India’s Path to Structural Transformation

This chapter examines the process of structural change in India since 1950 and compares its path to structural transformation with those of other countries. It first introduces an analytical framework to explore the relationship between economic growth and structural change, in theory and history, to identify directions of causation. It then considers significant changes in the composition of output and employment, revealing two discernible phases when economic growth drove structural change and vice versa. The first phase covered 1950–80, characterized by slow and modest structural change and in which the primary sector, essentially agriculture, declined in relative importance, to be replaced by the secondary sector, led by manufacturing. The second phase lasted between 1980 and 2010, when structural change was faster and the reduced share of agriculture in output and employment was captured primarily by the services sector, and partly by construction, but not by manufacturing. Such services-led-growth, by itself, may not be sustainable in future, so that it is necessary to revive industrialization, exploiting the potential synergies between manufacturing and services.