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Fuel or Engines: GVA and employment share inverse correlation in Indian economy

  • During the first decade of the 21st century, as much as 85% of GVA growth can be attributed to productivity gains rather than labor employment. Not surprisingly then, employment elasticity with respect to GDP growth is very low inthe Indian economy.
  • Nevertheless, most of these conclusions change quickly if we exclude the agricultural sector. The contribution of productivity gains to non-farm real GVA growth was ~55% in the first decade of the 21st century, as against ~46% three decades ago. Further, employment elasticity in the non-agricultural sector is much higher than that in the total economy.
  • There is, however, one uniform conclusion with or without the farm sector – an inverse relationship between real GVA and employment growth in the Indian economy, challenging the established economic literature. If not higher GDP growth, then what can push job creation in India?