Hands on the wheel: Making industrial policy work for South Asia

Around the world, the consensus on how to grow is shifting. For decades, the formula was straightforward: governments lay the main track—sound macro policy, basic infrastructure, clear regulations—while the private sector acts as the engine pulling the economy forward.

Today, many governments want to take the wheel. And they are using industrial policy—government-led actions directed at changing the structure of economic activity—more directly to steer investment, build capabilities, and shape the composition of growth. If industrial policy can help create good jobs and accelerate growth, shouldn’t South Asia jump on board?

In many ways, the region is already on board. South Asian policymakers have long been comfortable with state intervention. For example, in some countries, state-owned enterprises dominate entire sectors, and high trade barriers reduce competition from abroad.

But before again taking the wheel, it is worth recognizing a key fact: South Asia is growing faster than any other region, and much of that acceleration is thanks to reforms that reduce the role of the state—opening markets, simplifying regulations, and building infrastructure.

The recent trade deal between India and the European Union is a positive signal that, while others are withdrawing from global trade, South Asia is comfortable charting its own course, facing competition with confidence. Throughout the region, countries are supporting the private sector by reducing trade barriers, setting more predictable rules, investing in public infrastructure, and improving macroeconomic frameworks.

This does not mean that industrial policy has no role. The goal is not to take the wheel from the markets, but to set clear signals, remove bottlenecks, and, when needed, switch tracks to achieve job-rich outcomes faster.

According to our latest South Asia Economic Update, Working with Industrial Policy, a smart approach to industrial policy starts with first-choice public inputs—practical, pro-competitive policies that fix specific market failures without heavy distortions. In South Asia, these include industrial parks, skill development programs, market access assistance, and quality-assurance infrastructure.

When governments intervene more directly, through tools like subsidies, tariffs, or local content rules, they should use them cautiously—with conditional support, transparent selection criteria, and a focus on encouraging competition rather than individual competitors. Otherwise, such tools can lead to exemptions, privileges, and detours that slow growth momentum.

South Asia already has the momentum. The question is whether industrial policy will keep things moving. Fortunately, policymakers don’t need to make an all-or-nothing choice between markets and industrial policy. They simply need to move the wheel in the right direction.