UNIT II STRUCTURAL CHANGE IN INDIAN ECONOMY SINCE INDEPENDENCE

In this unit, you will basically learn the growth of and structural changes in the Indian economy particularly since Independence. As most of the data are available since 1950-51, the study of changes will mostly confine to the period since 1950-51. In one case, data is available from 1960-61 only. Towards the end, in a section, we shall use data since 1972-73. The end year of a series will be determined by the relevant publications giving the data. With growth, every economy diversifies itself in terms of contribution of different economic activities. Besides structural changes in the economy in terms of contribution of different sectors, you will have an idea as to how the labour force is engaged in different economic activities. As it is felt that growth will be hampered if our economic infrastructure in terms of energy, transport and communication is weak, you shall see how our economy is faring in this respect. We also feel concerned about our education, health and housing and, therefore, you will have an idea about these social sectors as well. It is understood that there has come a great break in our policies in 1991 in terms of what has come to be known as Liberalization, Privatization and Globalisation (LPG). We shall, therefore, discuss major policy planks before and after 1991 and contrast the two sets of policies.

CHAPTER 3

Growth and Structural Change in the Indian Economy

Introduction In this chapter you will study the growth of and structural change in the Indian economy in the last fifty years since 1950-51 for which data on most of the macro aggregates are available on an annual basis. We shall concentrate on the growth of gross domestic product at factor cost valued at 1993-94 prices. We shall consider the growth of per capita national income, also valued at 1993-94 prices, which can be taken as the simplest indicator of the level of living or development. In an earlier chapter, one of the notions of development was posed in terms of structural change along with growth. What do we mean by structure? Most people mean by it production structure, that is, composition of output produced by the economy. Some would like to find out how and where our labour is absorbed. Other factors such as land and capital are not given equal importance. Some would also like to find out how the production of output is divided between rural and urban areas of the country or between public and private sectors of the economy or between organised and unorganised sectors. We shall discuss all of them. But we can appreciate developments since Independence better once we have a little hint about the scene on the eve of Independence. Economy on the eve of Independence We had inherited an economy, which was basically geared to the interest of our colonial masters. The rate of growth of per capita income during the hundredyear period before Independence, from whatever scanty information is available, was just 0.5 per cent per annum. It has further been noted that there were long spells when the economy actually stagnated or declined. In the past, we were known for producing fine cotton fabric, handicrafts and other merchandise. Even during the early British Raj, that is, before the onset of industrial revolution in Britain, our economy was an industrial economy by the standards of those days whereas the European economies had yet to usher in modern civilisation. Yet, by the time we got Independence, our economy was primarily reduced to an agricultural economy and we used to export mainly raw materials and minerals for the British industries and even foodgrains while we might have been hungry ourselves.

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INDIAN ECONOMIC DEVELOPMENT

In 1950-51, our per capita income was no more than Rs 3,700 at 1993-94 prices (while in 1999-2000, it is a little more than Rs 10,000). The contribution of agriculture sector (including animal husbandry and livestock) to the GDP was around 54 per cent by current prices and 50 per cent by constant prices of 199394. If we include forestry and logging and fishing in this sector, then the contribution turns out to be 57-58 per cent. And, if we add mining and quarrying and call the combined sector as primary sector, the contribution of primary sector is found to be about 60 per cent. Manufacturing contributed only around 10 per cent. Contribution of the service sector was thus around

domestic product at 1993-94 prices from 1950-51 onwards but we give here the GDP series at five yearly interval (Table 3.1). Complete series of GDP at factor cost at 1993-94 prices is given in an appendix. However, in order to give you a feel about the general tendency of rise and occasional decline in a few years in comparison to their respective preceding years, we give here a graphical presentation of the whole series. We notice from the graph that there were occasional drops in the GDP which we do not notice in the abridged Table presented here. But, generally it has been rising. Over the period of last fifty years, it has increased more than eight times. But we

TABLE 3.1 Gross Domestic Product at Constant Prices (1993-94) from 1950-51 to 2000-01 Fiscal Year 1950-51 1955-56 1960-61 1965-66 1970-71 1975-76 GDP (Rs. Crore) 140466 167667 206103 236306 296278 343924 Fiscal Year 1980-81 1985-86 1990-91 1995-96 2000-01 GDP (Rs. Crore) 401128 513990 692871 899563 1211747

Sources : National Accounts Statistics: Back Series 1950-51 to 1993-94 and National Accounts Statistics 2001, both published by the Central Statistical Organisation.

