JOBLESS GROWTH IN INDIA’S SERVICE SECTOR

A Descriptive StudyAmita Marwha

Lecturer Deptt. of EconomicsIsabella Thoburn College,Lucknow

Introduction“The objective of India’s development strategy

since independence has been to establish a socialistic pattern of society through economic growth with self-reliance, social justice and alleviation of poverty”. These objectives were to be achieved within a democratic political framework using the mechanism of a mixed economy where both public and private sectors co-exist. “

IntroductionThe industrialization strategy articulated by Professor

Mahalanobis during the Second Five Year Plan (Nehru-Mahalanobis Plan) placed emphasis on the development of heavy industries and envisaged a dominant role for the public sector in the economy”. The objectives of industrial policy were: to increase growth rate, self-reliance, effective policy to reduce foreign interference, to lay strong foundation for building up of indigenous capacity, encouraging small scale industry, bringing about balanced regional development, prevention of concentration of economic power, reduction of income inequalities and control of economy by the State.

The industrialization strategy underlying the first three plans assumed that once the growth process gets established, the institutional changes would ensure that benefits of growth trickle down to the poor. As a result government emphasized on growth enhancement and reduction in poverty alleviation and no separate policy was initiated for the employment generation as poverty alleviation and employment generation were taken as the automatic effects of the growth process.

. INDIA’S GDP GROWTH RATE

India which is one of the largest agricultural- based economies remained closed until 1990s.

By 1991 there was growing awareness that inward looking import substitution policy, overvalued exchange rate coupled with tight monetary policy and high fiscal deficit resulted in high cost domestic industrial structure that led to adverse BOP.

1980

-81

1981

-82

1982

-83

1983

-84

1984

-85

1985

-86

1986

-87

1987

-88

1988

-89

1989

-90

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-130

2

4

6

8

10

12

Real GDP Growth Rate

Real GDP Growth Rate

ECONOMIC REFORMS AND INDIA’S GDP GROWTH RATE.

In the post reform period India did experienced robust economic growth rate which although was lower than china’s but made India the 12th largest economy in the world by nominal value and 4th largest by purchasing power parity.

In the post reform period India’s GDP did made a stride in the upward direction and service sector is the major contributor in this .But India did see the occasional increase in its GDP in 1980-81,1983-84,1988-89 in which growth rate reached to 10%.

Average Annual Economic Growth In India(%)

Sectors 1983-87 1987-93 1994-00 2000-05 2005-10 1983-93 1994-

2010

Agricult

ure

2.0 3.90 3.40 1.88 2.73 3.5 2.86

Industry 5.52 5.72 7.00 5.56 8.54 5.59 7.13

Manufact

uring

5.7 5.28 7.39 5.93 9.35 5.5 7.75

Construct

ion

4.5 5.39 6.40 9.26 10.44 5.0 7.79

Services 6.69 6.45 8.65 7.77 9.97 6.56 8.7 Source: Central Statistical Organization

Trends in GDP Growth Rate in Various Subsectors in the Service Sector

SECTOR Avg. Growth in 1950s-70s(Share in GDP in 1980)

Avg. Growth in 1980s(Share in GDP in 1990)

Avg. Growth in 1990s(Share in GDP in 2000)

TRADE AND HOTELS Trade 4.8(11.7) 5.9(11.9) 7.3(13.7)

Hotels & Restaurants

4.8(0.7) 6.5(0.7) 9.3(1.0)

TRANSPORT AND OTHERS Railway 4.2(1.5) 4.5(1.4) 3.6(1.1)

Transport by other means

6.3(3.6) 6.3(3.8) 6.9(4.3)

SECTOR Avg. Growth in 1950s-70s(Share in GDP in 1980)

Avg. Growth in 1980s(Share in GDP in 1990)

Avg. Growth in 1990s(Share in GDP in 2000)

Storage 5.5(0.1) 2.7(0.1) 2(0.1)

Communication 6.7(1.0) 6.1(1.0) 13.6(2.0)

FINANCE

Banking 7.2(1.9) 11.9(3.4) 12.7(6.3)

Insurance 7.1(0.5) 10.9(0.8) 6.7(0.7)

Real Estate 2.6(4.0) 7.7(4.8) 5.0(4.5)

Business Services 4.2(0.2) 13.5(0.3) 19.8(1.1)

Legal Services 2.6(0.0) 8.6(0.0) 5.8(0.0)

Trad

e

Railway

Stor

age

Bankin

g

Real E

state

Lega

l Ser

vices

Perso

nal S

ervic

e

Other

Serv

ices

0

5

10

15

20

25

Avg. Growth in 1950s-70s (Share in GDP in 1980)Avg. Growth in 1980s (Share in GDP in 1990)Avg. Growth in 1990s (Share in GDP in 2000)

Despite this success, there has been a growing concern with “jobless growth” as a major obstacle for the poor to benefit from the positive growth performance experienced by many countries worldwide Therefore, the impact of growth on poverty is seen as depending on the extent to which growth generates employment and good earning opportunities.

