Analysis of Output and Employment of Trade and Finance in India: A Case of Disproportional Rise in Output than Employment for Service Sector

Abstract

Purpose of the study: The study aims to analyse why the service sector in India has not generated employment in the proportion of output when the sector has geared up its share in national income since 1980. Methodology: It's based on a simple comparative empirical analysis of data on output and employment of trade and finance in India. Quantitative analysis of output is based on data collected from National Accounts Statistics (NAS). The analysis used data from the base year 2004-05 and back series. On the 2004-05 back series, data is available till the year 2011-12. Therefore, to explain long periods, 1950 to 2012, we used 2004-05 data. However, for the latest analysis of output along with employment, we prefer to use the 2011-12 series GDP data of KLEMS India (published by RBI). Employment data is collected primarily from two sources- NSS and KLEMS India. Principal status and subsidiary status (PS+SS) are used for analysis.   Main Findings: Trade being a labour-intensive sector has shown proportionate employment generation between 1980 to 2004. After 2004, the story changed. Despite the same pace of growth, employment generation is proportionately lower. The reason is the growing rise in the capital intensity of trade. In the case of finance, capital-intensive is just the opposite of trade- the rise in output is greater in the period, 1980 to 2004 than the concomitant rise in employment. 2004 onwards, rise in employment is greater. The reason is no significant rise in capital intensity in the sector. Applications of the study:In macroeconomics, output and employment believed to go hand in hand. However, services defy the dictum- higher rise in GDP share but no corresponding rise in employment share. It helps understand ‘jobless growth’ of Indian economy after reforms of 1991. Novelty/Originality of the study: Trade being labour-intensive has changed its nature after 2004, the sector’s capital intensity has grown faster than finance. Further, finance is capital-intensive sector but no significant rise in capital intensity.