PPMS

1. Introduction

 There is a large body of academic literature on the role of services sector in the Indian economy. The growing share of the services sector in the gross domestic product (GDP) of India indicates the importance of the sector to the economy (GOI 2012; Eichengreen and Gupta 2010; Singh 2006; Papola 2008). The services sector accounted for about 30 per cent of total GDP of India in 1950s; its share in GDP increased to 38 per cent in the 1980s, then to 43 per cent in the 1990s and finally to about 56.5 per cent in 2012‐13 (GOI 2013). Thus, the services sector currently accounts for more than half of India’s GDP. This process of tertiarisation (dominance of the tertiary or services sector) of the economy has been accompanied by a decline in the share of the primary sector (agriculture) and a more or less constant share of the secondary (industry) sector over the years.  

2.Growth of the services sector: A recent phenomenon?

In recent years, there has been an unprecedented growth in services across all countries.

While in the advanced industrialised countries this is seen as a continuation of the

economic transformation, the above average growth of the services sector as compared

with manufacturing and agriculture is also seen in some less developed countries like

India. The rise in the services sector has been attributed to a number of possible factors

both from the demand as well as the supply side (Lee and Wolpin, 2006).

It has been argued that the disproportionate growth in services, at least in the case of

India, is not a recent phenomenon. For example, Mitra (1988) noted the disproportionate

growth in services GDP in India as well as the absence of corresponding increase in

3 Section 6.8, SNA (1993) page 148.

4 Section 6.9, SNA (1993) page 148.

5 Scholars have alternatively called this type of services producer services, production services,

manufacturing services and ‘services affecting goods’.

6 Kumar et al (2007) discuss the ‘ambiguities inherent’ in the accepted definitions of

“manufacturing” activities and “services” in the case of estimation of GDP in India focusing on

the unorganised or the unregistered sector.

7 Examples are activities such as painting and polishing of metal components, cleaning, ironing

and o on of textiles and garments.                                                                                                           *     Assistant Professor, ISID e‐mail: jesim_pais@yahoo.com Acknowledgements: A Study Prepared as a Part of a Research Programme “Structural Changes, Industry and Employment in the Indian Economy: Macro‐economic Implications of Emerging Pattern” Sponsored by Indian Council of Social Science Research (ICSSR) New Delhi. 2 In spite of its growing share in the total GDP, scholars have noted a serious mismatch between the share of services in total GDP and the corresponding share of services in total employment. For example, while the share of the services in GDP increased from 34 per cent in 1970s to 54 per cent in 2010‐11, the corresponding share of services sector employment in total employment changed from 15 per cent in 1972‐73 to only about 26.67 per cent per cent in 2009‐10. As a consequence, a large proportion of workers remain in rural agriculture. Among others, this has led to a situation of a large gap in productivity between agricultural workers and workers in the services sector (Papola and Sahu 2012; Papola 2012).   The services sector is a highly non‐homogeneous sector comprising a wide range of activities. There are differences within the services sector with regard to the contribution of different subsectors to GDP and to employment. Consequently, the labour productivity within the services sector is also likely to vary widely. The services sector and particularly jobs in the services sector are often discussed in the literature on the informal sector. Service sector employment is associated with informal sector not only due to the relatively large proportion on unprotected jobs, but also due to the fact that a large proportion domestic workers are accounted for as services sector workers (Jonakin 2006). In this paper, we attempt to understand the growth and structure of the services sector in India through an analysis of the different sub‐sectors within the services sector at a level of disaggregation that has so far not been adequately analysed in the literature. A study of the services sector at a reasonably disaggregated level is necessary because, as noted earlier, unlike agriculture (the primary sector) and industry (the secondary sector), the services sector (the tertiary sector) is much more heterogeneous in nature. Further due to communications led technological advancement, the process of globalisation and increased reliance of outsourcing as a mode of production organisation, rapid changes have occurred in the economic structures of many economies including India. And a large part of this change is visible in the form of growth and change in the structure of economies in favour of larger share of the services sector.   In the analysis of the service sector GDP and services sector employment at a disaggregate level, we attempt to identify sub‐sectors within services that have contributed mainly to GDP growth. We also attempt to identify sub‐sectors that have contributed mainly to employment growth. Thus we attempt to address the question of whether there is, as in the case of the aggregate economy, a mismatch between contribution to GDP and to employment within the subsectors of the services sector. A related question that we would like to address is on the quality of employment across different services that employ proportionately large number of workers. This leads us to the study of the productivity levels in different services. We compare the productivity 3 levels across different services with that of the average within the services sector and also with agriculture and the manufacturing (or the industry) sectors. In the debate on the role of services sector and the ‘services sector led growth’ witnessed in India during the 1990s and 2000s, scholars have frequently questioned the medium to long term sustainability of this form of economic growth, which is heavily dependent on the services sectors performance. For example, questions are being raised as to how dependent the services sector growth is on government spending and to what extent the services growth in India is led by the external sector.   Finally, a number of services are closely linked to production or manufacturing. In the past, some of these services would be performed in‐house within manufacturing enterprises. A combination of factors including technological advances, global competitive cost cutting pressures, fluctuating market demand and so on, have led to reorganisation of production such that producer services that contribute directly to manufacturing capacity are now seen as being independent from the process of manufacturing. Thus producer services are considered services and placed under that services sector. An important component of producer services is Information Communication Technologies (ICT) enabled producer services. Growth of producer services is desirable for the growth of the manufacturing sector. In addition, due to ICT led technological possibilities and due to abundance of specifically skilled ICT workers, producer services based in India could cater to industry in other countries as well. In this paper we attempt to compare the performance of producer services with distributive services and social or personal services. We begin the next section by briefly discussing what constitutes the services sector and how scholars have attempted to distinguish it from industry. We then discuss the issues and debates related to the definition, identification and measurement of the services sector particularly with reference to India. This is followed by brief description on the nature and sources of data on the services sector in India.   The next section has a brief discussion on what constitutes the services sector and the debate on the concept and definitions. In this section we also discuss measurement issues in general and those that are specific to India. In section 3 we analyse the growth and structure of GDP growth in India from 1950 till 2009‐10. The focus though is on the latest period from 2004‐05 to 2009‐10. Section 4 presents a brief analysis of the growth and structure of services sector employment in India. This analysis is undertaken at the 2 digit as well as at the 5‐digit levels. Section 5 is on the levels of productivity within the service sector and Section 6 looks at the different possible classifications of services and attempts to understand the prospects of growth and sustainability through this alternative classification. Finally, Section 7 provides a brief summary of the report and concludes. 4 2. The Services sector What constitute the services sector? The term services sector refers to, at the most aggregate level, a large group of acti