GROWTH OF EMPLOYMENT (UPSS)sector 1972-

781978-83

1983-88

1987-94

1993-2000

2000-2005

2005-10

Primary sector 1.78 1.56 0.28 2.16 0.05 1.40 -1.63

Secondary

sector

4.78 3.95 6.44 0.19 2.44 5.83 3.46

Tertiary sector 4.86 3.46 2.11 5.03 2.85 4.08 1.59

based on various round of NSSO employment

MethodologyQuantitatively I examine the dynamic

relationship between employment and growth for India using a time series analysis for the period from 1983 to 2011-2012.

Theoretically output is expected to have a positive long run relationship between growth and employment as according to Okun’s law 3% increase in growth rate leads to 1% fall in unemployment rate as output is expected to have a long run positive effect on labor demand.

The methodology of this study takes after Fofana’s, and as such I specify our basic model as:

EMPTs=f(GDP,FDI,PE,RD,VA)…………………………(1)

Where: EMPTs = Total Employment in service sectorGDP = Real Gross Domestic Product FDI = Foreign Direct Investment PE = Public ExpenditureRD=Research and DevelopmentVA=Value added

REGRESSON MODELAssuming a linear relationship among explanatory variables the explicit form of equation (1) becomes:

EMPT = + GDP + FDI + PE + β4 RD+ β5 VA+ε

Descriptive statistics on selected variables of India(1981-2010)

VARIABLES NUMBER OF

OBSERVATIONS

MEAN STANDARD

DEVIATION

EMPLOYMENT(SERV

ICES) IN MILLION

29 83125.0 24654.0

GDP GROWTH IN

MILLION

29 2131250 1163038

REALGDP

GROWTH RATE

30 6.319 2.227

PUBLIC

EXPENDITURE IN

MILLION

30 4792.0 4851.0

FDI INFLOW 29 18848.0 27416.0

ObservationApart from employment which is showing lowest variability after real GDP growth rate in India is a striking revelation despite the fact other macro economic indicators of the country have been showing positive uptrend's after the reform period.

ObservationA real GDP growth rate is a measure of economic

growth from one period to another expressed as a percentage and adjusted for inflation (i.e. expressed in real as opposed to nominal terms). The real economic growth rate is a measure of the rate of change that a nation's Gross Domestic Product (GDP) experiences from one year to another.

Contrary to the general perception real GDP growth have shown lowest variability in India which point to the fact that there is lowest rate of change as far as Real GDP growth is concerned. This fact has been corroborated by the IMF

ObservationIndia’s growth has not been more variable than other

developing regions in the period 1960-80: indeed, it has the lowest standard deviation amongst all regions although the coefficient of variation is higher than for the Middle East, Latin America, and Asia.

Between 1980 and 1999, however, India’s growth exhibits the lowest variation in terms of both the standard deviation and the coefficient of variation. Thus, India outperformed all regions, save East Asia, in terms of average growth, and outperformed all regions, Including East Asia, in terms of the stability of growth. Interestingly, and contrary to some claims, Indian growth was more stable in the 1980s than in the 1990s.  

ConclusionThe above model shows that there is a correlation

between employment and independent variables growth in million, Research and Development, public expenditure, value added constant, gross output. According to above regression analysis 1 unit increase in GDP growth in million will lead to 0.13% increase in employment in service sector keeping other variables fixed, which is alarmingly low percentage. Public expenditure also leads to increase in employment and have a positive correlation with employment 0.57%.

Contd.

There is a negative correlation between research and development, value addition and gross output and employment. The explanation to this could be that as the percentage is negative it tells us that value addition being made in the service sector in India is more because of capital than labour.

As the sector like communication, trade, banking which are showing high growth rate are generally also witnessing increase in productivity or increase total factor productivity.

In India as a result although we are witnessing a high contribution of service sector in the Gross Domestic Product of the country but it is not resulting in increase in employment and hence India will continue to witness Jobless growth until and unless India will see growth in manufacturing sector also.

Thank You