In today’s global era, it is a common belief that if a country manufactures goods on a large scale, it will automatically become prosperous. However, the reality is far more complex and harsher. Mere production and providing cheap labour to the world do not make a nation developed; developed nations are those that command knowledge, innovation and intellectual property.
The example of the iPhone is sufficient to understand this truth. The cost of assembling an iPhone in China is around 10–15 dollars, roughly one thousand rupees, while the same phone is sold in the global market for anywhere between seventy thousand and one and a half lakh rupees. A natural question arises: where does the remaining value go? The answer is clear. The iPhone is designed in California, its chips are manufactured in Taiwan, its operating system and software are developed by engineers in countries such as the United States and India and the brand value remains with Western companies. In other words, the real profit goes to the country that thinks, innovates and owns intellectual property, not to the one that merely assembles the product.
The Illusion of Cheap Labour and the Reality of Purchasing Power
For decades, developing countries like India have believed that their greatest strength lies in cheap labour and on this basis, they have defined their role in the global economy. In the initial phase, this strategy did generate employment opportunities, but in the long run the same thinking became one of the biggest reasons for weak purchasing power. When an economy is primarily dependent on low-value activities such as assembly, packaging, or outsourcing, wages naturally remain limited and rapid growth in incomes becomes difficult.
Low income directly affects domestic consumption, leading to weak market demand and a slowdown in the pace of economic growth. The greatest burden of this situation falls on the middle class, which on the one hand struggles with rising inflation and on the other is forced to continually scale down its lifestyle and aspirations due to limited wage growth. In economics, this condition is described as the “middle-income trap,” where a country manages to move out of poverty but remains stuck at the threshold of becoming a developed economy due to the lack of innovation and high-value creation.
Real Wealth Knowledge Not Labour
Renowned economist Thomas Stewart, in his book The Wealth of Knowledge, clearly states that in the economy of the twenty-first century, the real form of capital is not labour or natural resources, but intellectual capital, that is, knowledge, innovation and skills. Today, the countries that are economically prosperous and stable are those that continuously invest in research and development, treat higher education as a national priority and establish leadership in high-value domains such as design, patents, software and brands.
This is precisely why Germany leads in advanced engineering, South Korea in electronics and technology, Japan in high-quality manufacturing and the United States in global innovation. The success of these countries underlines the fact that in the modern economy, real wealth is generated not by the labour of hands, but by the power of the mind.
Why Manufacturing Alone Is Not Enough
Relying solely on manufacturing is no longer sufficient to make a country prosperous in today’s global economy. A well-known study by American researchers Greg Linden, Kenneth Kraemer and Jason Dedrick, Who Profits from Innovation in Global Value Chains, reveals that China’s share in the total value of an iPhone is less than two percent, while most of the profits go to countries that own its design, software and brand. This example clearly shows that control over production and intellectual property matters far more than the sheer volume of production.
This reality is not limited to the mobile phone industry. In every modern sector, fashion, pharmaceuticals, automobiles, semiconductors, artificial intelligence and biotechnology, the leading countries are those that control innovation, not those that merely supply labour.
The Path to a Developed India Education and Innovation
For India, the true path to becoming a developed nation lies through education and innovation. If India genuinely seeks to become a developed country and bring about a substantial increase in the purchasing power of ordinary citizens, policy priorities must shift from merely expanding production to promoting knowledge-based development. At present, India spends only about 0.37 to 0.4 percent of its GDP on higher education and research, which is extremely low by global standards. In contrast, China invests around 1.2 percent and the United States more than 1.7 percent, while the figure is even higher in developed OECD countries.
This gap in investment in education and research ultimately determines which countries will become the creators of future technologies, products and ideas and which will remain merely consumers of innovations developed elsewhere.
Warnings from the World Bank and the United Nations
Global institutions such as the World Bank and the United Nations have repeatedly issued warnings on this issue. The World Bank’s report The Innovation Paradox clearly states that developing countries invest relatively less in innovation and higher education, even though these areas yield the highest returns. Similarly, the United Nations Conference on Trade and Development (UNCTAD) and the Organisation for Economic Co-operation and Development (OECD) have consistently emphasized that without skill development, research, technical education and a strong startup ecosystem, no country can move beyond the role of a mere consumer in the global economy to become a nation that creates value.
Time to Move from Digital India to Design India
After the achievements of Digital India, the next and far more decisive goal before the country is to move towards “Design India.” India today stands at a historic juncture, with a vast young population, rapidly strengthening digital infrastructure and the active presence of global technology companies. However, merely writing code or providing services does not make a nation a technological superpower. For that, control is required across all four dimensions, design, development, discovery and disruption.
Until India develops its own semiconductors and chips, secures patents for its technologies, transforms its universities into genuine research hubs and builds deep partnerships between industry and academia, the economy will not be able to move towards high-value creation and the purchasing power of the common citizen will remain limited.
The message for policymakers is absolutely clear: if the dream of a truly developed India is to be realized, fundamental changes in thinking and priorities are essential. Education must now be viewed not merely as government expenditure but as a long-term national investment. Innovation should not be limited to startup culture but extended to all sectors, including industry, agriculture, health and governance. In addition, research and development must receive organized and sustained support at both public and private levels. Most importantly, instead of preparing youth merely to seek jobs, they must be empowered to create jobs, innovate and generate value, because the future of any nation depends on the creative capacity of its young generation.
Nations Are Built by Minds, Not Hands
As the world enters the Fourth Industrial Revolution, it becomes clear that nations are built not by the labour of hands but by the power of minds. Low-cost labour may have placed India on the global map, but only innovation and education can make it a master of that map. Today, what is needed is greater investment in minds rather than hands, prioritizing creation over mere manufacturing and moving beyond the mindset of cheap production toward high-value, high-quality creation.
If India is to achieve a real increase in the purchasing power of its citizens and truly become a developed nation, education and innovation must be more than just policy, they must become a national movement. Nations develop not by following the future but by shaping it.
