The challenge of employment in the Indian economy, especially after it growth acceleration since the mid-1980s, relates to its quality rather than its quantity. While employment growth has kept pace with the labour force over the long run, what has grown is informal employment. The coexistence of rapid capital accumulation, robust output growth and lack of growth of formal employment can be understood using the well-known Harris-Todaro model of a dual economy. This framework highlights the key role of the wage gap between the modern and traditional sectors as a determinant of urban informal employment. Hence, one of the most effective and egalitarian ways to address the employment problem is to adopt policies to increase agricultural productivity and income, which can reduce the wage gap. Since crop yields in India are far lower than many other countries in the world, including China, Brazil, and Bangladesh, there is ample scope for land-augmenting and labour-absorbing technological change in Indian agriculture. Efforts to ramp up industrialization should be taken up in earnest only after the wage gap has been narrowed significantly.

Author:

• Deepankar Basu

India’s overall economic performance over the last fifteen years has been outstanding, with the economy growing at an average of over 7% p.a. Growth has been service-led with the services sector accounting for over 60% of GDP growth over the period. Importantly, India’s structural transformation has been marked by a shift straight from agriculture to services led growth, leapfrogging manufacturing. The problem with this pattern of growth has been that it has generated relatively fewer opportunities of employment generation. The role of the manufacturing sector, ordinarily considered to be an important engine of growth and job creation for low and middle income countries, has been rather limited. Its share in total GDP and employment has continued to hover around 15% and 12% respectively for the last three decades.

Author:

• Radhicka Kapoor