Why the Lewis Model on labour and industrialisation has worked in China, not in India

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Source: The post is based on the article “Why the Lewis Model on labour and industrialisation has worked in China, not in India” published in “Indian Express” on 31st October 2023

Why in the News?

The Lewis Model which expected a shift of surplus labor from agriculture to manufacturing hasn’t occurred as anticipated in India.

What is the Lewis Model in Economic Development?

The Lewis Model in Economic Development has been developed by British economist Arthur Lewis.

Aim: To provide a framework for understanding how relatively poor countries can develop economically.

Key Elements of Lewis Model:

Unlimited Supply of LaborIn less developed economies, there is typically an abundance of labor in the agricultural sector.
This labor force is considered underemployed or surplus due to low agricultural productivity.
Move towards IndustrializationAs industrialization begins, the surplus labor from agriculture moves to the industrial sector leading to increased output and industrial growth.
This transfer of labor and capital accumulation helps drive economic development.
Wage Rate DynamicsInitially, wages in the industrial sector may remain low due to the surplus labor force. However, as this labor is absorbed, wages may rise, and the economy’s productive capacity increases.
Transformation of the EconomyOver time, as the industrial sector grows and labor moves away from agriculture, the economy transforms from primarily agrarian to more industrialized and modern.

Why did the Lewis Model work in China and not in India?

China’s success with the Lewis Model: China succeeded with the Lewis Model by absorbing a significant surplus of rural labor into its industrial sector, becoming a global manufacturing hub.

– This successful implementation turned China into the “world’s factory” due to its ability to use surplus labor for industrial growth.

India faced challenges in implementing Lewis Model: In India, agricultural workforce declined from about two-thirds to nearly half between 1993-94 and 2011-12.

But the expected rise in manufacturing employment didn’t occur significantly during the same period. 

In fact, manufacturing’s share increased marginally and the recent years have seen a decline.

Hence, the virtuous structural transformation i.e from farm-to-factory proposed by Lewis hasn’t happened in India.

Instead, the movement of labour has been largely happening within the “subsistence” sectors (low-paid services and construction).

What is Niti Aayog’s approach on this?

NITI Aayog is developing a new economic model focusing on job creation in and around agriculture. 

They aim to create employment opportunities by expanding activities related to agriculture such as aggregation, grading, processing, packaging, warehousing, transportation, and retailing.

There is also a focus on biofuel production from crop stubble and residue, which could generate more jobs. 

UPSC Syllabus: Economy

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