This presentation is for the B.Com Students

1. Unit IV (a)
Experience of Growth, Development and Structural
Changes in the Indian Economy
Prof. (Dr.) Mahendra Kumar Ghadoliya
www.ghadoliyaseconomics-mahendra.blogspot.in

2. Structure of Indian Economy
• Indian economy is divided into three broad
sectors:
• Primary Sector- Agriculture and allied
activities
(a)Agriculture, Forestry and Fishing
(b)Mining and Quarrying
• Secondary Sector- Industrial Activities
(a)Manufacturing – i) Registered, ii) Unregistered
(b)Construction
(c)Electricity, Gas and Water Supply
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3. Tertiary Sector- Service
Sector
(a) Trade, Hotels,
Transport and
communication
(b)Financing, Insurance,
Real Estate and Business
services
(c) Community, Social
and Personal services
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4. Changes in Occupational Structure :
What the theory says
• The Lewis Model – Economic Development with Unlimited Labour
supplies of Labour.
• It is also known as the two sector model.
• The capitalist Sector
• The subsistence sector
• Arthur Lewis model, presented in 1955, dominated development
theory between the 1960s and 1970s.
• It focused on the need for countries to transform their structures,
away from agriculture, with low productivity of labour, towards
industrial activity, with a high productivity of labour.
Contd-
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5. What the theory says—cont. 2
 An economy starts with two sectors; a rural agricultural sector and an
urban industrial sector. Agriculture generally under-employs workers
and the marginal productivity of agricultural labour is virtually zero.
 Therefore, transferring workers out of agriculture does not reduce
productivity in the whole economy.
 Labour is then released for work in the more productive, urban,
industrial sector.
 Industrialisation is now possible, given the increase in the supply of
workers who have moved from the land.
 Industrial firms start to make profits, which can be re-invested into
even more industrialisation, and capital starts to accumulate.
 As soon a capital accumulates, further economic development can
sustain itself.
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6. Relationship between Economic Development and Occupational
Structure:
• As early as 1935, Allen Fisher had suggested that economic
progress would lead to the emergence of a large service sector,
after the development of a primary and secondary sector.
• Later, in 1940, Colin Clark developed this theme to create the
Fisher-Clark model.
• Structural change must occur for economic progress.
• The Fisher-Clark hypothesis states that development will
eventually lead to the majority of the labour force working in the
service sector.
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7. Relationship between Economic
Development and Occupational
Structure: contd.-2
• Why service sector will emerge
after industrialization first, it is
because of high income elasticity
of demand for services.
• Secondly, productivity in the
service sector is lower than in the
manufacturing sector because it is
harder to apply new technology to
many services.
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8. Relationship between Economic Development and Occupational
Structure: Summary
1. As a country develops there is a shift of workers from the
primary sector to the secondary and tertiary sectors.
2. Increase in manufacturing employment absorbs the population
released from agriculture.
3. Within manufacturing there is a shift from household activities
to non-household activities with better technology.
4. There is an increase in the percentage of population dependent
on services.
5. At initial stage this increase in service sector is less than the
increase in manufacturing but later it is faster.
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9. Structural changes Agriculture, Industry and Services
• Phase 1. Independence to Mid‐1960s: Period of increased growth
rate with higher growth of industry
• Phase 2. Mid‐1960’s to 1980: Slower growth rate with deceleration
in the growth of industry
• Phase 3. 1980 to early 1990s: Sharp growth rate mainly due to
higher growth in service sector, decline in the share of agriculture
• Phase 4. Easy 1990’s Onwards: sharp increase in growth rate.
Declining share of agriculture , higher growth in service sector and
share of industry remained stagnant.
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10. Long-term Growth and Structural Changes:
• Growth Rates of per-capita Income
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Time Period Rate of Growth
1860-1885 1.1
1885-1905 0.3
1905-1925 1.3
1925-1950 0.1
1860-1945 0.5
1950-51 – 1975-76 1.5
Tenth Plan 5.9
Eleventh Plan 6.3

