Lewis Model of Economic Transformation not applicable in India

Context: There is a persistent debate with respect to the development models which would suit Indian scenario, traditionally the Lewis model (known as farm-to-factory model) was considered as a benchmark for industrialization, but NITI Aayog has recently come up with a new model called as farm-as-factory model.

About Lewis model

  • In 1954, Economist, W.A. Lewis wrote about the enormous industrialization opportunities available in developing countries due to availability of labour at subsistence wages.
  • Since the marginal productivity of such labour is already low because of surplus availability of labour, so, the withdrawal of such labour would also make existing holdings more viable and increase their productivity.
  • This surplus labour can be absorbed by expanding capital sector as long as it matches the wages earned in farm sector.
  • One success story of Lewis model is China which leveraged its large population from 1970-2000 to become the “world’s factory”.

How Lewis model has functioned in India

  • Agriculture employed around 66% of India’s workforce till early 90s.
  • It fell to 49% in 2011-12, the current share of labour employed by agriculture is 45.8%.
  • Paradoxically, the dip in share of agriculture employment has been accompanied by a dip in the manufacturing sector which stands only at 11.4 %.
  • Labour employment in manufacturing is even lower than labour force in construction sector (13%) and trade, hotels & restaurants sector (12.1%).
  • Thus, the virtuous structural transformation i.e., from farm-to-factory proposed by Lewis hasn’t happened in India.
  • Rather the movement of labour has been happening within the “subsistence sectors”, the jobs generated outside the agriculture sector are not in manufacturing sector.

At states level

  • In agriculture dependent states, the share of employment is more in construction sector compared to manufacturing.
  • In less agriculture dependent states, the labour force in services is 2-3 times more than manufacturing, with Gujarat as exception where the 24% of labour is engaged in manufacturing.
  • This makes Gujarat the only state which comes closer to Lewis model.

Relevance of Lewis Model

  • Thus, Lewis model had relevance for India of 1950s, as it was the time when industries such as jute and textile employed large number of people.
  • Even though India still has unlimited supply of labour, but manufacturing is becoming capital intensive, making the model less relevant.
  • With robotics and AI, technology is making manufacturing process labour saving and labour displacing.

Way forward

  • NITI Aayog is working on a new economic model where jobs will be created “in and around agriculture”.
  • Jobs such as aggregation, grading, processing, packaging, warehousing, transportation and retailing, supply of inputs and services to farmers.
  • Biofuel has also opened new avenues, crop stubble and residue collection and processing for biofuel industries too has potential for jobs.
  • There is a rising demand for bio-based products in cosmetics, medicine, polymers, chemicals, insecticides and fertilizers or even as construction material which can be avenues outside yet linked to farm.
  • Thus, even though the Lewis model of farm-to-factory didn’t work out for India, we can adopt farm-as-factory labour model to suit our requirements.

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