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

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  • Barry Eichengreen

    ()
    (Indian Council for Research on International Economic Rela)

  • Poonam Gupta

    ()
    (Indian Council for Research on International Economic Rela)

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    Abstract

    Among fast growing developing countries, India is distinctive for the role of theservice sector. However, sceptics have raised doubts about both the quality andsustainability of the increase in service sector activity and its implications foreconomic development. Using National Accounts Statistics and cross-county data, weshow that the growth of services has been broad-based. We show that the growth ofservice sector employment is not simply disguised manufacturing activity. We alsofind that the skilled-unskilled mix of labour in the two sectors is becomingincreasingly similar. Hence, it is no longer obvious that manufacturing is the maindestination for the vast majority of Indian labour moving into the modern sector andthat modern services are only a viable destination for the highly skilled few. To theextent that the expansion of both modern manufacturing and modern services isconstrained by the availability of skilled labour, this just underscores the importancefor India of continuing to invest in labour skills. We conclude that sustainingeconomic growth and raising living standards will require shifting labour out ofagriculture into both manufacturing and services and not just into one or the other.

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    Bibliographic Info

    Paper provided by Indian Council for Research on International Economic Relations, New Delhi, India in its series Indian Council for Research on International Economic Relations, New Delhi Working Papers with number 249.

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    Length: 44 Pages
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    Handle: RePEc:ind:icrier:249

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    Related research

    Keywords: Services; Growth; Structural change; India; Employment;

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    References

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    1. 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.
    2. Arvind Subramanian & Raghuram Rajan & Ioannis Tokatlidis & Kalpana Kochhar & Utsav Kumar, 2006. "India's Pattern of Development," IMF Working Papers 06/22, International Monetary Fund.
    3. Panagariya, Arvind, 2011. "India: The Emerging Giant," OUP Catalogue, Oxford University Press, number 9780199751563, October.
    4. 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.
    5. Kalpana Kochhar & Utsav Kumar & Raghuram Rajan & Arvind Subramanian, 2006. "India's Patterns of Development: What Happened, What Follows," NBER Working Papers 12023, National Bureau of Economic Research, Inc.
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