Last week, the revised estimates for 2010 – 11 GDP were declared, and I was going through the numbers to see if I could find something interesting. The numbers themselves didn’t hold much surprise, and the slowdown in the latest quarter has been well documented by newspapers already, so I won’t dwell on that.
Instead, let’s take a look at the breakup of GDP by economic activity.
Looking at this, a few things come to mind.
Where did the Industrial phase go?
People who study Economics in school are told how an economy grows from depending primarily on Agriculture to depending on Industries, and then moving on to Services. That’s true for most countries, and has certainly been a big factor in the growth of our big neighbor.
However, India went from being primarily an Agriculture economy to a Services economy, and missed the Industrial phase in between. This is amply clear from the break – up of various activities in the above chart and the low percentage of Manufacturing in it.
I think this is one reason for the kind of divide we see between the rural and urban areas today. You had a situation where most of the jobs created after liberalization were in the so called new economy that was more easily accessible to urban folks than it was to rural folks, and with no corresponding increase in agriculture incomes – the divide grew from there on.
Don’t we have about 74% of our people in rural areas?
When we looked at India’s unemployment numbers, we saw that about 74% of the population is estimated to be in rural areas.
Agriculture is one of the mainstays of the rural areas, and while we’re seeing people in rural regions moving from agriculture to other sectors – a 19% agricultural share when close to three quarter of Indians live on agriculture is totally off balance.
As India grows, the share of agriculture will give way to other sectors, and that’s good as long as people in the entire country can get a piece of that action. I feel that a strong manufacturing sector can create a lot of jobs in a much more broad based manner than services sector alone can, and there has to be a focus in that direction.
8% Construction and 1% Electricity, Gas & Water – Really?
It’s estimated that some 400 million Indians don’t have access to electricity and there are over 1,00,000 un-electrified villages. These are staggering numbers, and when you read that the total share of Electricity, Gas & Water Supply is 1% and Construction alone is 8% – you know that the people building houses are not the same people who are lighting lamps.
To me, this data point alone speaks volume on the disparity that exists between Indians today.
The Big Divide
To me, all these numbers point to the huge disparity in living conditions that Indians share, and also how much needs to be done for more inclusive growth. We have one of the fastest growing economies, but we also have an unbelievably high number of people below the poverty line.
I think developing a manufacturing sector is a must to bring millions of people out of poverty, and bridge this huge gap.
I can’t see how services alone can absorb so many people, and the best way to deal with this situation seems to be an effort to build a strong manufacturing sector.