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REIMAGINING INDIA
Table 2: Reforms And Income Generation
Components 1950-51 1960-61 1970-71 1980-81 1990-91 1995-96 2004-05 2006-07
Agriculture and
allied activities
56.90 46.74 46.07 38.86 31.27 28.24 21.13 18.5
(2.6%)!
Industry 14.28 19.46 20.65 24.50 27.64 28.12 27.15 26.4
(10.4%)
Services 29.80 34.30 33.66 36.64 41.10 43.64 51.72 55
(11%)
Source: Reserve Bank of India (2006) and Central Statistical Organization (2006)
examine the productivity data. The growth
theory literature tells us that more productive
countries tend to prosper more compared
to the less productive ones. If market
is determining the pay-off, same kind of
argument holds true within a country but
across its laborers. So it makes sense to look
at labor productivity data in India. Figure 1
gives a glimpse of sector wise labor productivity
growth in India. Output per worker in
the services sector grew at a rate of seven
percent during 1993-99, compared to only
2.7 percent during the previous decade. The
performance of the labor productivity in the
manufacturing sector was more modest
growing from 3.1 percent to 4.5 percent during
the same period. Agriculture sector was
the lagging sector, with output per worker
rising only to 2.4 percent during 1993-99,
compared to 1.5 percent during the previous
decade. As wages are linked to productivity
it is little surprising to figure out why
people in the services sector making more
money compared to the other sector.
The fact that services is the fastest growing
sector (that is, demand for skilled labors
are always there) and requires only skilled
labors (less in numbers in India); wage rate
in the services sector is much higher than
in the agricultural sector. The average per
day return of agricultural worker varies between
Rs 25 (read Indian Rupees; Rs 39.5
is one US dollar) in States, like, Bihar, Mi-
zoram, Manipur, Arunachal Pradesh, etc.
to an average of around Rs 125 per day in
States, like, Haryana, Punjab, Kerala,
Tamil Nadu, Gujarat, etc. Although spatial
inequalities exist for agricultural sector;
income inequality becomes large considering
inter-sector inequality, i.e. inequality
between services and agricultural sectors.
These days the average salaries for a standard
Business School graduates ranges between
five lacs to seven lacs, per annum.
Quite evidently these are much higher figures
compared to an average agricultural
earning. So what needs to be done? From
the demand side perspective government is
Table 3: Uncertainty In Agricultural Income
spending money on schemes like, minimum
rural employment guarantee
scheme in 200 most
backward districts in India
with the objective of providing
100 days of guaranteed
unskilled wage employment
to each rural
household opting for it. These schemes are
to be spread to other districts as well. However,
such demand management policies
sometime can be self defeating. For instance,
if these people are hired for building
a road and the project never gets completed
then the money allocated for the
purpose will add on to inflation. A better
1971-72 to
1980-81
way to address this problem associated with
income inequality will be to address long
term supply management policies. There
are two major problems. First has to do
with skill formation. Workers can be trained
giving vocational education. The experiences
of some South-East Asian economies
show that one reason these economies fared
well on the distributional aspect of income
1981-82 to
1990-91
1991-92 to
2004-05
GDP
Growth (Mean) 3.16 5.64 5.83
Coff. of Variation 137.75 39.05 31.84
Agriculture and Allied Service
Growth (Mean) 1.83 3.55 2.58
Coff. of Variation 475.21 150.74 188.74
Industry
Growth (Mean) 4.05 7.11 5.81
Coff. of Variation 88.91 28.22 51.85
Services
Growth (Mean) 4.42 6.72 7.78
Coff. of Variation 34.03 17.16 23.04
Source: National Account Statistics
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