increasingly detached from the real economy. Your research identifies investment’s share of GDP as primary to sustained industrialisation. China’s stands above 40 per cent, South Korea’s at 33 per cent, while India—at a lower development stage—barely reaches 30 per cent. How do you assess this?
There is no secret for economic success. The most important indicator is whether you are investing. On that account, India has not done too badly.
But, more importantly, it matters whether you are investing in the right areas. You need to invest in areas such as infrastructure, education, skills, machinery, and technology licensing. Without these investments, there is no magic economic growth. India is a relatively poor country with less than $3,000 per capita income, but it is still big enough with enough capital to nurture some serious industries in a few sectors. It has these highly trained engineers and scientists. But why is this not happening? Because there is no serious attempt on the part of the government.
Q_ In your work you have said that the state should take a bigger role in allocating capital during the various stages of development. How can government redirect capital allocation from financial markets to productive capacity without triggering market panic?
Ans- When you have high degree of financialisation, things become very difficult because the financial market seeks short term gains and will react negatively to anything that will reduce them. You counteract this through a combination of reining in some of these powers of the financial industry, and also through a strategy of convincing communication. You have to convince people that restraints on the financial sector will create some reduction in financial profits in the short-to-medium run, but will start a trend where companies invest in machinery and R&D. When the government sends people to study engineering, it must make sure that they come back rather than go work in consulting companies and investment banks in the United States or the United Kingdom.
You have to do things to show that maybe it is worth the wait. Some of the people in the financial industry are completely short-sighted. But, even in the financial industry, many people realise that it is [financially] better to have a smaller portion of a much larger economy, than having a huge portion of a small economy. If a large proportion of people in the financial sector are convinced that the way India is reforming its economic strategy will improve long-term growth, they will think that the new strategy is better for them too.
Private sector investment has lagged in India. Finance Minister Nirmala Sitharaman has repeatedly urged companies to invest. Earlier this year, she said “healthy corporate balance sheets are sitting on passive investible funds, instead of companies engaging in capacity expansion”.
That is the key. The private sector has to invest. There is only so much the government can do. The government needs to find ways to make the private sector invest in the right industries—whether it is through the financial leverage that they have through public sector banks, or by developing a convincing narrative that encourages people to invest, or by creating a social pact between businesses and government. Every country has to find its own formula here, but there are no two ways about the fact that you have to invest in the right areas.
Q- Trump’s Liberation Day tariffs shocked Indian policymakers harboring industrialisation dreams. India initially hoped to leverage tariff arbitrage, but sentiments soured quickly. How do governments navigate this trade uncertainty?
Ans- What Trump is doing is not going to last forever. In the United States, the ultimate authority with tariffs lies with the Congress. Trump used the International Economic Emergency Powers Act, which allows him to do certain things without Congress’ approval, to bypass that. But people have challenged this and the case in now in the Supreme Court. It is possible that this will get struck down in the next few months, and then things can change drastically.
Even if that does not happen, there is a mid-term election next year and inflationary pressure is building up in the US economy. Trump has been very stupid in this respect because, if he wanted to beat China, he should have allied with India, or South Korea, or Japan, and said, “I’m not going to impose any tariff on you, but I will impose 100 per cent tariff on China.” Then, these other countries could have replaced China. Instead, he put tariffs on everyone and antagonised everyone and now there is rising inflation in the US.
One possible scenario is that inflation accelerates rapidly and by summer [of 2026], the Republicans get desperate and put pressure on Trump to ease protectionism. Even if that does not happen, Donald Trump is not a king. We should not behave as if this will last forever. So okay, there is 50 per cent [tariff] on India this year. But it is very likely that it may not remain 50 per cent next year, and it definitely will not be 50 per cent four years later.
Q- Can India really industrialise? Despite 6-7 per cent GDP growth—among the fastest globally—this looks like underperformance given the country’s large, young workforce and persistent unemployment. After decades of failed attempts to sustain manufacturing, now facing disruptions from artificial intelligence, automation, and Trump’s tariffs, can India still pursue industrialisation as its path to prosperity?
Ans- Emphatically, yes. No country has obtained a high standard of living without serious degree of industrialisation. There are exceptions like Qatar, but even countries like Switzerland and Singapore—which are often touted as examples of service-based prosperity—are some of the most industrialised countries in the world if one looks at the manufacturing output per capita.
Switzerland has the highest manufacturing value add per capita in the world; Singapore is somewhere between number two and number four, depending on the year. They have strong service sectors because they have a prosperous manufacturing industry. All of these high value services mainly sell to manufacturing companies—engineering, research, design consultancy, finance, and so on.
