Introduction
Unlike the classical economic trajectory outlined in the Lewis model—where surplus labour shifts sequentially from low-productivity agriculture to labour-intensive manufacturing and subsequently to services—India uniquely bypassed the secondary sector. While the service sector drives approximately 55% of India's Gross Value Added (GVA), agriculture continues to employ around 46.1% of the workforce (PLFS 2023-24), giving rise to profound structural imbalances.
Structural Vulnerabilities of the Service-Led Model
India's premature leapfrogging directly into a service-dominated economy without a deep industrial base has introduced several systemic vulnerabilities:
- The 'Missing Middle' and Jobless Growth: High-productivity services cannot absorb vast masses of low-to-medium-skilled rural workers moving out of agriculture. This manifests as 'premature deindustrialisation', where manufacturing's share in output stagnates at 15–17% of GDP at relatively low per capita income levels, unlike the historical experience of East Asian economies.
- Skill-Biased Inequality and K-Shaped Trajectory: Modern tradable services (such as IT, software development, and financial services) are inherently skill-intensive. This produces a dualistic economy where a relatively small, highly educated elite benefits from rapid wage expansion, while the majority of unskilled workers are pushed into precarious, low-productivity informal services like petty trade and the gig economy.
- Exposure to External Shocks and Technological Disruption: India's service exports depend heavily on Western enterprise IT budgets and global demand cycles. Furthermore, rapid developments in Artificial Intelligence (AI) and automation pose immediate substitution risks to entry-level business process outsourcing (BPO) and IT support operations.
- Current Account Pressures and Strategic Supply Chain Deficits: The underdevelopment of domestic manufacturing inflates merchandise import bills for critical items such as electronics, capital machinery, active pharmaceutical ingredients (APIs), and defence equipment, leading to persistent trade deficits and acute vulnerability to external supply shocks.
Conclusion
While services provided essential initial economic momentum, realizing India's demographic dividend requires a balanced 'walking on two legs' approach. Policy initiatives such as the Production-Linked Incentive (PLI) schemes and Make in India represent vital structural corrections to build a labour-absorbing, globally competitive manufacturing sector alongside advanced services.