Economic Growth and Employment Linkages: The Indian Experience

Conventional growth models incorporate capital but not labour as the determining variable. An alternative way to look at growth is to treat it a function of growth of employment and productivity: growth is derived from increase in either or both. A balance between the two is essential, especially in a labour abundant low productivity economy of India. Over the year, the contribution of employment has declined and that of productivity increased in the growth of GDP, so that during the last decade 80 per cent of growth was accounted for by productivity increase and only 20 per cent by employment growth. Long term employment growth in India has been about 2 per cent per annum but has declined to about 1.5 per cent during the last decade, when GDP growth has accelerated to around 7.5 per cent Services, which have been the major source of recent growth have particularly seen a sharp decline in employment elasticity. A steep rise in export has also not delivered on employment front as expected. A rebalancing of growth with focus on manufacturing industry and greater domestic orientation is now necessary to improve its employment content.