JOBLESS GROWTH IN

INDIAS SERVICE
SECTOR
A Descriptive Study
Amita Marwha
Lecturer Deptt. of Economics
Isabella Thoburn College,Lucknow

Introduction
The objective of Indias 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.

Introduction
The industrialization strategy articulated by Professor

Mahalanobis during the Second Five Year Plan (NehruMahalanobis 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, selfreliance, 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.

.
INDIAS 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.

Real GDP Growth Rate

12

10

Real GDP Growth Rate

ECONOMIC REFORMS AND

INDIAS GDP GROWTH RATE.
In

the post reform period India did

experienced robust economic growth rate
which although was lower than chinas 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 Indias 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

19942010

Agricult 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 5.7

5.28

7.39

5.93

9.35

5.5

7.75

5.39

6.40

9.26

10.44

5.0

7.79

6.45

8.65

7.77

9.97

6.56

8.7

ure

uring
Construct 4.5
ion
Services
Source:
Central
Statistica

6.69

Trends in GDP Growth Rate in Various

Subsectors in the Service Sector

SECTOR

Avg. Growth

Avg. Growth

Avg. Growth

in 1950s-70s

in 1980s

in 1990s

(Share in GDP (Share in GDP (Share in GDP

in 1980)

in 1990)

in 2000)

4.8(11.7)
4.8(0.7)

5.9(11.9)
6.5(0.7)

7.3(13.7)
9.3(1.0)

4.2(1.5)
6.3(3.6)

4.5(1.4)
6.3(3.8)

3.6(1.1)
6.9(4.3)

TRADE AND
HOTELS
Trade
Hotels &
Restaurants
TRANSPORT
AND OTHERS
Railway
Transport by
other means

SECTOR

Avg. Growth

Avg. Growth

Avg. Growth

in 1950s-70s

in 1980s

in 1990s

(Share in

(Share in GDP (Share in GDP

GDP in 1980) in 1990)

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)

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

4.2(0.2)

13.5(0.3)

19.8(1.1)

Services
Legal Services

2.6(0.0)

8.6(0.0)

5.8(0.0)

FINANCE

25

20

15

10

Avg. Growth in 1950s70s (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

197278

197883

1983- 198788
94

19932000

20002005

200510

Primary sector

1.78

1.56

0.28

2.16

0.05

1.40

-1.63

Secondary

4.78

3.95

6.44

0.19

2.44

5.83

3.46

4.86

3.46

2.11

5.03

2.85

4.08

1.59

sector

Tertiary sector

based on various round of NSSO employment

Methodology
Quantitatively

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 Okuns 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

Fofanas, and as such I specify our basic model

as:
EMPTs=f(GDP,FDI,PE,RD,VA)
(1)
Where:
EMPTs = Total Employment in service sector
GDP = Real Gross Domestic Product
FDI = Foreign Direct Investment
PE = Public Expenditure
RD=Research and Development
VA=Value added

REGRESSON MODEL
Assuming a linear

relationship among
explanatory variables the
explicit form of equation (1)
becomes:
EMPT =
+
GDP +
FDI +
PE + 4 RD+ 5

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

VARIABLES

NUMBER

OF MEAN

OBSERVATIONS
EMPLOYMENT(SERV 29

STANDARD
DEVIATION

83125.0

24654.0

2131250

1163038

30

6.319

2.227

30

4792.0

4851.0

29

18848.0

27416.0

ICES) IN MILLION
GDP GROWTH

IN 29

MILLION
REALGDP
GROWTH RATE
PUBLIC
EXPENDITURE

IN

MILLION
FDI INFLOW

Observation
Apart 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.

Observation
A 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

Observation
Indias 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, Indias 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.

Conclusion
The 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