Sectoral Structure of Indian Growth: Could Baumol Explain It?

Atulan Guha ()
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Atulan Guha: Indian Institute of Management Kashipur

No 5808245, Proceedings of International Academic Conferences from International Institute of Social and Economic Sciences

Abstract: The GDP growth structure of India is dominated by the growth in service sector. The Baumol?s theory predicts that the primary mover sector behind this growth pattern should have the highest productivity. The sector with highest productivity will pay highest wages. Hence, it will attract labour from low productivity sector; resulting in decline of the low productivity sectors. To prevent the labours to shift the job, the low productivity sector can pay higher wages, but then price of the commodities has to be increased. Unless these sector?s demand is very little sensitive to price increase, the wage increase will not make these low productive sectors sustainable. This paper argues that Baumol?s theory is inadequate to explain sectoral structure of the Indian growth. It is primarily because of domination of traditional service sector, like trade, transport etc in service sector growth, little linkages between wages and productivity and disintegrated labour market causing weak wage transmission mechanism across the sectors.

Keywords: Growth; Services; India; productivity (search for similar items in EconPapers)
JEL-codes: O14 O40 O53 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2017-10
New Economics Papers: this item is included in nep-tid
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Published in Proceedings of the Proceedings of the 33rd International Academic Conference, Vienna, Oct 2017, pages 106-117

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