30 per cent. Most of the people were engaged in agriculture as cultivators on their own tiny holdings or as wage labourers on others fields. Growth of GDP since 1950-51 Growth of an economy is reckoned with growth in its GDP at constant prices. We have now a complete series of gross

are and should be more interested to know whether growth rate itself has risen over time. From the series given in the appendix, we can calculate year-to-year growth. We can also calculate rates of growth for different plan-periods or different decades or for periods divided by significant events. All such breakups

GROWTH AND STRUCTURAL CHANGE IN THE INDIAN ECONOMY

27

Fig. 3.1 : Growth of GDP

have been used by scholars. We shall calculate growth rate per annum by decades only. We shall use two popular methods of calculation of annual rate of growth for long periods, viz. average annual growth and compound annual growth rate (discussed in an appendix). We present below the rates of growth of GDP for each of the decades and for the half century gone by in the following table. From Table 3.2, we notice that the rate of growth for the whole duration is conclusively more than 4 per cent per annum. The rate of growth got depressed in seventies but has definitely improved during the eighties and nineties.

Presently, it can be safely accepted that the rate of growth is close to six per cent per annum. Some credit can be given to the policies adopted in the eighties and nineties on the growth front but credit should also be given to the base created during the fifties, sixties and seventies, which helped change the productivity of the agricultural economy and diversification of the industrial economy of the country. Growth of Per Capita Income Per capita income is the ratio of net national product to the (mid-year) size of population. Net national product is

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INDIAN ECONOMIC DEVELOPMENT

TABLE 3.2
Annual Growth Rates of Gross Domestic Product at Factor Cost for Different Decades (per cent per annum) Period 1950-51 to 1959-60 1960-61 to 1969-70 1970-71 to 1979-80 1980-81 to 1989-90 1990-91 to 1999-00 1950-51 to 1999-00 Average Annual 3.59 3.95 2.94 5.79 5.80 4.43 Compound Annual 3.56 3.89 2.86 5.78 5.78 4.11

likely to follow the pattern of gross domestic product, as the component of net factor income from abroad is small in comparison to the total. Population has been secularly rising in the last fifty years though, of late, the rate of growth of population has started declining. We can remember that, in the case of population, we have only decennial figures and, therefore, can calculate only a single rate of growth of population. Using this technique, population size for each mid-year is interpolated. Dividing net national product by the size of population, per capita income is calculated. This is presented in Table 3.3 at the interval of five years. You can see that annual per capita income has risen a little less than three

times from a little less than Rs 3,700 in 1950-51 to over Rs10,000 in 2000-01, at constant prices of 1993-94. In none of the years shown here, there is a decline over the year in the previous row. But, one can notice that there is hardly any rise in 1965-66 over 1960-61, that is, after a gap of five years. Generally, there is some rise in normal years. It means that 1965-66 was a particularly bad year. In fact, 1965-66 and 1966-67 were years of severe drought, though they gave us green revolution. However, with a view to giving you an idea about the wider fluctuations in case of per capita income, we give here the graphical presentation. For the actual data, see appendix of the chapter.

TABLE 3.3
Per Capita Income at Constant Prices (1993-94) from 1950-51 to 2000-01 Fiscal Year 1950-51 1955-56 1960-61 1965-66 1970-71 1975-76 PCI (Rs) 3,687 4,020 4,429 4,459 5,002 5,167 Fiscal Year 1980-81 1985-86 1990-91 1995-96 2000-01 PCI (Rs) 5352 6082 7321 8498 10561

Sources: The same as in Table 3.1.

GROWTH AND STRUCTURAL CHANGE IN THE INDIAN ECONOMY

29

Table 3.4 shows the annual growth rate of per capita income for each of the decades and for the whole period of fifty

choose to ignore the difference between the two methods at the moment (See Appendix).

Per Capita Income in Rs.