11. Long-term Growth and Structural Changes:
• Change in the Composition of the National income – In India the
composition of National Income has changed over the planning
period. The share of mining, manufacturing and construction, and
infrastructure has increased till 1980 after that the shift was in
favour of service sector.
• Share of agriculture is declining and shares of industry and service
sectors are increasing.
• The growth rate of GDP (at factor cost) is as follows in recent
years:
• Highest 2006-07 = 9.6% Lowest 2012-13 = 5.4%
• 2010-11 =9.3% , 2014-15 =7.1%, 2015-16= 7.3% 2016-17 =7%
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12. Diversification of activities.
Occupational Distribution of working population in India:
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S.No. Sector 1951 1971 1991 2001-02 2016-17
1. Primary 72.1 72.1 66.8 60.4 49
2. Secondary 10.7 11.2 12.7 15.8 20
3. Tertiary 17.2 16.7 20.2 23.8 31
Total 100.0 100.0 100.0 100.0 100.0

13. • Service sector grew at 4.6% in first three decades
• After 1980 to 1995 it grew at 6.5%
• 1995 to 2007-08 the growth was 8.5%
• Thus in GDP its share is now 60% in aggregate.
• Trade Transport Communication and banking have contributed more or
less same in the entire GDP growth.
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14. Structural changes in the External Sector:
• Sharp Rise in the importance of external sector.
• Exports and Imports together accounted for about 15 per cent of
GDP in 1980‐81. It increased to 35% in 2009‐10
• Structure of imports changed.
• During1950‐51 to 1980‐81: The share of raw materials and
intermediate products increased sharply from 37 per cent in
1950‐51 to 78 per cent in 1980‐81 after 1980 petroleum products
became main item.
• Capital goods imports have somewhat declined.
• Pearls and semiprecious stones became important since 1980-81
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15. Structural changes in the External Sector:
• There was very little growth of exports during 1950‐51 to 1970‐71,
growth rate being around 3.5 per cent per annum during these two
decades.
• Growth rate picked up to over 15 per cent during 1970‐71 to 1980‐81.
• Growth of exports declined to about 8 per cent during the next decade.
• Growth rates of exports averaged to 13 per cent per annum in the
1990’s and 14 per cent during 2000‐2010.
• Thus, the post‐reforms export growth has been quite high though an
increasing trend seems to have started much earlier.
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16. Structural changes in the External Sector:
• At the time of independence the of exports were consisted of raw
material and imports were of finished goods the share of primary
goods was increasing
• The share of manufactured goods which was around 42% in
1970-71 increased to around 78% in 2000-01 since then it
declined and came down to 66% in 2010.
• Export basket has become highly diversified the number of
items exported has increased from 71 in 1962 to254 in 2007, most
new items belonging to the chemicals, metals and machinery
groups of products.
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17. Structural changes in the External Sector:
• Increasing importance of services in exports made a significant
contribution to the structural changes in the Indian economy. The
period 1990‐2010 has seen a rapid increase in the share of
services both in GDP and exports.
• Growth in services is primarily accounted for the growth of
communication and business services.
• Agriculture saw a decline in its share in GDP from about one third
to 15 per cent its products made up 19 per cent of exports in
1990‐91 and only 9 per cent in 2009‐10.
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18. Regional Imbalance
• India’s growth shows regional imbalance. Some states are in the
category of developed states such as Punjab, Haryana,
Maharashtra, Gujarat, WB, Karnataka and Kerala, TN and AP.
• Some states are backward states- Rajasthan. MP, UP, Bihar, Orissa
• NSDP as an indicator of Regional Disparity-Maharashtra is at the
top with highest NDP. Bihar and MP has shown highest yoy growth
in 14-15
• More investment is going to forward states.
• Infrastructural Disparity – Rail, Road, Energy, Banking,
Communication, education and health
• Special efforts for Regional Balance are needed.
***
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