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The explanation for the growth rates of the different sectors is demand-side at first, but later you switch to the discussion of a supply constraint: that of skilled labour. The increase in the educational premium for graduates is an interesting and important fact. But it doesn't tell us how many more graduates we'd need to wipe out that premium. And why stop there? There may be lots of other supply constraints. Electricity prices are repressed, so supply is lower than it should be. Otherwise, why is there so much diesel generation? Railways are in a similar situation. I'm sure there are many other plausible candidates for missing factors that are constraining the growth of non-agriculture. How are we to know which is more important? Or which ones are easily addressed by policy? I don't think we know the answer to that question. And we do need the answer if we want to reap the gains from moving labour out of agriculture and into more productive sectors.

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Som Somanathan, India 26/02/2013 00:07:04

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