Year Fig. 3.2 : Growth of Per Capita Income

years, by the two methods of average annual growth rate and compound annual growth rate. We can notice that, over the fifty years, growth rate was over 2 per cent per annum. The seventies saw the lowest growth rate. You can

Changes in Production Structure of the Economy As an economy grows, its production structure changes. It moves from agriculture towards manufacturing and

TABLE 3.4
Annual Growth Rates of Per Capita Income at Factor Cost for Different Decades (per cent per annum) Period 1950-51 1960-61 1970-71 1980-81 1990-91 1950-51 to to to to to to 1959-60 1969-70 1979-80 1989-90 1999-00 1999-00 Average Annual 1.53 1.51 0.55 3.89 3.73 2.16 Compound Annual 1.35 0.94 0.17 2.85 3.37 2.05

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INDIAN ECONOMIC DEVELOPMENT

structure changes. It moves from agriculture towards manufacturing and services. It is understandable. You might have noticed that relatively well-off families spend proportionately less on food items and more on manufactured items. You may also note in your family that, as income increases, expenditure on items other than food increases more than proportionately. But, you should note that normally absolute amount of expenditure does not, broadly speaking, decline; in fact, increases but less than proportionately. It implies that production structure should shift away from agriculture. Moreover, many agricultural products, which used to directly reach the households, will now reach after some processing and through long channel of distribution. Bread, noodles, sauces and juices are good examples. It means activities of manufacturing and trade will increase. So, let us see how the production structure has changed. We know that hundreds of thousands of activities are always in operation in any modern economy. Many activities emerge and some of them die down; some of them even re-emerge, may be, in a modified form. But, it is difficult to discuss in terms of each single item. We often aggregate them on the basis of similarity of products or nature of activities. Our Central Statistical Organisation uses nine broad categories, called sectors. Six of them are further subdivided in two/three/four subcategories. Industry as a sector does not occur in it; industry is accommodated in mining (and quarrying), manufac-turing and electricity. In total, there are

18 categories, sectors and sub-sectors, in which total economic activity of the country is presented in the National Accounts Statistics. There are, however, two three-fold classifications in which economists discuss changes in production structure. One is agriculture, manufacturing/ industry, and services and the other is primary, secondary and tertiary. Besides cultivation of crops, agriculture includes livestock and animal husbandry. But forestry and logging and fishing are clubbed with agriculture to make a broad sector of agriculture, forestry and fishing. If we add the sector of mining and quarrying to this sector, we can call it primary sector as these activities are associated with nature. The manufacturing sector is further subdivided into registered and unregistered manufacturing, depending upon whether manufacturing units are registered under Factories Act 1948. Industry may include manufacturing and mining and quarrying. On the other hand, if we club the sectors of electricity, gas and water supply and construction with manufacturing, we can call it secondary sector. All activities listed in the tertiary sector in Tables 3.5 3.8 along with those of electricity, gas and water supply, and construction also known as services sector. This is just a matter of convention. There may be differences between countries and within a country changes in classification may occur over time. We did not have exactly the same classification always. While new products gain entry with each major revision of national accounts, some swapping of activities is possible. For example, earlier LPG gas was included

GROWTH AND STRUCTURAL CHANGE IN THE INDIAN ECONOMY

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SECTOR CLASSIFICATION ADOPTED BY THE CSO 1. Agriculture, Forestry and Fishing 1.1. 1.2. 1.3. 2. 3. Agriculture, including livestock and animal husbandry Forestry and Logging Fishing

Mining and Quarrying Manufacturing 3.1. 3.2. Registered Unregistered

4. 5. 6.

Electricity, Gas and Water Supply Construction Trade, Hotels and Restaurant 6.1. 6.2. Trade Hotels and Restaurant Railways Transport by Other Means Storage Communication Banking and Insurance Real Estate, Ownership of Dwelling and Business Services Public Administration, Defence and Quasi-Government Bodies Other Services.

7.

Transport, Storage and Communication 7.1. 7.2. 7.3. 7.4.

8.

Financing, Insurance, Real Estate and Business Services 8.1. 8.2.

9.

Community, Social and Personal Services 9.1. 9.2.

in the sector of electricity, gas and water supply, now it is part of manufacturing. Table 3.5 presents the contribution of eleven major sectors, over six points covering fifty years, to the gross domestic product at constant prices of 1993-94. From this Table we shall derive two more Tables, one presenting the composition of gross domestic product and the other presenting the rate of growth of different sectors for each of the decades and the half-century as a whole. While we shall highlight some salient features of production structure or composition of output, it would be interesting for you to do your own

exercises and develop your own views on contributions of different sectors. Absolute Contribution of Different Sectors It is easy to see that agriculture production has been continuously on increase and has increased about fourfold. Since our Table does not include all the years, we do not find any drop in agricultural production. There are many periods when agricultural production actually fell. Whenever we notice a fall in the gross domestic product, a major reason is likely to be a fall in agricultural production as its contribution to GDP had

