Draft Report of the High Level Group on Services Sector

Employment in Services Sector

At present services account for about 26 per cent of total organized sector employment in the country while contributing a little over 55 per cent to the national GDP. A sectoral disaggregation of the employed workforce shows that the contribution to employment of services (excluding construction) rose from 22.8 to 23.4 per cent, while the workforce increased from 397.0 to 457.8 million between 1999-2000 and 2004-05 (details in Table 1c below). Out of the increase in workforce by 60.8 million, the incremental share of services was 16.8 million. However, despite the low overall elasticity of employment in the country (at just 0.48) and not only in the services sector, the latest NSSO data shows that employment elasticity is reasonably high (and increasing) in certain services categories, with financing, insurance, real estate and business services registering an elasticity of employment of 0.94 followed by construction sector employment elasticity at 0.88.
Table 1c: Employment Statistics (disaggregated)

	Sectoral Share (million) 1999-2000	Sectoral Share (%) 1999-2000	Sectoral Share (million) 2004-05	Sectoral Share (%) 2004-05	Elasticity
Agriculture, forestry & fishing	237.56	59.8	267.57	58.4	1.52
Mining & quarrying	2.27	0.6	2.74	0.6	0.82
Manufacturing	48.01	12.1	53.51	11.7	0.34
Electricity, gas and water supply	1.28	0.3	1.37	0.3	0.33
Construction	17.62	4.4	25.61	5.6	0.88
Trade, Hotels & restaurant	37.32	9.4	47.11	10.3	0.59
Transport, storage & communication	14.69	3.7	17.38	3.8	0.27
Financing, insurance, real estate and business services	5.05	1.3	6.86	1.5	0.94
Community, social and personal services	33.20	8.4	35.67	7.8	0.28
All Services excl. construction	90.26	22.8	107.02	23.4
Total	397.0	100	457.82	100	0.48

Source: C Rangarajan et al (2007), ‘Revisiting Employment and Growth’, ICRA Bulletin - Money & Finance Vol 3(2); data sourced from NSSO 2004-05, based on 61^st Round Survey.

Nonetheless, drawing ready inferences from the above official data may be misleading, as it is believed that a significant portion of the Indian population presently accounted for under the agriculture/rural employment is working in the unorganized services sectors, both in the rural and the urban areas, in particular in the Trade, hotels and transport business services; and the Community, social and personal services sectors (though the employment share of this last sector is declining in the formal sector, as indicated in Table 1c above).²

The other new source of employment has been the Business Processing Outsourcing (BPO) services. Figure 2 below highlights the rapid employment growth in India’s IT and ITeS/BPO sectors. According to NASSCOM estimates, the number of total knowledge professionals employed in the Indian IT-BPO sector increased from 230 thousand in 1998 to nearly 2 million in 2007-08. Decomposition of the employees in the domestic as opposed to export sectors is shown in Table 1d.

Figure 2: Rapid Growth in Employment in India’s IT & BPO industry

Source: NASSCOM 2007

Table 1d: Knowledge Professionals Employed in the Indian IT-BPO Sector

(in thousands)

	1999-00	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07	2007-08E
Software (exports sector)	110	162	170	205	296	390	513	690	865
Software (domestic sector)	132	198	146	285	318	352	365	378	427
BPO	42	70	106	180	216	316	415	553	704
Total	284	430	522	670	830	1058	1293	1621	1996

Source: NASSCOM Strategic Review 2008.