Are we cooking a good growth story?

“Growth for the sake of growth is the ideology of the cancer cell.” ― Edward Abbey

In the evergreen forest of God’s Own Country you will find a dish that has young keralites spellbound. It's the Shawai. Shawai, for those of who aren’t familiar, is a Kerala style arabic grilled chicken. Cooked with love and care, after a big tiring day at work, a well marinated Shawai slow grilled over the day with parotta and mayonnaise is most malayalee’s daydream.

To bring out the magic you’d need a well cooked parotta with the outer layer crisp enough to feel the crunch and a mayonnaise dip that is not overly sweet. The parotta, Shawai and the mayonnaise are wedlocked, but an uneven combination could head south.  The economy is no different. We could say that an economy has a primary sector, a secondary Sector and a tertiary Sector. A good economy needs the right combination of all sectors.

Economists have a fancy way to refer to this, it's the structural composition of an economy. Consider the share of each sector to GDP from 2012 to 2025 in India.

Figure 1 shows that the share of the service sector in GDP on average has been 48% compared to 18% and 24% for the primary and secondary sectors over the decade. GDP growth has been impressive and it is evident now that much of the growth has been fuelled by the service sector. There is a lot of excitement in the media about India becoming the fourth largest economy in the world, surpassing Japan. But the nature of our growth over time has been like a badly made Shawai. How do we know it is bad? In countries that are today seen to be developed, growth over time was followed by a definite change in the economy’s structure. Excess labour in the agricultural sectors slowly moved into the manufacturing sector and eventually got absorbed into the service sector. This process was followed by a rising middle class and an overall improvement in productivity and standards of living in the early developed nations. On the whole, early developed nations eventually cooked a well-balanced Shawai economy.

Did India follow such a recipe? Consider the employment share across sectors in India.

The percentage share of  workforce employment has remained on average at 43.81%, 24.97% and 31.22% for the agriculture, industrial and service sectors. There is no large movement of labour across sectors. Comparing figure 2 with figure 1 tells us that each sector’s share to GDP and share to employment has not seen much change. Although our GDP has been growing in size over the years, the contribution of each sector has remained the same for over a decade. The movement of people from agriculture is not to the manufacturing but has been to the service sector. This involved people moving to construction sites, restaurants, and as daily labourers to a few big cities in the economy. It is also important to note that most of India’s growth is not coming from where most people are employed, unlike developed nations.

Figure 1 does not give any direct answers. To make sense of it, we can think of the agricultural sector like mayonnaise. The mayo not only adds flavour to the whole pack but it also binds the chicken and the parotta. The agricultural sector provides food not only for those in the countryside engaged in agriculture, but for all people in the manufacturing and service sectors as well. We know from history that a reduced share of the workforce in agriculture, and a flow of workers to other sectors of the economy could aid in sustained productivity-induced growth. But how much ‘mayo’ is too much? A simple way to understand it is a cross country comparison. Consider China’s sectoral share of the workforce to make sense of the same.

On average 26.05% of the workforce were employed in the agricultural sector, 29.11% in the industrial sector and 44.85% in the service sector over the decade. If we trace the graph in Figure 3, we’d find that the share of the agricultural sector we find a fall in share of the workforce over time which is followed by a rise in the share of workforce in the service sector over the same period. These lines do not show us the direction of movement of labour from sectors but it is clear that labour is mobile between sectors. The distribution is different from the case we saw for India. These are two different worlds, two different compositions of the chicken to mayonnaise ratio. One is simply better than the other.

Lower mobility of people from the agricultural sector for a long time has resulted in convoluted dynamics within the Indian economy. A dormant manufacturing sector makes the economy structurally incapable of absorbing excess labour from the agricultural sector. Higher wages within the construction and other services has resulted in a migration pull to the cities.  The resulting high inequality, urban migration and overcrowding in cities have all been major concerns for the Indian economy. In 2022-23 the share of national income going to the top 10 percent was close to 60 percent compared to 15 percent for the bottom 50 percent. Large influx of urban migration puts huge pressure on urban planners. Mumbai has 24,000 people per square kilometer. Further, the service activities from the service sector are more present in the urban spaces.

Figure 2 against figure 1 gives us a picture of India. It's that fewer people have enjoyed the benefits of growth over time. What is the result? More and more shopping malls and high rise buildings that only a few can afford. A growth story that has benefited a fraction of the population. Well rounded growth requires a well developed industrial sector. History shows that developed countries first industrialised, and then transitioned to a service sector-led economy which was accompanied by a decline in the share of industry with respect to output and employment. Although there was much interest in skipping the industrialisation process and jumping to the service sector during the early 2000s, the employment scenario of the past decade does not give us convincing reasons to continue on this path. Mere growth calculations cannot account for the sectoral composition of the economy which is crucial when we consider the quality of growth we have had.

However, a higher growth share is also not undesirable. India’s current GDP is $4.19 trillion in nominal terms. If India grows at 6% annually , it will take us 11.67 years to double our GDP, that is, to grow into an $8.38 trillion economy but if we grow at 10% annually, it will take us just 7 years. A few percentage points’ difference in growth can result in huge differences in GDP over a short span of time. But growth without labour moving from agriculture to manufacturing, and the majority into services - like we saw in China’s case - will lead us away from a well-formed economy. We won’t be able to make a Shawai that everyone on average would enjoy.

India’s achievements and innovation in culinary wonders are there for the world to see and enjoy. However, did our recipe for the Shawai economy work out so far? Not very much. Our  highly consumption-oriented economy - in 2023 consumption composed 60.3% of economic expenditure- may not be suitable for more inclusive growth. The desire for economic growth is like the itch we feel when we take the magic lamp of Aladdin but what we wish for is very important. We don’t want a world where only a few children get to eat good Shawai, while others look on at them. After all, everyone wants a good Shawai, not just one that is big.

(Opinions are personal) Acknowledgement : To all those who’ve helped me and especially Srishti Yadav, Stuti Singh, Amit Basole and Nandu Sasidharan for their valuable comments.