IGIDR Annual Report 2008-2009 - Indira Gandhi Institute of ...

Research ActivitiesIndustry and LabourR. Nagaraj, in his paper ―Is Services Sector OutputOverestimated? An Inquiry,‖ Economic and PoliticalWeekly, Vol. 44, No. 5, January 31, 2009, documentsthat India‘s services sector-led growth since the 1990sremains a puzzle – it has taken place at a low level ofper capita income, without a proportionatetransformation in the workforce, and amidst adeceleration in agriculture and stagnation in industry.The paper argues that the output of services is perhapsoverestimated since computing value added in servicesand finding suitable price deflators for them is difficulteven in the best of circumstances. The answer to thepuzzle, therefore, lies (at least partially) in thedeterioration in economic statistics, and the use of awidely acknowledged faulty methodology. Morespecifically, services output seems overestimated dueto the inflated estimate of the growth of the privatecorporate sector, (ii) a slower rise in the servicesdeflator, and in particular (iii) of an overstatement ofthe decline in the prices of communications services.In another paper (―Public Sector Performance since1950-2005: A Fresh Look,‖ in AgricultureDevelopment, Rural Institutions and Economic Policy,the Essays for of A Vaidyanathan, edited by GopalKadekodi and Brinda Viswanathan, Oxford UniversityPress, 2008), R. Nagaraj argues that since the mid-1980s, the public sector‘s share in domestic investmenthas been nearly halved, but its output share hasremained roughly constant at about a quarter of GDP,suggesting a sustained rise in productivity over nearlytwo decades. The improvement in performance is alsoevident from (i) a rise in physical efficiency inelectricity generation; (ii) a fall in public sectoremployment growth; and (iii) an increase in centralpublic sector enterprises‘ profitability (even afterexcluding the petroleum sector). Yet public sectorfinances have remained adverse. Why? In electricity,passenger road transport and railways the revenue-costratio is less than one, and has declined since the early1990s. Moreover, over the last 40 years, the publicsector price deflator declined by 17 percentage points,relative to the GDP deflator. Hence, correct pricing andcollection of user charges is probably the key to settingpublic sector finances right.Rupayan Pal (in ―Outreach of Banking Services,Infrastructure Penetration, Labour Regulation andIndustrial Growth: Evidence from Indian States,‖presented in the 11 th Annual Conference on Money andFinance in the Indian Economy, January 23-24, 2009)analyses the impacts of outreach of banking services,infrastructure penetration, and labour market rigidityon growth of manufacturing industries across 14 majorStates in India in the post-liberalisation period (from1991-92 to 2002-03). The paper documents thatoutreach of banking sector as well as infrastructurepenetration has significant positive impact on growthof industries. Interestingly, the counteracting effect ofrigid labour market regulation does not appear to besignificant, if the effects of infrastructure and bankingservices are controlled for. This paper also assesses therelative magnitudes of the impacts of these threeinstitutional factors on industrial growth.Examining the principal trends in the labour marketsince around the early 1980, R. Nagaraj in his paper(―Labour Market Scenarios in India, 2006-2015”, acountry report on India, prepared for the ILO project on―Labour Market Scenarios for Asian Decent Decade,‖January 2009) traces the merging scenarios in it for thenext 10 years. It is argued that the dichotomy betweenthe output and labour markets, resulting in growinginequality in earnings in agriculture and nonagriculturesectors is the most disturbing feature. Tobelieve that a sustained high growth in output andincreased flexibility in the organized labour marketwould sort out the dichotomy would be a sanguineview of the growth process. Correcting for thedichotomy would call for massive productiveemployment efforts in rural areas that would augmentagriculture productivity, raise the supply price ofunskilled labour to ensure a more equitable growthprocess. Such a growth process would generate largerdomestic demand, and ensure factoral terms of tradefrom moving adversely against India in internationaltrade.16 Annual Report 2008-09