3. Analysis of the services sector GDP in India

In this section we undertake a detailed analysis of the growth and structure of the

services sector GDP in India. We first discuss the growth of services sector which is then

followed by a discussion on the structure of services and change in the structure of

services.

Our analysis here is for the years starting from 1950 and goes on till 2009‐10.15 The major

focus of our analysis, though, is in recent period. For better understanding we have

decided to divide the entire period into 5 parts.16 The first period is from 1950 to 1965‐66.

The second period begins in 1966‐67 and ends in 1979‐80. The third period begins in

1980‐81 and ends in 1995‐96 while the fourth period is from 1995‐96 to 2004‐05 and the

ltechnologies. Our data, however, do not provide us an indication of the productivity

growth, and hence do not allow us to identify productivity gains due to technology or

otherwise.

As we have discussed in section 3, GDP data over a fairly long period of time are

available by about 40 categories at the most disaggregated level. Employment data are

available at an even more disaggregated level, that is, 5 digit level of industrial

classification for the years 2004‐05 and 2009‐10. Combining the GDP data at the

maximum possible level of disaggregation and matching the same with employment

data we have estimated productivity per worker in the services sector for about 36

service activities for the years 2004‐05 and 2009‐10. In the discussion below, we describe

the productivity levels across these 36 service activities.

We identify high‐productivity services as well as low‐productivity services and estimate

employment in both. Through this exercise, we attempt to identify service activities that

are likely to be more sustainable and stable and provide good quality employment. We

also examine if within the services sector there is a mismatch between some services that

provide bulk of the employment (low productivity) and others that account for bulk of

the income (high productivity). Finally we study the changes in productivity in the

period between 2004‐05 and 2009‐10, the period of relatively high growth in services in

India.

During 2009‐10, the average productivity for the Indian economy (combining all the three

sectors—agriculture, manufacturing and services) as a whole was estimated at ₹95,478

per worker per year. The average productivity figures for agriculture, manufacturing and

services sectors in the same period were ₹26,537, ₹1,39,054 and ₹2,09,391 per worker per

year respectively. Thus, while average labour productivity in agriculture was far below

the national average, that of the manufacturing and services sectors were way above the

national average, the average labour productivity of the services sector being the highest.

Across all sectors of the economy, in the year 2009‐10, labour productivity was highest in

forestry and logging (10.2 times the national average), followed by utilities (7.33 times the

national average) and fishing (2.3 times the national average). These three sectors of the

economy however does not employ bulk of the workers. The bulk of the workers are

employed in agriculture, services, manufacturing and construction. Of these, the labour

productivity in both agriculture and construction was lower than the national average.

The labour productivity in manufacturing was about 1.46 times the national average

while it was about 2.19 times the national average in services. Thus at the most aggregate

level, services sector appears to be a reasonably high productivity sector, even surpassing

the manufacturing sector.