Improper Structural Transformation & Stagnant Manufacturing in Post-Independence India: The Role of Agriculture and Inter-Sectoral Linkages

Abstract: India is witnessing an unconventional pattern of structural change – involving a shift to services-dominated economy at lower income per-capita than early industrialisers. Despite significant policy rhetoric on industrialisation, the sector’s share in both value-added and employment has stagnated remarkably. The reform period saw a services-led growth with growing agrarian distress. Therefore, this thesis analyses India’s industrial stagnation and unconventional structural change, by examining the role of agriculture-industry linkages and agricultural performance. We find that structural change in India involved a movement of workers from agriculture to other low-productive sectors such as construction and trade. Input-Output (I-O) and Ordinary Least Square (OLS) findings suggest that improving agricultural performance has the potential to improve industrial sector’s performance by providing a sustained domestic demand for their goods. We find that there was an improvement in agricultural modernisation from 1965 until 1990s, indicated by the strengthened agriculture-industry linkages. However, production and demand linkages have either stagnated or declined in recent decades. Therefore, eliminating demand constraints arising out of agriculture would ensure that there is resilient domestic demand for industrial production. Improving agricultural productivity and profitability, has the potential to make farming economically viable and consequently reduce the distress-based movement of workers.