MOSL: FUEL OR ENGINES (Economy)-GVA and employment share inverse correlation in Indian economy

​FUEL OR ENGINES (Economy): GVA and employment share inverse correlation in Indian economy; Analyzing GVA growth via labor market

“Fuel or Engines” is our new monthly product, in which we intend to expand our consumption v/s investment theme. This is an extension to our ‘India 2020’ report released in June 2016.

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 in the 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?