As of 2018, India has become the sixth largest economy in the world displacing France from this position and nearly tying with the United Kingdom. While there is cause to celebrate, there are two major concerns about India’s growth experience. The first has been a well documented subnational divergence in growth; some states lag far behind while others enjoy diverse labor opportunities and robust economic development. Second, there has been a continued dependence of labor on agriculture for employment and livelihoods even though agriculture’s contribution to overall GDP has been falling.

With regards to the former, subnational divergence has created a situation where states such as Bihar have development outcomes similar to Sub-Saharan Africa while states like Goa look like countries in Latin America. Reviewing TCI’s new book Transforming Food Systems for a Rising India (Chapter 2), we identify two main reasons for this sub-national divergence. First, we argue that currently lagging states were left behind in the development process because they lacked comparative advantages in the implementation of green revolution technologies, keeping them stuck in traditional agriculture practices. Agricultural policies overemphasize rice and wheat, a “staple-grain fundamentalism” which impedes production diversity and income growth. In comparison, states with greater flexibility in their development approach, which have focused on developing sectors and industries in which they have local or global comparative advantages in resource availability, have been more successful in enabling greater structural transformation of their economies.

Divergence in growth at the state-level has led to different welfare and nutrition outcomes (Source: Pingali, et al 2019)

Second, differential opportunities within the labor market have also played a role in reinforcing this subnational divergence. Not surprisingly, in lagging states, a greater proportion of the workforce earns its livelihood through agriculture. However, even as state economies transform, urbanize and diversify, many agriculture laborers have found it difficult to transition to the non-agriculture sector. In the book, we discuss that the heart of the employment conundrum lies in labor market frictions. In lagging states especially, inefficiencies in labor markets have reduced the ability of the non-agricultural sector to absorb the marginal, underemployed agricultural laborer. Thus agricultural wage labor still dominates much of the rural employment in these areas and agricultural wages remain depressed. This has reinforced a vicious cycle of low productivity and low growth in these areas. In more urbanized states, growth has come from the high skilled services sectors. Human capital investments in health and education have been instrumental in facilitating this growth. However, limited capacity of urban and peri-urban areas and high levels of socio-economic-cultural costs associated with permanent migration have slowed down the employment transition out of agriculture. This has prevented migration of workers towards opportunities in the non-agricultural sector (both within and across state borders), reinforcing differences in productivity and hence growth across states.

Catching up: Options for lagging states

We envision a future where there is greater and more equitable growth that allows currently lagging states to catch up, or at the very least, reduce the divergence gap. To do so,

• In lieu of a national growth strategy, we ask for state-specific development policies that prioritize the experience of each state are implemented. In our vision for the future, states in India need to reorient their economies towards global growth opportunities based on their comparative advantages.

• As the global manufacturing world becomes more mechanized, creating a clear pathway for young people to benefit from economic growth through greater human capital investments in health and education should be an important policy commitment.

• For the currently low skilled laborer, reducing search and entry costs in non-agricultural labor markets is the need of the hour. Human capital investments in education and health, developing new urban safety nets, creation of employment exchanges, creating opportunities for reskilling oneself, and increasing public health investments & access to finance will be important in this regard.

• We believe in the unlocked potential of women in the workforce. Data confirms there has been an increasing number of women working on farms; however, current agricultural technologies are not gender neutral in access and use. To grow agriculture GDP, crop technologies and extension services need to reach women.

• Crop technologies of the future need to be climate smart if they are to increase rural productivity.

• A key to ensuring greater rural growth in this dynamic environment is in the development of non-agricultural, rural-based value chains. Engaging individuals in the food value chains and the health services sector will help more people transition out of agriculture and into the non-ag sector.

For more details and analysis, we invite you to review Economic Growth, Agriculture and Food Systems: Explaining Regional Diversity  – Chapter 2 in Transforming Food Systems for a Rising India.

By Anaka Aiyar and Jessica Ames

Anaka Aiyar is a Postdoctoral Associate at the Tata-Cornell Institute and co-author of the book Transforming Food Systems for a Rising India. On twitter @AiyarAnaka.

Jessica Ames is the Communications and Outreach Manager at the Tata-Cornell Institute. She tweets @TataCornell and @j_scott_ames.