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INDIAN ECONOMIC DEVELOPMENT

been substantial. We were most severely hit in agriculture in the consecutive years of 1965-66 and 1966-67. These years, however, gave us green revolution. We are now quite comfortable with the overall performance of agriculture. Yet, we had had two-three years of setback in each of the decade. We should remember that agriculture gives us food, milk and meat and gives to industry the raw material needed particularly for consumer goods industries. Compared to agriculture, other sectors included in primary sectors are small; the contribution of primary sector is found to have risen only four times. Manufacturing which contributed about Rs 12,500 crore in 1950-51, contributed to the tune of Rs. 2,00,000

crore in 1999-2000, almost sixteen-fold increase over the period. Annual construction activity also rose ten times. Construction does not mean only houses but also roads and railway lines, dams, and canals, bridges and flyovers, etc. and also huts. Electricity, gas and water supply were in nascent stage in the wee hours of Independence, contributing less than Rs 500 crore at 1993-94 prices. Its contribution rose 60 times in 50 years. Overall contribution of the secondary sector rose fifteen-fold. Trade along with hotel and restaurant business rose fourteen-fold over the period while transport along with storage and communication rose eighteen-fold. Financial and business services including insurance and real

TABLE 3.5
Contribution of Different Sectors to Gross Domestic Product at Constant Prices of 1993-94 for the period between 1950-51 and 1999-00 (Rs Crore)
SECTOR OF ACTIVITY Agriculture Forestry and Logging Fishing Mining and Quarrying PRIMARY SECTOR Manufacturing Electricity, Gas and Water Supply Construction SECONDARY SECTOR Trade, Hotels and Restaurants Transport, Storage and Communication Financing, Insurance, Real Estate and Business Services Community, Social and Personal Services TERTIARY SECTOR GROSS DOMESTIC PRODUCT 1950-51 70,456 9,456 1,249 2,085 1960-61 1970-71 97,412 1,21,356 9,704 13,086 2,124 3,197 3,594 5,261 1980-81 1,43,431 11,910 3,952 8,477 1,67,770 55,436 6,774 24,395 86,605 48,883 24,963 26,156 46,751 1,46,753 4,23,073 1990-91 1999-00 2,00,634 2,66,848 11,751 12,542 6,943 10,944 19,819 26,446 2,39,147 3,16,780 1,15,282 1,96,763 16,203 28,225 38,218 58,728

83,246 1,12,834 1,42,900 12,491 22,465 37,389 457 1,217 3,501 5,722 18,670 12,137 4,645 9,380 13,215 39,377 10,558 34,240 20,254 8,064 12,568 18,908 59,794 18,107 58,997 32,324 13,759 17,588 31,660 95,331

1,69,703 2,83,716 86,892 1,68,355 42,894 84,477

66,990 1,46,546 84,380 1,52,117 2,81,156 5,51,495 6,92,871 11,51,991

1,40,466 2,06,103 2,96,278

Source: The same as in Table 3.1

GROWTH AND STRUCTURAL CHANGE IN THE INDIAN ECONOMY

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estate also rose fifteen times while community, social and personal services, including public administration and defence rose only eleven-fold. Thus, in the second half of the twentieth century while the contribution of primary sector to GDP rose to four fold that of secondary and tertiary sectors rose by fifteen fold each. Relative Contribution of Different Sectors Relative contribution of a sector depends on its own performance as well as that of other sectors. As a result, despite positive contribution, a sector may lose relative position. Thus, while agriculture contributed 50 per cent to the making of GDP in 1950-51, it contributes less than 25 per cent at the close of the century despite four-fold increase in its output. The contribution of primary sector came down from close to 60 per cent to less than

30 per cent over the period. The share of manufacturing in GDP has gradually risen from 9 per cent to 17 per cent over the period. The share of electricity, gas and water supply, which was hardly one third of one per cent rose to close to 2.5 per cent. The activity of construction, despite good rise in absolute terms, is considered to be slackening; during the first twenty years, while the share rose from 4 per cent to 6 per cent, during the last thirty years it fell back to 5 per cent. Secondary sector as a whole raised its contribution from about 14 per cent to more than 24 per cent. The secondary sector is closely contesting the primary sector as far as its contribution to the GDP is concerned. Let us look at the tertiary sector. The share of contribution of activities of trade, hotel and restaurant business rose from 8-9 per cent to 14-15 per cent

