5

Demographic Characteristics and

Occupational Structure

CHAPTER OUTLINE
5.1 Introduction
5.2 Human Resources and Economic Development
5.3 Chief Demographic Features in India
5.3.1 Urbanisation in India
5.4 Economic Development and Occupational Structure
5.5 Occupational Structure at Time of Independence
5.6 Occupational Structure in India
5.7 Concept of National Income and Its Estimation in India
5.8 Changes in Sectoral Share in Gross Value Added in Post
Independence Era
5.8.1 Problems in Estimation of National Income
5.8.2 Causes of Slow Progress of National Income
5.8.3 Suggestions to Improve Rate of Growth of
National Income
5.8.4 Limitations of GDP Concept
5.9 An Overview of Impact of Covid-19 on Services Sector in
India

"The median age, which divides population into two numerical equal
groups (half of them younger and half older than the median age),
indicates how young or old a country is. Aging of a population is
linked to a decreasing fertility rate and increasing life expectancy as
the health infrastructure improves. Typically advanced have older
56 Issues in Economic Development

populations than developing ar poor countries. Japan has highest

median age in the world while it is lowest for Nigeria. India’s median
age is 26.6 years, while Japan, Germany, Italy, Spain, France and
U.K. have 40.0 to 46.5 years".
India is Young and Developing, TOI-16-9-15

5.1 INTRODUCTION
According to G.M. Meier1, "while economic development raises the fertility
of soil, excessive population pressure reduces the fertility of human beings."
Human activities all over the world aim at maximizing production, accumulation
of wealth and satisfaction of human wants. In this way, mankind produce
wealth for its own economic welfare and satisfaction. Population has always
been regarded as one of the most important determinants of economic development
in developed countries (DCs) as well as in underdeveloped countries (UDCs).
Population as human resource has twin relationship, with economic development.
In the form of resource factor, people along with other factor inputs participate
in the production of goods and services. In the form of consumers they demand
goods and services produced in the country. Therefore, the size, structure and
rate of growth of population is considered as the most important factor to
influence the pace and pattern of economic development.
The part of the population actually engaged in the productive activities is
called the working population or working force. Working force differs from
the labour force in the sense that latter includes even those (willing and capable
of working) who may not find jobs. If we exclude the number of unemployed
persons from the total labour force, what we get is called working force. The
distribution of working force in various sectors or occupations is called the
occupational structure. Here, an occupation may be defined as an economic
activity that engages a person wholly or partly and provides the means of
living. Thus, occupational structure indicates the relative significance of different
economic activities of population actually engaged in work.
Occupational structure is an important aspect of an economy. It provides
information relating to the size of work force and its distribution among different
occupations in the economy. In this way, it assists us in getting an understanding
of the working of different occupations in the economy and their relative
importance.
Though the number of occupations in an economy is large, these are
broadly divided into three sectors, namely, primary sector, secondary sector

1. Leading Issues in Economic Development, G.M.Meier, III Edition, P.484

Demographic Characteristics and Occupational Structure 57

and tertiary sector. Each sector represents a group of homogeneous economic

activities. As there is considerable variation in the nature of economic activities
in different economies, it is not possible to make any meaningful comparison
of occupation structure of different countries.
(1) Primary (or Agriculture) Sector: This sector mainly consists of agriculture
and allied activities. These activities are mainly concerned with the exploitation
of natural resources. Here, the occupations are related to extraction or
production from land. Thus, this sector is primarily based on land. It
comprises of cultivation or other occupations connected with agriculture,
such as animal husbandary, dairy farming, fisheries, forestry and mining. In
countries like India, agriculture is the main activity of primary sector. That is
why, this sector is generally referred to Agriculture Sector. This sector supplies
basic necessities and raw materials for further production in other sectors.
(2) Secondary (or Manufacturing) Sector: All activities relating to production
of industrial goods are included in this sector. These may relate to large and
small manufacturing units, construction etc. This sector is primarily based
on the productive forces of capital and technology. In this sector, raw material
produced in the primary sector is converted into finished products and becomes
more useful for satisfaction of human wants. As industry is the principal
component of this sector, it is also called as Industrial Sector.
(3) Tertiary (or Service) Sector: This sector includes both private and
governmental services like trade, transport, communication, banking,
insurance, education, defense and public administration. Broadly speaking,
these services aid activities of the secondary sector. It is confined to the
production of non-material goods. This sector enhances the place and time
utility of the finished goods.

