A point that we've made before in this newsletter is about the stagnation of manufacturing, both in terms of employment, and in terms of contribution to economic value added. But something that we've paid less attention to is where the big shift in industry actually did come from, and that's construction.
Quick recap: the economy is broadly divided into agriculture, industry and services, and the broad story of global development, as my colleague Abhishek Waghmare explains in this piece for us, has been a move away from agriculture both in terms of employment and value add, towards industry and services. In India, things have gone a little differently - while there is very much a move away from agriculture, the growth in the share of industry in economic value-add has been quite flat over the last thirty years, while growth in the share of services has been quite rapid.
In global statistics, industry is made up of four key sub-sectors: manufacturing, construction, utilities and mining. The main reason for slow industrial growth has been that the share of manufacturing in the Gross Domestic Product never really took off. The share of manufacturing in Bangladesh's GDP went from 5% to 23% over the last 60 years or so; in India, on the other hand, it fell from 15% to 13% over the same period.
The reason that industrial growth overall has remained flat and not declined is because the industrial sub-sector that did grow over this period was construction.
While its share in value-add grew, the share of construction in employment grew even faster. In fact construction is now the sub-sector that employs the most Indians after farming.
As with many such big shifts, my takeaway is not along good/ bad lines (although construction does employ people with lower levels of education and at lower wages), but more an update of my own priors; when we talk about industrial growth, I'm not usually picturing the construction industry. Given that our most recent numbers do show that an Indian industrial worker is more likely to be in construction than manufacturing, that's my own big shift.
