This years Economic Survey 2013 has been prepared under a very grim economic scenario. It is also the first survey steered by the CEA, Raghuram Rajan, and quite plausibly might just be the last one under the current government. There is justifiable curiosity among the economists to see whether there are any definite imprints of Rajan and his team on the survey. I guess they will not have to look hard and they would not be disappointed either.
While a large chunk of the survey is the usual narrative on the data, trends, and prospects of the economy, it includes an interesting new chapter, titled Seizing the Demographic Dividend. The chapter provides a thorough and instructive discussion on the sectoral transformation of the Indian economy, and highlights the peculiarities of this process in the Indian context. In order to do so, it draws liberally on the cutting edge research done in India and elsewhere, and discusses the key reform initiatives to address the peculiarities of the growth process.
The survey reminds that the agriculture sector in India is shedding labour way too slowly, as a result of which a large share of the labour force remains trapped in low-productive agricultural activities. The industry sector is in its own woeful state of affairs, wherein the share of industry in GDP has remained stagnant for almost two decades. Comparing the Indian experience with that of China, Indonesia and South Korea, at similar stages of their respective reform trajectories, shows that the size of the industrial sector in India is smaller than that of comparable countries at similar stages of reforms. Despite being a labour abundant country, the pattern of production within industry is skewed towards capital and skilled labour intensive activities. Firms shy away from expanding their size and entering the formal sector. Hence, within industry as well a large fraction of labour is employed in the unorganised sector, working under the conditions of low productivity, drawing low wages and affording very little social protection. On the other hand, the small per cent of the privileged workers, who are engaged in the organised sector, are protected through a myriad of labour laws. While the service sector has stepped in to fill the slack a bit, it is also wobbled by an inadequate availability of educated and skilled labour, and by regulatory burden.
In this milieu, India is experiencing even greater additions to its labour force