5.2 HUMAN RESOURCES AND ECONOMIC DEVELOPMENT

Population like fire may prove a good servant but a bad master, it acts like
a double edged sword. On one side, it is the most active factor of production,
other factors being passive or sterile, that push forward the wheels of growth.
On the other side, too much of population can cause all sorts of miseries like
hunger, unemployment, poverty and high density.
Recently, economists and population theorists have held that population
and its age wise distribution have an important bearing on the economic
performance of the country. If in the total population of a country, the proportion
of children (below 14 years) and that of aged ladies and gents (above the age
of 60 years) is high, then not only they do not contribute to the GDP of the
58 Issues in Economic Development

country, but consume a major part of the country’s resources. They are called
dependents. They do not produce but consume. If the proportion of working
population to total population is high, then there is a possibility that they produce
sufficient enough to be able to save and invest.

5.3 CHIEF DEMOGRAPHIC FEATURES IN INDIA

Following are the chief demographic features in India.
(1) Expectancy of Life: It means life span at the time of birth. This finds expression
in the state of medical facilities, availability of maternity homes, trained nurses,
child care, vaccination and availability of nutritious and balanced diet. In the
absence of these facilites infant mortality rate is sure to be high. Conversely life
expectancy will be high if the country is developing. Thus, a direct and positive
co-relation can be established between the pace of economic development
and the expectancy of life at the time of birth.
During the last few decades due to rapid progress of medical science, life
expectancy of both males and females in India has risen. In 1951 average
expectancy of life was 45 years. It rose to 58.2 in 1981-91. It has risen
further to 64.6 years for males and 67.7 years for females (Economic Survey
2012-13).
(2) Infant Mortality Rate: High infant mortality is a notable feature of poor
and backward countries. Infant mortality rate is calculated by finding out the
number children, who die in a year, before attaining the age of 5 years. It is
very sad to note that according to a report by United States based Save the
Children more new-borns die on the first day in India than in any other
country. Every year, over 3,09,300 children (29 percent of global share) in
India do not live beyond the first day because of complications associated
with preterm birth, poor hygiene and bad maternal health. Despite being
more populated, China ranks 4th and accounts for only 5 percent of the
global share of first day death. India also fares very poorly in maternal health
with 56,000 maternal deaths per year. Over all, India ranks 142nd among
176 countries. Infant mortality rate was around 250 per thousand in 1951.
During the last six decades, on account of economic development that has
taken place in the country, this rate has been brought down to all India
average of 44 per thousand in 2011.
(3) Density of Population: It measures the number of persons living over an
area of one kilometer radius. Density of population in India was 117 in
1951 which has now increased to 382 persons. As India’s population is
about one sixth of world population living over 2.4 percent of world area,
Demographic Characteristics and Occupational Structure 59

density of population is bound to be high. However, economists do not

agree with any commonly accepted co-relation between density of population
and economic development. Wide disparities are found with regard to
density of population in India, for example, it is 10 in Arunachal Pradesh
and 9,264 in Delhi.
(4) Composition of Population (Age wise): Distribution of population into
different age groups like 0-14 years, 14 to 60 years and above 60 years,
depend upon birth rate and death rate that prevailed in the preceeding decades.
As India at present is passing through second stage of demographic transition,
the age composition of India is young, with about 37 percent of population
of below 15 years in 2011.
(5) Male-Female Ratio: Gender ratio reflects the social health of society in
every country. In India, proportion of males in the total population is greater
than that of females. Even otherwise, ours is male dominated society. During
the last 110 years, the ratio of females to one thousand males, that was
962:1000 in 1901 has fallen to 928: 1000 in 2011. It may be surprising,
because the life expectancy of females has always been higher than that of
males but at the same time it should not be that surprising because the birth
of a girl child is avoided or discouraged by all possible means in many well
to do families in India. It is so ironical that even mothers prefer to have a
male child than a baby girl and it is alleged that at times they get their
daughters killed (in the womb) while they (daughters) have not taken birth.
Goverment of India is in the knowledge of this menace. It has prohibited
the determination of sex, before birth, as an illegal and punishable act under
the law. In Indian society, especially in rural areas, parents discriminate
between their sons and daughters. Often girl child does not receive proper
love and affection from her mother and father. Parents do not take due
care in providing balanced diet, proper clothing, education and health care
to their children. Unlike India, countries like USA, UK and Japan have
females to 1000 males as 1,055, 1069 and 1080. Demographers are of the
view that some important measures need to be adopted to check this
continuous low ratio of females to males in India.
(6) Rural: Urban Population: India is a country of villages. Development
of India is difficult to be imagined without the development of its villages.
Gandhi ji said that the “true India resides in villages”. During the post
independence era enough has not been done to raise the mobility of people
from rural areas to towns and cities. At the time of inception of economic
planning in 1951, urban population was only 17 percent in the total
population, which has risen only to around 31.2 percent in 2011.
60 Issues in Economic Development

5.3.1 Urbanisation in India

Urbanisation is a process under which rural population moves towards
towns and cities in search of jobs, better amenities of education, health and
entertainment. Speed of urbanisation move in tandem with the speed of economic
development. In India this process of urbanisation got momentum after 1961.
According to population census, in 1991 urban population was 26 percent
only which has increased to about 31.2 percent in 2011.