TABLE 3.6
Composition of Output in Terms of Sectoral Output to Gross Domestic Product valued at Constant Prices of 1993-94 (in Percentage) SECTOR OF ACTIVITY 1950-51 1960-61 1970-71 Agriculture 50.16 47.26 40.96 Forestry and Logging 6.73 4.71 4.42 Fishing 0.89 1.03 1.08 Mining and Quarrying 1.48 1.74 1.78 PRIMARY SECTOR 59.26 54.75 48.23 Manufacturing 8.89 10.90 12.62 Electricity, Gas and Water Supply 0.33 0.59 1.18 Construction 4.07 5.12 6.11 SECONDARY SECTOR 13.29 16.61 19.91 Trade, Hotels and Restaurant 8.64 9.83 10.91 Transport, Storage and 3.31 3.91 4.64 Communication Financing, Insurance, Real Estate 6.68 6.10 5.94 and Business Services Community, Social and 9.41 9.17 10.69 Personal Services TERTIARY SECTOR 28.03 29.01 32.18 GROSS DOMESTIC PRODUCT 100.00 100.00 100.00 Source: The same as in Table 3.1 1980-81 35.76 2.97 0.99 2.11 41.82 13.82 1.69 6.08 21.59 12.19 6.22 6.52 11.65 36.59 100.00 1990-91 1999-00 28.96 23.16 1.70 1.09 1.00 0.95 2.86 2.30 34.52 27.50 16.64 17.08 2.34 2.45 5.52 5.10 24.49 24.63 12.54 14.61 6.19 7.33 9.67 12.18 40.58 100.00 12.72 13.20 47.87 100.00

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INDIAN ECONOMIC DEVELOPMENT

while that of transport, storage and communication rose from 3.3 per cent to 7.3 per cent over half the century. The contribution of financial and business services increased from 6.7 per cent to 12.7 per cent while that of community and personal services increased from 9.4 to 13.4 per cent. It may be noted that, among the sectors within tertiary sector, in 1950-51, the contribution of community and social services dominated the scene but it gradually gave way to trade but in the nineties sector of financial and business services emerged as close contestant. However, it may be pointed out that public administration and defence, which contributed to the tune of 3 per cent in 1950-51, are now contributing more than 6 per cent. Within the broad category of community and social services, the share of public administration and defence has risen from 1/3 to 1/2 over the period (See Table 3.6). Growth of Different Sectors From Table 3.5, we can also derive a table giving us the rate of growth of different sectors. We have computed only compound annual growth rates (Table 3.7). We should take these rates with a pinch of salt as they crucially depend upon initial and final figures. Roughly speaking, agricultural situation during sixties and seventies can be said to be bad as the rates of growth fell below that of population. Foodgrains dominate in our agriculture and we cannot afford to import it. Even if we import some agricultural produce, being a large country, we ought to produce enough foodgrains ourselves. During the

nineties, the growth of foodgrains production is somewhat slackening. So long as it does not create bottleneck for raw material for industry and supply of foodgrains does not fall short of domestic demand, we can afford a little lower growth rate in future. The rate of growth of primary sector has always been lower than that of secondary and tertiary sectors, which is a major reason for decline in its share. Manufacturing sector activity grew at twice the rate of agriculture. The seventies were bad for all sectors. Electricity, gas and water supply accorded a very low rate of growth of 4 per cent per annum during the seventies. So was the case with construction. Secondary sector as a whole did pretty well during the eighties, better than during the nineties. The nineties belong to the tertiary sector, which grew at the rate of 7.8 per cent per annum. All service sectors are growing faster in the nineties than they did in the eighties wherein performance was better than that in the seventies in terms of growth. There are, one can see, a couple of exceptions to this observation. The overall movement seems to be away from primary/agricultural complex to secondary and tertiary sectors. The drop in the share of agriculture is shared between secondary and tertiary sectors; and as time passes the share of tertiary sectors is increasing faster than the share of secondary sectors. Changes by Other Segregations of Production Three important divisions of activities are often discussed by scholars so far as

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TABLE 3.7
Annual Rate of Growth of Different Sectors over the Decades (in per cent) SECTOR OF ACTIVITY Agriculture Forestry and Logging Fishing Mining and Quarrying PRIMARY SECTOR Manufacturing Electricity, Gas and Water Supply Construction SECONDARY SECTOR Trade, Hotels and Restaurants Transport, Storage and Communication Financing, Insurance, Real Estate and Business Services Community, Social and Personal Services TERTIARY SECTOR GROSS DOMESTIC PRODUCT Population Source: The same as in Table 3.1
1950-51 1960-61 to to 1960-61 1970-71 1970-71 to 1980-81 1980-81 to 1990-91 1990-91 to 1999-00 1950-51 to 1999-00

