ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Why Output Rises Faster than Employment in the Service Sector of India?

India’s exceptional growth pattern after the 1980s is attributed to the robust growth of the service sector. The growth pattern of services is not homogeneous and uniform. However, it is spearheaded largely by modern services than traditional ones and is more K-intensive than labour-intensive service. India’s service sector is no exception to modern services-led growth owing to rising capital intensity and the worldwide phenomenon of technology-biased growth. Further, these transitions in the services have a direct bearing on employment generation.

India’s exceptional growth pattern after the 1980s is attributed to the robust growth of the service sector. The growth pattern of services is not homogeneous and uniform. However, it is spearheaded largely by modern services than traditional ones and is more K-intensive than labour-intensive service. India’s service sector is no exception to modern services-led growth owing to rising capital intensity and the worldwide phenomenon of technology-biased growth. Further, these transitions in the services have a direct bearing on employment generation. Rising labour productivity reduced the demand for more labour, not for modern services but for traditional services, as labour productivity rises in these sectors. Therefore, the gap in output and employment has risen, which explains the disproportionately larger share of services sector in GDP than employment.

The ramp-up in growth prospects of India has been att­ributed to the service sector’s exceptional growth since the 1980s. It shifted the gear from metaphorical “Hindu” growth to a higher trajectory (Rodrik and Subramanian 2005). The 1980s’ reforms drive was half-hearted, yet it sets the tone for future growth prospects of the economy. The genesis of robust growth was exhibited by the service sector during the 1990s and after, and can be traced back to the 1980s. The phenomenon has been termed as “services-led” growth (de-industrialisation), or even a “services revolution” (Gupta and Gordon 2004). However, the robust growth of the service sector could not transform into employment generation. The disproportionality is a serious puzzle for economists. India’s growth trajectory, particularly after 1980, defies the classical growth path, not only in terms of output but also in terms of employment. This is a sui generis path of growth for the Indian eco­nomy. Therefore, it violates stylised facts of the classical three-sector growth trajectory.

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Updated On : 18th Jul, 2023
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