William Arthur Lewis proposed an idea- one that is very relevant to India in the present times in 1954. The idea was a turning point that is (for the most cases) inevitable in the course of transition of a developing economy into a developed one. Lewis suggested that this transition is marked by a movement of rural labor to urban areas, where labor is relatively scarce, in a bid to make use of their productivity. In the capitalized areas, this surplus labor adds to the workforce without adding any pressure on wages. However, as this continues, there naturally comes a point when this supply of labor would reduce and the employers would have to compete among themselves for this scarce labor and cause the wages to rise. This point is what is known as Lewis turning point.
So where does India come into this frame? We know that in its economic progress, India skipped the shift from agrarian economy to an industrial one and instead focused more on developing its service sector. Indian service sector flourished with the age of globalization with liberalized policies and its mass of education and talent younger workforce. Make no mistake, India would still be considered an agriculture-based economy but its share is going down. The fact that India didn’t develop its manufacturing sector or rather, hasn’t exploited its potential, has deep implications for the economy. Since service sector can only employ educated individuals (of which the supply is rather limited), an economy usually looks up to its industrial sector for absorbing the horde of potential workers. But in India’s case, the options are rather limited; with the government only recently addressing the issue seriously.
So, if we were to ask; has India entered its Lewis turning point, I would have to say no. The agrarian workforce has witnessed a decline, which in theory, should have increased their marginal product and, therefore, their wages. But this is far from the reality- with the increase in fragmented land holdings and the problem of disguised unemployment, the sector is plagued with inefficiency. The rural workforce also faces another worry from the increased automatization that has been making waves across the globe which further stiffens the competition in the labor market. This implies that there is no pressure from the supply side and hence their wages haven’t increased. The Indian Employment report stated that India would need to create approximately 16 million jobs in the span of next 15 years to come close to its Lewis turning point.
By Arushi Sharma
Reference:
The BloombergQuint