3.29 0.26 5.45 5.59 3.09 6.05 10.29 6.32 6.25 5.25 5.67 2.97 3.65 4.27 3.91 1.91

2.22 3.03 4.17 3.88 2.39 5.23 11.14 5.54 5.59 4.78 5.49 3.42 5.29 4.77 3.69 2.23

1.68 -0.94 2.14 4.89 1.62 4.02 6.82 3.03 3.91 4.22 6.14 4.05 3.97 4.41 3.07 2.30

3.41 -0.13 5.80 8.86 3.61 7.60 9.11 4.59 6.96 5.92 5.56 9.86 6.08 6.72 5.61 2.14

3.22 0.73 5.19 3.26 3.17 6.12 6.36 4.89 5.88 7.62 7.82 9.09 6.77 7.77 5.81 1.87

2.70 0.57 4.43 5.21 2.71 5.67 8.56 4.77 5.59 5.40 5.97 5.65 5.01 5.42 4.30 2.05

production structure is concerned. One is the division regarding location of activities, location being divided between rural and urban areas. The second is on the basis of ownership of production establishments, division being made between public and private. The third one is about organised and unorganised sectors. Division between Rural and Urban Areas Agriculture is the industry of the country-side and manufacturing is the industry of the town, said Adam Smith, father of Economics. As a habitation diversifies its economic activities, it changes its status from rural to urban at some point meeting certain

definitional marks. In India, in last fifty years, the number of towns has increased from 2800 to 3600 and population living in them has increased from a little over 6 crore to 26 crore. The proportion of population living in urban habitation is now well over 25 per cent, which in 1950-51 used to be around 16 per cent. On the other hand, the number of villages is now about six lakh and a village may have more than one hamlet. The number of rural habitations is over 10 lakh. Not only agricultural and pastoral activities are carried out in rural habitations, manufacturing (handicrafts), trade (retail), transportation (bullock carts and tractors) are also part of rural activities and rural folk benefit from them.

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INDIAN ECONOMIC DEVELOPMENT

We do not have regular annual series of production output of the activities according to rural-urban division. The CSO has made available such a division for the years 1970-71, 1980-81 and 1993-94 but only at current prices and for net domestic product. With the help of these figures, we gather some broad idea about the shift in activities. From the perusal of these statistics, one would notice that in 1970-71 only 62.5 per cent net domestic product was generated in the rural area where more than 80 per cent population resided (and worked) while in the urban area population residing (and working) was less, 20 per cent, the net domestic product generated was 37.5 per cent. Thus, per capita net domestic product in the urban area was 2.45 times that in the rural area. When we look at the data for 1993-94, we gather that while population proportion in rural area has reduced by about 6.7 per cent points, its contribution to net domestic product has reduced by 8.6 per cent points but just the reverse could be said to be the case with the urban area. But the loss of 6.7 points in 80.2 points is not the same as gain of 6.7 points in 19.8 points. Therefore, net accretions to the two areas on per capita basis show that per capita net domestic product in the urban area is 2.39 times that in the rural area. Though this ratio is not deteriorating over time, it is high enough to make people move to urban areas even if unemployment rate is somewhat higher in urban areas. Division between Public Sector and Private Sector Ever since there has been the state, there

has been public sector. But the presence of public sector in production, beyond public administration and control, was very little before Independence. It has been increasing over time as we pursued a policy of state intervention in various sectors for variety of reasons. There is not one broad sector of economic activities where public sector is altogether absent. We have firm data on contribution of public sector in different production sectors since1960-61. A cursory look suggests that the importance of public sector had been on increase with the passage of time in practically all sectors. The share of public sector, which was barely 9 per cent even in 1960-61, has increased close to 27 per cent though of late the speed of rise has slackened. Public administration is purely a public sector activity and in fishing, it has just shown its presence. In agriculture its presence has increased but it predominantly seems to be irrigation as this activity is accounted for within the sector of agriculture. Its contribution in forestry and logging sector is drastically reducing. Most of the mining activity is under public sector and it is now around 80 per cent. Even in the sector of manufacturing its share has gradually increased from around 7 per cent in 1960-61 to around 20 per cent in 1998-99. The share in construction activity has increased from less than 5 per cent in 1960-61 to almost 16 per cent in 1998-99. It is in trade that public sector has withdrawn since 1980-81 when it participated to an extent of 8.5 per cent. Its role in transport has also plummeted to some extent yet it plays a great role.

