Rethinking Economic Development: India’s Departure from the Lewis Model

Introduction:

• In 1954, esteemed Saint Lucian economist William Arthur Lewis postulated a transformative economic model, emphasizing the potential for underdeveloped nations with abundant low-wage labor. His theory suggested that by transitioning surplus labor from agriculture to a burgeoning manufacturing sector, countries could unlock unparalleled industrialization. This model gained widespread recognition, with India being a prominent reference. However, as this article explores, India’s trajectory has deviated from Lewis’s vision.

The Evolution of India’s Labor Landscape:

• Lewis’s vision for India’s economic development hinged on a substantial shift from agriculture to manufacturing. Yet, data reveals a different narrative. While agriculture employed roughly two-thirds of India’s workforce until the early nineties, the sector’s share diminished from 64.6% to 48.9% between 1993-94 and 2011-12. Intriguingly, the rise in manufacturing employment was marginal, from 10.4% to 12.6% over the same period.

Divergence from the Chinese Model:

• Contrary to China’s remarkable success in leveraging surplus rural labor for industrialization, India’s trajectory has been distinct. The agricultural sector’s share in the labor force dropped gradually to 42.5% in 2018-19, before a slight resurgence in the subsequent years. Notably, the manufacturing sector witnessed a decline, falling from 12.6% in 2011-12 to 11.4% in 2022-23, even predating the pandemic.

Intra-Sectoral Shifts:

• Analysts, including economists like Amit Basole at Azim Premji University, have underscored that labor movement primarily occurs within subsistence sectors. The jobs created outside agriculture largely pertain to low-wage services and construction, rather than the high-productivity realms envisaged by Lewis.

State-Level Disparities:

• A closer examination at the state level reinforces this trend. States with a high agricultural workforce show manufacturing employment rates trailing behind construction and services. Even in states with lower agricultural dependence, the services sector boasts two to three times more workers than manufacturing.

The Gujarat Anomaly:

• Gujarat stands as an exception, with nearly a quarter of its workforce engaged in manufacturing, rivaling the national average for services employment. However, it’s noteworthy that Gujarat’s agricultural workforce proportion is considerably higher than states like Punjab, Haryana, Kerala, Tamil Nadu, and West Bengal.

Rethinking the Model:

• In light of evolving economic landscapes, the applicability of Lewis’s model is now under scrutiny. Manufacturing is undergoing a shift towards capital-intensive technologies, necessitating a reevaluation of the traditional transition from agriculture to industry. NITI Aayog is actively exploring a new economic development paradigm for India, one that focuses on creating remunerative jobs in and around agriculture, encompassing activities from aggregation to retailing, and even venturing into emerging sectors like bio-based products.

Conclusion:

• India’s economic journey deviates from the path envisioned by William Arthur Lewis. The shifting dynamics of labor allocation and evolving industrial landscapes call for a reimagining of economic development strategies. NITI Aayog’s pursuit of a novel model signals a promising step towards fostering sustainable and inclusive growth in India’s diverse economic ecosystem.