Two path – breaking developments – both positive – occurred in the Indian economy starting in the mid-2000s, which had never occurred in the economic history of independent India. The first was that beginning in 2004–05 (NSS 60th Round), the absolute number of workers in agriculture began to fall. A defining characteristic of economic transformation is not only a rise in per capita GDP, but a change in the structure of (a) output, and (b) employment of the economy. In India, the failure of post-1991 economic reforms has meant that while the share of services in output has grown, their share in employment has not grown significantly (see Table 2.5 and 2.6). Accordingly, labour has not been moving out of agriculture at a rate fast enough to bring the absolute number of workers in agriculture down, which is a defining characteristic of structural transformation. It was only since 2004–05 that for the first time in India's post-independence economic history, 37 million workers left agriculture in the seven years to 2011–12 (by usual status of activity). While the share of the workforce engaged in agriculture had been declining (see Table 2.4) consistently, the fact that construction (both rural and urban) investment was growing rapidly between 2004–2005 and 2011–12 led to landless agricultural labour leaving agriculture to become construction workers. A Lewisian structural shift had begun (Lewis, 1954).

The second path-breaking development in the Indian economy that began at the same time was that after 2004–05 for the first an absolute decline in the numbers of the poor was witnessed. The most important consequence of the numbers leaving agriculture as well as the introduction of the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) – a nation-wide rural public employment programme since early 2006 which offered much higher than open market wages in rural areas – was that all wages in rural areas rose rapidly. The rise in wages caused consumption expenditure to also increase in real terms, resulting in a faster than hitherto decline in poverty. While income poverty incidence declined by 0.7 percentage points per annum between 1993–94 and 2004–05, between 2004–05 and 2011–12 it tended to decline at over double that rate (a 2 percentage point fall per annum).