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The railways are completely with the Government of India. In road transport, state corporations play a significant role at least in passenger transport. In financial sector too, the presence of public sector rose significantly; it rose from 6.5 per cent in 1960-61 to 17 per cent thanks due to nationalisation of 14 major banks. A further dose of nationalisation in 1975-76 led to its further rise to 27 per cent by 1980-81. Even 6.5 per cent in 1960-61 should owe a great deal to the nationalisation of Imperial Bank as the State Bank of India. Division between Organised and Unorganised Sectors Organised sector includes all public sector establishments and private sector establishments registered under one or the other act, such as Company Act, Factory Act, Societies Act or Cooperative Act, etc. They are supposed to maintain accounts. Net domestic product was found divided between organised sector and unorganised sector in 25:75 ratio in 1960-61. With passage of time, the proportion of organised sector went on increasing, with some fluctuation, and reached around 30 per cent by 1980-81. Since then, its share has been rising and it is expected to be around 40 per cent by the close of the century. Within organized sector, manufacturing accounts for 40 per cent and community and personal services, 30 per cent while trade and finance may account for 25 per cent. Industrial Structure of Employment All able-bodied persons should work. Children should not be allowed to work. Old, sick and infirm should not be

permitted to work. Even if production is almost mechanised, there is a man behind the machine. People who are employed and people who employ as well as people who are self-employed are all treated as workers. Their numerical strength is known as work force. People who are willing to work at the prevailing wage rate but are not employed, are treated as unemployed. Despite the general feeling that a large number of people are unemployed, the percentage of people who are unemployed is not very large. (However, in the composition of the unemployed, a large number comes from the educated lot). The reason is that poor people cannot afford to be unemployed. They work on somebody elses farm, shop or factory or engage themselves in some or the other activity on their own account. We should, however, remember that statistics used by us do not include people engaged in activities carried out in homes and hearths by the members of the family/household. The proportion of people working in total population in our country is around 40 per cent. This proportion is higher in the case of male members and those living in villages. There is a variety of ways in which employment data is presented. One classification is sectoral (or industrial) and the other is occupational. They are made for each of basic four categories, viz., rural male, rural female, urban male and urban female. Employment data is available from the census as well as the NSS. The census data for 2001 is not yet available in as much detail as we need them in this chapter. We opt for the NSS data. However, comparable NSS data is available from 1972-73 only at an interval of five years (See Table 3.8).

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TABLE 3.8
Industrial Classification of Workers from 1972-73 to 1999-2000 (in per cent) SECTOR OF ACTIVITY
1972-73 1977-78 1983 1987-88 1993-94 19992000

Agriculture, etc.* Mining and Quarrying PRIMARY SECTOR Manufacturing Electricity, Gas and Water Supply Construction SECONDARY SECTOR Trade and Commerce Transport, Storage and Communication Other Services TERTIARY SECTOR Total Employment (Cr.)

74.0 0.4 74.4 8.8 0.2 1.8 10.8 5.0 1.8 8.0 14.8 23.6

72.0 0.5 72.5 10.2 0.2 1.7 12.1 5.8 1.9 7.7 15.4 27.1

68.4 0.6 69.0 10.7 0.3 2.3 13.3 6.9 2.5 9.2 18.6 30.3

64.1 0.7 64.8 11.3 0.4 3.8 15.5 7.3 2.7 9.7 19.7 32.2

63.9 0.7 64.6 10.6 0.4 3.2 14.2 7.6 2.8 10.5 20.9 37.2

59.8 0.6 60.4 12.1 0.3 4.4 16.8 9.4 3.7 9.6 22.7 39.7

*Including Livestock, Forestry, Fishing, Hunting, Plantations, etc.

Source : Manpower Profile of India 1999, Institute of Applied Manpower Research, New Delhi. For 1999-2000 from the absolute data provided in Report of Task Force on Employment Opportunities, Planning Commission, Government of India, June 2001.

