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Sectoral Structure of Indian Growth: Could Baumol Explain It?

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  • Atulan Guha

    (Indian Institute of Management Kashipur)

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.

Suggested Citation

  • Atulan Guha, 2017. "Sectoral Structure of Indian Growth: Could Baumol Explain It?," Proceedings of International Academic Conferences 5808245, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iacpro:5808245
    as

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    File URL: https://iises.net/proceedings/33rd-international-academic-conference-vienna/table-of-content/detail?cid=58&iid=017&rid=8245
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    References listed on IDEAS

    as
    1. Bosworth, Barry & Collins, Susan M. & Virmani, Arvind, 2007. "Sources of Growth in the Indian Economy," India Policy Forum, National Council of Applied Economic Research, vol. 3(1), pages 1-69.
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    More about this item

    Keywords

    Growth; Services; India; productivity;
    All these keywords.

    JEL classification:

    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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