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Despite high growth rates, India’s economic dualism—between capital-rich and labour-heavy sectors— highlights the widening gap in inclusive progress, signalling a clarion call
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India’s economic landscape is marked by the coexistence of a dynamic, capital-intensive modern sector and persistent challenges within the traditional, labour-intensive sectors. This dualism has long defined its growth story. Recent developments underscore India’s exceptional performance as the fastest-growing large economy, even as deep structural imbalances persist. Projections from the World Bank’s Global Economic Prospects (GEP) report and the International Monetary Fund’s (IMF) World Economic Outlook highlight that India is set to sustain a growth rate of approximately 6.7 percent and 6.5 percent, respectively, over the next two fiscal years, significantly outpacing the projected global average of 2.7 percent. This robust performance is expected to be driven largely by a revitalised services and manufacturing sector, fuelled by transformative government initiatives. Nevertheless, the country’s dualistic structure continues to pose significant challenges to achieving truly inclusive growth.
India’s robust growth projections, grounded in strong fundamentals despite global uncertainties, are attributed to a thriving services sector and strengthening of the country’s manufacturing base. Government initiatives—from modernising infrastructure under the Pradhan Mantri Gati Shakti National Master Plan to simplifying the regulatory systems to facilitate small businesses and startups—have played a critical role in enabling its growth. These reforms have driven modern sector expansion and enhanced the prospects for private consumption over the years, supported by improved access to credit and a strong labour market.
Government initiatives—from modernising infrastructure under the Pradhan Mantri Gati Shakti National Master Plan to simplifying the regulatory systems to facilitate small businesses and startups—have played a critical role in enabling its growth.
Programmes such as Startup India, Make in India, and the Production Linked Incentive Scheme have underscored the government’s commitment to fostering innovation, financial inclusion, and support for manufacturing and allied industrial sectors. These initiatives reflect an ambitious drive toward building a self-reliant and globally competitive economy, even as traditional sectors have lagged. Despite the significant advances in its secondary and tertiary sectors, structural dualism in India remains evident. Agriculture remains the top employer, absorbing nearly 46 percent of the workforce (as of 2022–23), even as it contributes only 15 percent of the Gross Domestic Product (GDP). The unorganised or informal sector employs as much as 86 percent of the workforce and accounts for about 43 to 52 percent of the Gross Value Added (GVA) (estimated in 2017–18), and remains a crucial yet underdeveloped part of the economy. This persistent dualism highlights India’s challenge in reallocating labour from low-productivity sectors to the rapidly modernising segments of its economy.
Economic theory posits that development should lead to a structural shift where labour transitions from traditional, low-productivity sectors (like agriculture) to higher-productivity industries (manufacturing and services). However, India's data tells a different story. While the modern sectors have seen productivity levels nearly four times greater than those in agriculture, the latter's consistently high share of employment, despite relative stagnation, continues to reinforce income disparities, hampering inclusive growth. Even though economic growth has led to a rise in income levels and enabled households to transition to higher income groups, the structural problems of inequality, informality, and employment vulnerability continue to persist and amplify due to the dualist structures. The top 1 percent of the population now controls a significant share of national income, further exacerbating wealth disparities and undermining the prospects of social cohesion over time.
Predominantly labour-intensive with fragmented land holdings, agriculture struggles to achieve economies of scale and modernisation, limiting the surplus needed for broader economic development.
For instance, the traditional agriculture sector continues to constrain India's growth trajectory due to its inherent low productivity and technological lag. Predominantly labour-intensive with fragmented land holdings, agriculture struggles to achieve economies of scale and modernisation, limiting the surplus needed for broader economic development. Structural inertia, aggravated by limited access to credit and poor market access, prevents a smooth reallocation of labour to higher-value sectors like manufacturing and services. Consequently, persistent rural poverty and inefficient resource allocation undermine overall productivity, posing a significant barrier to India's economic convergence and inclusive growth.
In addition, approximately 90 percent of total employment in India remains informal, yet again constrained by limited access to capital and technology, which not only stifles productivity but also perpetuates the cycle of low wages and minimal innovation. The formal sector’s reliance on informal inputs further cements this interdependence, making comprehensive structural reforms essential for inclusive and sustained growth. Rapid rural-to-urban migration, a response to limited rural opportunities, has led to significant urban challenges—housing shortages, traffic congestion, and environmental degradation – highlighting the externalities accompanying unbalanced economic growth.
The formal sector’s reliance on informal inputs further cements this interdependence, making comprehensive structural reforms essential for inclusive and sustained growth.
To sustain high growth rates with the imperative of inclusive development, India must adopt an approach that helps bridge the gap between its dualist sectors, emphasising and strengthening existing efforts to enable some of the broader principles that follow:
With forecasts indicating sustained growth at around 6.7 percent in the coming fiscal years, India is poised to dominate the global economic landscape.
India's economic narrative is one of ambition and resilience—a story vividly encapsulated by its ability to sustain strong growth prospects amid global slowdowns. With forecasts indicating sustained growth at around 6.7 percent in the coming fiscal years, India is poised to dominate the global economic landscape. Yet, the combined force of a booming modern sector with an enduring traditional sector presents significant challenges to achieving inclusive growth. Addressing these challenges through progressive taxation, labour-intensive industrialisation, improved credit access, and comprehensive rural development is crucial for ensuring that the gains from rapid growth are equitably shared. Integrating these principles within existing government initiatives will reinforce India's economic resilience whilst paving the way for a more inclusive future—one where ambition, innovation, and strategic governance converge to uplift all segments of society.
Debosmita Sarkar is an Associate Fellow at the Centre for New Economic Diplomacy at the Observer Research Foundation.
Manish Vaidya, Research Intern, ORF
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Debosmita Sarkar is an Associate Fellow with the SDGs and Inclusive Growth programme at the Centre for New Economic Diplomacy at Observer Research Foundation, India. Her ...
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