Evaluation of the Advantages, Limitations and Possible Modifications of Lewis’ Model with Reference to Indian Economy

DOI- https://doi.org/10.5281/zenodo.21923079

Abstract

One of the most often cited models for the process of industrialization of agrarian economies is Sir Arthur Lewis' model of “Economic Development with Unlimited Supplies of Labor”, which he developed in 1954. This paper evaluates advantage of the dual-sector model within the context of India, a country whose demographic make-up and historical reliance on agriculture makes it an intuitively compelling test bed for Lewisian arguments. This study use secondary data from the Periodic Labour Force Survey, National Accounts Statistics, and various empirical studies published from 1961 to 2026, suggests that although the Lewis model can still explain the continued presence of low-productivity farm labor and the wage gap between rural and urban India, it has lost a lot of its predictive power due to industrialization with excess capital, premature deindustrialization and fragmented labour institutions. The paper outlines an adapted framework which makes technological progress, labour market frictions, and institutional quality endogenous variables driving the speed and nature of structural transformation. It concludes that a purely Lewisian interpretation of Indian development, if not significantly modified, is likely to overestimate the ability of manufacturing to absorb excess rural labour and is likely to underestimate the importance of services, informality and skill mismatch in driving Indian employment.

Keywords: Lewis Model, Indian Economy, Dual-Sector Model, Structural Transformation, Modification