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Growth and Structural Change in the Indian Economy
Historically, an economy would undergo structural changes when growing: agriculture’s contribution to the gross domestic product would decline steadily, industry’s contribution would rise steadily and compensate, and later, the services sector would follow. Contrary to this historical pattern, the services sector has bypassed the industrial sector in India, and it dominates the economy. An empirical analysis of the nature and causes of structural change in the Indian economy shows that the industry and the economy are driven by the services sector, and the sector’s growth and dominance is influenced by external factors, such as foreign direct investment.
The process of economic growth in developed countries was initially driven by the industrial revolution. Industrialisation-led economic growth led to the reallocation of labour from the lower productive sector (traditional agriculture) to the higher productive sector (manufacturing) (Memedovic and Iapadre 2009). The contribution of the primary sector—agriculture—to the gross domestic product (GDP) declined steadily, and the contribution of industry, led by manufacturing, to GDP increased steadily.
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