Why the Lewis Model has worked in China, not in India
- In 1954, the renowned economist William Arthur Lewis introduced a model that suggested industrialization could absorb surplus labour from agriculture in underdeveloped countries, such as India.
- He argued that the productivity of labour in agriculture was negligible, zero, or even negative.
- Moving labour from the farms to factories could enhance productivity and economic growth.
India's Departure from the Lewis Model
- India's labour transition has not unfolded as Lewis envisioned.
- The share of the workforce engaged in agriculture declined from 64.6% to 48.9% between 1993-94 and 2011-12.
- However, the shift hasn't largely been toward manufacturing.
- The share of employment in manufacturing increased marginally from 10.4% to 12.6% during this period.
- The subsequent years have seen a dip in manufacturing's share, falling from 12.6% in 2011-12 to 11.4% in 2022-23.
Challenges in Labour Transition
- The movement of labour has primarily occurred within "subsistence" sectors rather than from "subsistence" to "capitalist" sectors as per the Lewis model.
- Employment growth is observed in low-paid services and construction, rather than in manufacturing and high-productivity services.
State-Level Variations
- The picture is consistent at the state level.
- States with a high percentage of the workforce engaged in agriculture have manufacturing shares in employment below construction and services.
- Even states with a lower dependence on agriculture still have more labour in services than in manufacturing.
New Development Model for India
- Unlike China, which leveraged surplus rural labour for manufacturing and became "the world's factory," India's structural transformation has not followed a similar path.
- NITI Aayog, is exploring new economic development models for India.
- This model seeks to create remunerative job opportunities related to agriculture but outside traditional farming activities.
- These jobs can be found in activities such as aggregation, grading, packaging, transportation, processing, warehousing, retailing of produce and the supply of inputs and services to farmers.
Diversification Opportunities
- NITI Aayog suggests that opportunities lie in bio-fuel production, utilisation of crop stubble and residues, and the development of bio-based products, including cosmetics, medicines, building materials, polymers, specialty chemicals, insecticides, and fertilisers.
- These activities can create employment opportunities linked to agriculture, enabling a more balanced transition for India's labour force.