Secondly, India has been touted as a success story of services-based development. But this strategy, when compared to what China has achieved in the last 25 years, pales into insignificance. India has done quite well in some export-oriented service sectors, but they have largely been in relatively low value-add sectors. For example, in back offices, call centers, and low-level software coding. India has not been able to upgrade within those sectors. Where is your American Express? Where is your McKinsey?
I am not one of those people who think that AI will completely change the world in the next five years; I am actually very sceptical about it. But, one set of activities that is going to be hit hard by AI is exactly the service industries that India has been specialising in. For example, AI can do basic software coding. India will be one of the biggest casualties of AI. It needs to get out of there, it needs to industrialise.
Even as India witnessed robust GDP growth rates in the last decade, growth in real rural wages have been stagnant. Here, a farmer sprays insecticide in a mustard field in Nadia, West Bengal, on November 23, 2025.
Q- Raghuram Rajan, the former Governor of the Reserve Bank of India, has said—I believe on more than one occasion—that India has missed the manufacturing bus and it cannot follow in the footsteps of Asian industrialisers, especially China, because of a rising trend in factory automation which will eventually nullify its low cost advantage. He says that India should prioritise services as its primary growth model. Is he correct?
Ans- I have not read anything by Raghuram Rajan on this particular topic, but I think that he is seriously mistaken. If he is worried about the impact of automation—of which AI is one form—he should be very worried about India’s service-based strategy. Those are exactly the kind of services that will be hit first when AI becomes widely available. More importantly, there is no evidence that, at a global scale, manufacturing is becoming any less important. In the last 50 years, the share of manufacturing in global output and global employment has been more or less the same. We have just seen the redistribution of manufacturing from richer countries to China and other Asian countries. It is not as if manufacturing is disappearing.
Manufacturing is also the sector where technological progress happens, because that is where you do most R&D. Even in countries like the US and the UK, which now have tiny manufacturing sectors accounting for 9 to 10 per cent of GDP, 60 to 70 per cent of R&D is done in the manufacturing sector. In countries like South Korea and Germany, which are manufacturing nations, 80 to 90 per cent of R&D is done by the manufacturing sector. If you take out this sector, your rate of technological progress will dramatically slow down.
I am actually upset with people like Rajan and, these days, Dani Rodrik, who mislead developing countries into believing that there is no future in manufacturing, and you can grow on the basis of services.
Faced today with factory automation, AI-led disruption, rising trade barriers, and protectionism among advanced Western economies, if India were to still aim to industrialise, what policy options does it have?
India will have to rely on domestic demand to a significant extent. It is a large country. China is a large country too, and it has done a lot to increase its exports for the reasons that I mentioned earlier—you need to export to sustain the capacity to import more advanced technologies.
But a huge country like India has to develop some basic manufacturing for the domestic market. This does not sound as glorious as reading MRI scans from American hospitals; but people need to be fed, they need to have appliances at their home, all of these things.
Q- India must make more shoes, jeans, textiles, and consumer appliances for the domestic market?
Ans – Yes! What is the point of economic growth and development if you do not provide these basic things for your general public? India also has world-class capacities in some sectors such as pharmaceuticals. Why not leverage it to develop the industries of the future? You also need huge amount of energy if you want to grow, so why not develop green energy industries? There are a lot of things that are not that difficult that you can do to industrialise.
Q- Until now, India’s response to Trump’s tariffs has been to diversify its lost American export market share, and accelerate signing bilateral free trade agreements with countries like the UK, Australia, Oman, New Zealand, among others. Is it enough?
Ans– That is probably not a bad idea in the short term. But if you keep signing free trade agreements with more advanced countries, you will reduce your capacity to develop your own infant industries. For example, if you sign a free trade agreement with Australia, you cannot develop the mining equipment industry in which Australia is one of the top producers in the world. Indian companies will keep buying these machine from the Australians, and you cannot put up trade barriers against them.
These free trade agreements may give you greater access to foreign markets, but do not forget that these agreements freeze your economy in time. This is a short-term palliative.
Q- One of Modi’s signature policies has been creating national champions such as the Adani Group. Comparisons have been drawn with South Korea’s chaebols—large family-owned conglomerates that drove economic growth. But given India’s political economy, does this risk entrenching crony capitalism that stagnates rather than accelerates growth?
Ans -I think it is important to create and support these large companies that can—maybe not immediately, but ultimately—become global players. But when you try to create them, when you try to support them, you have to have conditions in place.
