(Online Course) Contemporary Issues for IAS Mains 2012: Yojana Magazine - Growth Trends in Services Sector

Growth Trends in Services Sector

Q. Describe the trends of employment in the service Sector?

Answer: While the structural change is interesting, the sect oral employment change that co-occurred is more interesting and slightly worrisome. Though the share of agriculture to GDP has come down drastically, it still remains the largest employer. The share of agriculture in total employment has come down from 68.6 percent in 1983 to 56.4 percent in 2004-05. Industry has shown a modest increase in the total employment from 13.8 percent to 18.8 percent in the same period, which is only plausible considering the increase in its share in the total GDP. However, the service sector, which

now contributes a lion’s share of over 60 percent to GDP, has employed only 24.8 percent in 2004-05, up from 17.6 percent in 1983, reflecting an increase of 7.2 percent. One reason for slow growth in employment creation in the services sector could be a drastic increase in productivity in the sector triggered by dynamic changes in the science and technology. Another reason is the drop in employment elasticity of growth from 0.40 to 0.15 during 1993-94 to 1999-2000, indicating a period of jobless growth. Fortunately, the employment elasticity increased thereafter to 0.51 in 2004-05. Interestingly, there are some studies done in India suggesting that the service sector growth has been labour intensive and in certain segments more so than manufacturing sector. However, as the nature of employment generated would vary across different sub-sectors, a generalized conclusion may not be in order.

The growth of the Indian services sector has been broad-based. Of all the sub sectors, communication has recorded double-digit annual growth since 1992 consistently at about 20 percent rates annually in the 2000s. Some services like software have been particularly important in generating more income and employment, besides creating a remarkable global brand identity.

The two fast-growing broad services categories in the last three decades are: a) financing, insurance, real estate and business services; and b) transport, storage, and communication. However in the current decade, the average growth in construction has also been substantial at 10.7 percent. In comparison, the growth rate of community, social services has been gradual and marginal. In terms of contribution to the overall service sector, trade, hotel, transport and communication sub sector has historically contributed more than one-third, with its average contribution rising to over 42 percent during 2001-09. While the contribution of construction
and community sub sectors have come down from 1951-52 to 2008-09, finance, insurance sub sector has slightly improved its contribution.

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