Deputy Prime Minister Tharman Shanmugaratnam on Friday said that building up the export manufacturing sector can provide India with an opportunity to grow and deepen its integration with South-east Asia.
Export manufacturing offers the strongest learning opportunities and will create jobs for the many young Indians who will be entering the workforce, he said.
"That is very much within India's comparative advantage, given the size of its labour force, given its wage levels and given its potential skill levels, with appropriate vocational and skills training," he said at a panel discussion of the South Asian Diaspora Convention at Suntec Singapore that ended on Friday.
Mr Tharman, who is also Finance Minister, was highlighting growth opportunities in South Asia and how integration between South Asia and South-east Asia could be deepened.
To help Asia's third-largest economy close the gap in manufacturing with China and South-east Asian countries, the private and public sectors in India have a big role to play. They need to collaborate both in skills and infrastructure investment, he said.
"Skills development in India is progressing well, but it is still early stages and requires creative public-private partnerships to make this work."
The government must find ways to attract private investors, he added, especially with the fiscal strains confronting India.
It faces the threat of a sovereign credit rating downgrade by global ratings agencies.
Growing export manufacturing also requires it to ease its "rigid" labour market laws that do not encourage the hiring of workers, Mr Tharman said.
As well, financial liberalisation is needed to make it easier to raise capital from the private sector, and not cause a drain on government coffers, he added.
Opening up the financial sector would also help provide more funding - from seed funding to venture capital - for start-ups and small and medium-sized enterprises to spur innovation.
"There is talent, ideas and people willing to get into start-ups. But you need the financial ecosystem to support it," he said.
India's most important development challenge, however, is urbanising its still largely rural population, Mr Tharman said. By moving the subsistence farmers into urban, and liveable cities, they can obtain more productive and, in turn, higher income jobs.
Manufacturing's supply chains could even play a role in improving relations between India and its historic rival, Pakistan, Mr Tharman noted.
While market competition in the past was based on what each country or city could produce, today it is about regional comparative advantages, and clusters of cities, he said, when replying to a question from the audience later.
This has been the case in the growth story of South-east Asia and East Asia, where, he said, there has been no lack of historical rivalries and problems.
"I would not underestimate the role of private sector supply chains - in industries and in services - in making people more comfortable with each other, and more importantly, giving countries a vested interest in each other's stability and prosperity."
Mr Tharman also said Singapore, "being small and neutral and of no threat to any of the parties", could help bring a meeting of minds between the two rivals, though it must do so "with humility".
The vision of a more integrated and economically dynamic South Asia was also shared by the other panellists, including Mr Anand Mahindra, chairman and managing director of Mahindra Group, a giant conglomerate.
He said the diaspora can help generate ideas and create institutions that are lacking. By meeting in a neutral place like Singapore, the diaspora could be a "country in a cloud", a country without the age-old geographical boundaries.
A South Asian diaspora bank fund was also suggested to help divert investments from the diaspora into the South Asia region.
Additional reporting by Maryam Mokhtar
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