The fallacy of chasing sunrise sectors

There is near unanimity that states will play a pivotal role in India’s future economic growth.

- SHISHIR GUPTA & RISHITA SACHDEVA.

For accelerated growth, it’s widely accepted that states will have to push their manufacturing and services sectors by undertaking factor-market reforms — reducing the price of land, ushering in flexible labour laws, among others — and strengthening cities, since agriculture is assumed to be inherently slower-growing.

The performance of fast-growing states like Gujarat and Karnataka, which have grown their real gross domestic product (GDP) in excess of 8 per cent per annum in the last decade, driven by manufacturing and services, further reaffirms this growth paradigm. But this growth template poses a conundrum for the agrarian states: Must they abandon their agricultural strengths and try to create industries and services ecosystems from scratch to grow faster?

This question is even more relevant today, as global trade is more uncertain, making it harder to follow the classic manufacturing-led growth path. Thankfully, multiple growth models exist, at least in the medium term. States like Madhya Pradesh (MP) and the bifurcated state of Andhra Pradesh (AP) have leveraged their agricultural strengths to achieve high growth. Agriculture accounts for 30 per cent of GDP in both states, and grew by 6 per cent and 7.5 per cent, respectively, between 2015 and 2025, with the corresponding GDP growing at 6.2 per cent and 67 per cent during the same period. The argument is not that these states do not need any manufacturing and/or services ever, but that their current mainstay, agriculture, can power growth as they gear up to non-agrarian industries over time.