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Has India Deindustrialised Prematurely?
Has India deindustrialised prematurely, after three decades of free market reforms? Probably not. The manufacturing sector’s share in gross domestic product has stagnated, and Kuznetsian structural transformation has stalled. The dispersion and rankings of the major states’ manufacturing employment and output shares have broadly remained unchanged. In the top and bottom 50 districts, the share of manufacturing employment in total employment has remained constant since 1991. Yet, the district-level spatial concentration of employment by industry has increased, and the coefficient of localisation is rising. Thus, the industrial change discernible at the micro level seems too feeble to show up in the aggregate.
The paper draws considerable empirical materia l from the fi rst author’s dissertation for the MPhil degree awarded by the Indira Gandhi Institute of Development Research (IGIDR). The authors are grateful for the comments and suggestions received on their presentations at the conference on the Political Economy of Contemporary India, Third Edition, held at IGIDR in January 2019, and a lecture delivered by the second author at South Asian University, New Delhi in February 2019. However, the authors alone are responsible for the errors and omissions that may remain.
Has India deindustrialised prematurely, after three decades of free market reforms? Probably not. The manufacturing sector’s share in gross domestic product has stagnated, and Kuznetsian structural transformation has stalled. The dispersion and rankings of the major states’ manufacturing employment and output shares have broadly remained unchanged. In the top and bottom 50 districts, the share of manufacturing employment in total employment has remained constant since 1991. Yet, the district-level spatial concentration of employment by industry has increased, and the coefficient of localisation is rising. Thus, the industrial change discernible at the micro level seems too feeble to show up in the aggregate.
Deindustrialisation, defined as a decline in the share of the manufacturing sector (industry) in domestic output (gross domestic product [GDP]) and in aggregate employment, is a stylised fact of modern economic growth. Typically, countries witness such changes at an advanced stage of industrialisation. The reasons, widely known, are that a rapid rise in industrial productivity reduces employment in the sector, and workers are absorbed in modern services; as per capita income grows, the elasticity of demand for services overtakes that for manufactured goods; and as wage rates rise in advanced economies, manufacturing shifts to labour-abundant economies and trade in manufactures rises (Rowthorn and Wells 1987; Tregenna 2011). As the share of the services sector in output and employment rose in developed economies in the latter half of the 20th century, the share of the manufacturing or industrial sector declined.
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