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The Service Sector as India’s Road to Economic Growth?

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  • Barry Eichengreen
  • Poonam Gupta

Abstract

Among fast growing developing countries, India is distinctive for the role of the service sector. However, sceptics have raised doubts about both the quality and sustainability of the increase in service sector activity and its implications for economic development. Using National Accounts Statistics and cross-county data, we show that the growth of services has been broad-based. We show that the growth of service sector employment is not simply disguised manufacturing activity. We also find that the skilled-unskilled mix of labour in the two sectors is becoming increasingly similar. Hence, it is no longer obvious that manufacturing is the main destination for the vast majority of Indian labour moving into the modern sector and that modern services are only a viable destination for the highly skilled few. To the extent that the expansion of both modern manufacturing and modern services is constrained by the availability of skilled labour, this just underscores the importance for India of continuing to invest in labour skills. We conclude that sustaining economic growth and raising living standards will require shifting labour out of agriculture into both manufacturing and services and not just into one or the other.[Working Paper No. 249]

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  • Barry Eichengreen & Poonam Gupta, 2010. "The Service Sector as India’s Road to Economic Growth?," Working Papers id:2604, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:2604
    Note: Institutional Papers
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    References listed on IDEAS

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    1. Barry Eichengreen & Poonam Gupta, 2013. "The two waves of service-sector growth," Oxford Economic Papers, Oxford University Press, vol. 65(1), pages 96-123, January.
    2. Kochhar, Kalpana & Kumar, Utsav & Rajan, Raghuram & Subramanian, Arvind & Tokatlidis, Ioannis, 2006. "India's pattern of development: What happened, what follows?," Journal of Monetary Economics, Elsevier, vol. 53(5), pages 981-1019, July.
    3. Panagariya, Arvind, 2011. "India: The Emerging Giant," OUP Catalogue, Oxford University Press, number 9780199751563.
    4. Devesh Kapur & Pratap Bhanu Mehta, 2004. "Indian Higher Education Reform: From Half-Baked Socialism to Half-Baked Capitalism," CID Working Papers 108, Center for International Development at Harvard University.
    5. J. Bradford Jensen & Lori G. Kletzer, 2005. "Tradable Services: Understanding the Scope and Impact of Services Outsourcing," Working Paper Series WP05-9, Peterson Institute for International Economics.
    6. Rashmi Banga & B.N.Goldar, 2004. "Contribution of services to output growth and productivity in Indian manufacturing: Pre and post reforms," Indian Council for Research on International Economic Relations, New Delhi Working Papers 139, Indian Council for Research on International Economic Relations, New Delhi, India.
    7. Jagdish N. Bhagwati, 1984. "Splintering and Disembodiment of Services and Developing Nations," The World Economy, Wiley Blackwell, vol. 7(2), pages 133-144, June.
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    Cited by:

    1. Shingal, ANIRUDH, 2010. "Services growth and convergence: Getting India’s states together," MPRA Paper 32813, University Library of Munich, Germany.
    2. Utsav Kumar, 2014. "India's Demographic Transition: Boon or Bane?," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 1(1), pages 186-203, January.

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