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India has a problem with inequality, and it won’t be solved easily

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As per available data, a little more than 50% of India’s population continues to be engaged in agriculture (which barely accounts for 14% of GDP), while less than 30% of the population works in the service sector, which accounts for more than 67% of GDP. Given the sharp dichotomy between the percentage share of employment in the service sector and its contribution to GDP, average salaries in the service sector went up manifold over the years. However, high levels of productivity (higher output per worker) of India’s knowledge workers have kept service-sector inflation under check. The average annual rate of service-sector inflation during the post-reform period was 6.7% as compared to 6.5% for industry.

 

According to India’s 2013 Economic Survey, the finance, insurance and real estate (FIRE) segment, which accounts for roughly 40% of the service-sector GDP but less than 2% overall employment share, has labour productivity that is nearly 25 times that of the agriculture sector, which has 50% employment share. Thus, although non-agricultural sectors continued to grow faster, this failed to wean away people from agriculture at the desired pace, leading to a lopsided structure of employment distribution in India. Read More

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