Normal paradigm of service sector growth and employment with focus on India

Abstract

India’s Service Sector has shown rapid developments over the past decade. This is consistent with literature which predicts an increasing contribution of services in growth as the economy matures. Literature predicts initial growth being dominated by industry, which is followed by the service sector taking the dominant role accompanied with a stagnant or decreasing share of the industrial sector. However, the Indian story stands out for the size and dynamism of the service sector. With a GDP share of about 60.60%1 India’s service sector has driven the growth of Indian economy. The factors behind growth story of service sector in India include deregulation and policy reforms in area such as Telecommunications and financial services and the role of rising income and domestic demand in driving growth in segments such as trade and distribution services. There is a need to examine whether India’s service sector growth is actually an aberration to the general relationship between output and growth. The quality and sustainability of service sector growth in India is an area of concern. It is alleged that modern services, which have driven the service sector growth, employ only high-skilled labour the implication being that a labour-abundant economy like India cannot rely on services for broad based growth. The validity of these criticisms needs to be assessed. It needs to be examined whether there is scope for productivity improvements in the service sector and whether growth in this sector has potential spill overs to other sectors and to what extent these spill overs are currently being realized in the Indian economy. The skill requirements of the service sector and the associated supply conditions in the economy need to be analysed.

Objectives: * To develop a basic model explaining the relationship between service sector’s growth in output and employment distribution based on the econometric analysis of panel data for various countries. * To answer the question, backed by logic and numbers, why service sector has generated lower employment in India compared to other countries. * To assess the sustainability of the growth in service sector in India amidst rising concerns of low employment contribution.