If we are giving these companies all kinds of protection and subsidies using taxpayer money, they must deliver in terms of productivity, employment, and exports. This is what countries like Japan, South Korea, and Taiwan were very good at. For example, they would require that when foreigners invest in an industry, local players would have to form a joint venture so that those foreign companies can have the incentives and the compulsions to transfer technology, train workers, and so on. But in return, the joint venture needs to increase the localisation ratio from say 55 per cent to 85 per cent in 10 years.
You need all kinds of conditions, and these conditions will differ across industries. As a government, you do not want to just give money away in the hope that, somehow, they will deliver. Some of them will, but others won’t. You [governments] have to make it clear that this is conditional support—if companies do not perform in, say, 10 years, you will pull the rug from beneath their feet.
But wealth concentration appears severe for India’s development stage. A report commissioned by South Africa for its G20 presidency found that between 2000 and 2023, the wealth of India’s top 1 per cent surged 62 per cent, compared to 53 per cent for China.
In the long run, you need to make people believe that the system is working for them. This is why we are seeing people like Trump get elected—they do not have any intention of helping ordinary people but they get power by saying that the system has failed and “I am here for you”. Unfortunately, once they get elected, they do things that hurt poorer people.
So, this extensive concentration of wealth at the top in India is a huge problem. In a country where millions of people still live in abject poverty, you need a development strategy that delivers for these people. I understand that it is more limited than what the propaganda says, but Mr Modi became popular by delivering some of these basic things such as toilets and water.
Even if you belong to the elite, it is in your long-term self-interest to share some of your wealth with the poorer segments of the society. Because otherwise, they will destroy the system.
Analysis of government data has found that even as India witnessed robust GDP growth rates in the last decade, growth in real rural wages have been stagnant. For a decade.
Q- In the economic history of nations, and how nations develop, have you found something like this? A few economists in India have called this “a very puzzling trend”.
Ans – This is what people used to call enclave growth. The late American economist, Lance Taylor, wrote this paper in 1976 about Brazil called The Economics of Belindia. At that time, India was a very poor country. His argument was that Brazil is like Belgium superimposed on India: masses of poor people around little islands of rich people. India today is turning into [Taylor’s] Belindia. This kind of growth in the long run is not sustainable, both economically and politically.
Consider East Asian countries where, despite all kinds of bad things happening, military dictatorship, one party rule, repression of worker rights and everything, they sustained their growth trajectory because they shared that growth with the poorer people. All of them had land reforms and, even though they had very small welfare states, they had a lot of protection for the weak guys. For example, South Korea, until the 1990s, had serious restrictions on large retail stores to protect small retail shops from being overwhelmed by larger competitors. It also preserved some industries for small and medium-sized enterprises—tofu-making was one of those; large companies couldn’t make tofu. If you are a small company operating in those “protected” sectors, your standard of living may be low, but it keeps you going at least.
Then in the end, with rapid industrialisation, all these people in the informal sector were absorbed into the formal economy. For a rich country, South Korea still has that high degree of informality, but at least it is not like what it was in the 1960s and 1970s when about 50 per cent of the people were farmers and 30-40 per cent were in in the informal sector.
India has to create a more inclusive model of economic growth and development.
Q- One last question, and this is unrelated to what we have been talking about. This year, in the Financial Times, you called economics education the “Aeroflot of ideas”. What, according to you, has gone wrong?
Ans– That was more about economics education. A lot of economic policies are actually not made by economists. It depends on the country but, if you go to China, if you go to Taiwan, all the top policymakers are engineers and scientists. In the real world, economics is not as important as it appears.
The problem with today’s economics is that it has basically been dominated by one particular theory—neoclassical theory—which, like all other theories, is good at certain things but bad at others. Neoclassical economics was initially developed to explain market exchange in developed economies with all basic institutions in place. If you try to use it to understand economic development, it doesn’t work. And all theories are like that. Keynesian theory may be very good at understanding macroeconomic fluctuations and financial crises, but it is not very helpful when you try to organise industrial development.
Different theories were developed for different purposes. We need to have a pluralistic environment where different theories can contribute in different ways. Unfortunately, applying just one perspective everywhere doesn’t work.
Neoclassical economists have also developed this very narrow way of understanding the real world. Everything has to be about data. Everything has to be made into an index of this and that, and an understanding of history and the broader political economy, sociological factors, and so on, are, at best, seen as window dressing and, at worst, considered useless. Students come out with the ability to crunch numbers, but they do not understand the historical background, the political context, and many other things that matter for policy-making in the real world. In this situation, economists are bound to issue policy recommendations that are not very realistic.
Rohit Inani is an independent reporter based in New Delhi, where he covers economics, business, and political economy.
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