India’s two-track economy: An exploration into the dualism of India’s complex economic structure

The de�?ning image of India – as one where the traditional and the modern coexist – has persisted, and perhaps even sharpened, over the past few decades. The formalization of this idea in the economic development literature can be traced back to a classic paper by Arthur Lewis, wherein he used the term ‘duality’ to describe a seemingly anachronistic economic structure observed among several developing countries in which the ‘capitalist’ or ‘modern’ (broadly identi�?ed with industry) sector coexisted with the ‘subsistence’ or ‘traditional’ (broadly identi�?ed with agriculture) sector (Lewis, 1954). Subsequently the idea of ‘duality’ has been used somewhat loosely as an analytical construct to capture the co-existence of two (or more) widely different production, and associated technological and institutional structures. In the early writings of economic historians, such as Lewis, duality was conceptualized as a transitory phenomenon in the process of economic development (ibid.). Consistent with early theories of development, the underlying idea was that of convergence, wherein labour from the traditional sector is eventually absorbed into the modern sector and thus dualism slowly fades away as a structural property of the system. The experience of some early comers to the modern growth process, such as the US and West European countries, broadly con�?rmed this theory. However, empirical evidence from present day developing countries shows that this is not necessarily true; the emerging reality is one of divergence (Easterly, 2002), with a diversity of forms in which duality continues to manifest and reproduce itself. In the case of India, speci�?cally, what is further intriguing is that this duality has persisted not because of lack of economic growth but despite India’s remarkable growth performance in recent decades. Since economic reforms opening up the economy were introduced in 1991, India has seemed well poised on a new growth trajectory, yet continues to be crippled by high rates of poverty, coupled with the age-old problems of poor access to safe water and sanitation, female illiteracy, poor nutrition and high child mortality. The oft-repeated expression referring to India is that of a country that simultaneously lives in the seventeenth century and the twenty�?rst. India is now as well known for its chronic poverty as it is for its growing rank among the Fortune 500. It is recognized not only as a key player in high-tech industries – such as information and communication technology (ICT) and biotechnology – but also as a leader at the bottom of the pyramid (BOP) innovations in meeting the needs of the poor (Prahalad, 2004).