It is easy to see that, until early seventies, as many as three-fourths of the workers were engaged in agricultural/ primary activities. By the close of the century, their strength gradually reduced to three-fifths. In manufacturing, the proportion of workers rose slowly from less than 9 per cent to over 12 per cent. Construction activity picked up fast. As a result, there is 6 per cent increase over 10.8 during the period under discussion. Trade and commerce as well as transportation activities picked up fast; their share became twice. It is important to remember that our total employment also went on increasing. By multiplying these percentages with corresponding total employment (given in the last row of Table 8), we can get absolute number of

persons employed in each sector. Total employment rose during this period by 16 crore (about 70 per cent); in the last six years by 2.5 crore. It would be discovered that, for the first time in 1999-2000, employment in agriculture sector has reduced and it reduced by 50 lakh when compared to 1993-94. In these six years, some 3 crore people were thus absorbed in non-agriculture sectors. Trade, manufacturing and construction were major absorbing sectors. Concluding Remarks In this chapter, first, we tried to have some idea about the economy in the initial years of our Independence and emphasised that the first half of the twentieth century was bad in terms of growth as well as in terms of

GROWTH AND STRUCTURAL CHANGE IN THE INDIAN ECONOMY

39

diversification of the economy. Then, we discussed the growth of GDP and PCI. We noticed that, over the span of fifty years, the growth rate of GDP was a little over 4 per cent per annum. The rate of growth during the seventies was particularly low. During the eighties and nineties, we were able to grow at a rate close to 6.0 per cent per annum. Per capita income grew at the rate of slightly more than 2 per cent per annum during the whole span of fifty years. During the eighties and nineties, the rate was found to be more than 3.5 per cent per annum. Then, in order to find out as to how the composition of GDP in terms of sectoral contribution was changing, we studied absolute contribution and relative contribution of different sectors, as also growth rate of different sectors. We noticed that contribution of agriculture to GDP, despite four-fold increase, reduced from 50 per cent in 1950-51 to less than 24 per cent in 19992000. The contribution of primary sector came down from 60 per cent to 27.5 per cent. The contribution of secondary sector increased from 13 per cent to about

25 per cent while that of tertiary sector, from around 28 per cent to 48 per cent during the same period. We also touched upon the contribution of rural sector vis-a-vis urban sector, public sector vis-a-vis private sector and organised sector vis--vis unorganised sectors. Contribution of rural sector decreased from over 62 per cent in 1970-71 to about 54 per cent in 1993-94 while population of the sector reduced from 80 per cent to 75 per cent. Contribution of public sector grew from less than 10 per cent in 1960-61 to well over 25 per cent in 1998-99. Contribution of organised sector was about 25 per cent in 1960-61, which is expected to have risen to around 40 per cent. In the end, we discussed how labour is being absorbed in different sectors. The employment in agriculture has declined from three-fourths in 1972-73 to three-fifths in 1999-2000; the absolute number reduced for the first time in 1999-2000. Employment deceleration in primary sector is evenly shared between secondary sector and tertiary sector.

EXERCISES
1. 2. 3. Briefly discuss the conditions of the Indian economy at the time of Independence or a little after. Discuss the growth of GDP for the whole period of fifty years since 1950-51 as well as each of the decades. Account for acceleration or deceleration. Give a snapshot picture of growth of per capita income for each of the decades. Try to reason as to why the growth rate during the seventies by the method CAGR is so low. What do you mean by structural change in an economy? Explain. Enumerate the activities normally included in primary, secondary and tertiary

4. 5.

40

INDIAN ECONOMIC DEVELOPMENT

sectors. Discuss, with the help of tables, as to why the contribution of agriculture to GDP reduced so drastically despite the success of green revolution and surplus of agricultural production, especially foodgrains. 7. How have secondary sector and its sub-sectors fared during post-Independence period? 8. Give the salient features of growth of tertiary sector and its contribution to GDP since 1950-51. 9. Discuss the changes in sectoral composition of GDP. 10. How do you define public sector? How has it grown since 1960-61? 11. Discuss the implications of reduction in contribution of rural areas to GDP, which is higher than reduction of its share in population. 12. How is the contribution profile of organised sector changing? 13. Differentiate between industrial and occupational distributions of employment. 14. Discuss the industrial distribution of workers in the Indian economy since 1972-73. 6.

ACTIVITIES 1. Search the years of decline in per capita income from the Table given in the appendix. Find out its frequency in each decades. Discuss implications with your classmates. Locate negative growth rates in Table 3.7. Reason out why from what you read outside the class. With the help of total employment figures given in the bottom row of Table 3.8 and percentage distribution of workers in other rows, prepare a table of absolute employment for each sector for each year. With the help of this table, formulate your ideas as to which sectors are displacing labour and which ones are absorbing it. Suppose labour productivity of a sector is obtained by dividing absolute contribution of a sector by the size of employment in that sector. Treat employment for 1972-73 as if it is for 1970-71, and similarly employment for 1993-94 as if it is for 1990-91 for this limited purpose. Calculate labour productivity for 1970-71 and 1990-91 for each sector and compare the two sets of derived figures.

2. 3.

4.