In India, a city is one where at least 5000 people reside, density of population
is 400 or more and where 75 percent or more of male population is engaged
in economic activities. There were 4,398 cities of varying sizes in India in
2011.
Urbanisation has received a boost from (a) Commercialisation of agriculture,
(b) Development of educational and medical facilities in cities, (c) Growth
of banks, transport and communication (d) Industrialisation (e) Population
growth (f) Administrative decisions.
Rapid urbanisation is the cause for the following problems: (i) Rising air,
sound and water pollution affecting adversely the health of people, (ii) Mushrooming
of J.J. Clusters or Slums and (iii) Increasing incidents of antisocial activities–
like burglaries, dacoity, smuggling and prostitution. To check the problems,
mentioned above it is essential that rapid concentration of urbanisation is checked
and satellite towns (suburbs) are developed around big/mega/cosmopolitan
cities.
“In every progressive economy, there has been a steady shift of employment
and investment from the essential ‘primary activities’ ..... to secondary
activities of all kinds and to a still greater extent into tertiary production.”
-A.G.B. Fisher

5.4 ECONOMIC DEVELOPMENT AND OCCUPATIONAL

STRUCTURE
Colin Clark in his work ‘Conditions of Economic Progress’, argues
that there is a close relationship between development of an economy on the
one hand and occupational structure on the other and economic progress is
generally associated with certain distinct necessary and predictable changes in
occupational structure. He writes; “A high average level of real income per
head is always associated with a high proportion of the working population
engaged in tertiary industries.......low real income per head is always associated
Demographic Characteristics and Occupational Structure 61

with a low proportion of the working population engaged in tertiary production

and a high percentage in primary production.”2 ‘A.G.B. Fisher also reaches
the same conclusion’ “We may say that in every progressive economy there
has been a steady shift of employment and investment from the essential ‘primary
activities’ to ‘secondary activities’ of all kinds and to a still greater extent into
tertiary production.” Since some economists do not subscribe to the above
thesis, let us consider the empirical evidence in this regard.
Let us examine Table 5.1, which shows that higher per capita income is
inversely correlated with the proportion of active population engaged in primary
activities. The developed countries like the U.S.A., the U.K., Germany and
Japan with a low percentage of active population dependent on agriculture
show a higher per capita income. As against them a poor and underdeveloped
country like India with a higher proportion of active population engaged in
agriculture has very low per capita income.
Then, as the level of per capita income improves over the years, the proportion
of labour force dependent on agriculture (primary activities) declines, but that
dependant on industry and services increases. These figures in Table 5.1 support
Colin Clark’s thesis, that with rising economic progress and rise in national
and per capita income, there is a shift in occupational structure from primary
to secondary and tertiary sectors.
Table 5.1
Country Year Per Capita Income Percentage of Labour Force
(in U.S. $) Agriculture Industry Services
U.S.A. 1960 2,500 7 36 57
2010 47,153 1.6 16.7 81.2
U.K. 1960 1,200 4 48 48
2010 36,343 1.2 19.1 78.9
Germany 1960 1,220 1.4 48 38
2010 40,115 1.6 28.4 70.0
Japan 1960 420 33 30 37
2010 42,830 3.7 25.3 69.7
India 1960 70 74 11 15
2010 1,410 51.1 22.4 26.5
Source: World Development Indicators 2012

2. Colin Clark, The Conditions of Economic Progress (1940), P.182

62 Issues in Economic Development

5.5 OCCUPATIONAL STRUCTURE AT TIME OF

INDEPENDENCE
The occupational structure of India at the time of independence was lopsided.
There was predominance of primary employment. The agriculture sector
accounted for the largest share of work force at around 73 percent, of this
mining and quarrying accounted for 0.6 percent. The percentage of work
force engaged in secondary activities showed a decline. The secondary sector
accounted for 10 percent of work force. Within this sector, the organized
industry employed just about 2 percent of work force. The share of tertiary
sector in total employment at the time of independence was about 17 percent.
Out of this, trade and transport accounted for about 7 percent, while 10 percent
were engaged in services.
India’s excessive reliance on agriculture for livelihood on the one hand and
moderate decline or stagnation in the employment of secondary and tertiary
sectors on the other, produced lopsidedness even in the development. The
much desired shift in occupational pattern in India in favour of non-agricultural
sectors did not take place.
Two reasons were responsible for the relatively stagnant occupational
structure in India. First, when an old technology is to be replaced with the
new one, it is to be supplied by developed countries. This technology is capital
intensive and labour saving producing adverse effect on employment. This
discourages the urge for change. Second, rural activities constitute primary
sector, while urban activities constitute non-agriculture sectors. Low productivity
of labour in the agricultural sector and lack of job opportunities in urban areas
restrict the movement of workers to manufacturing and service sectors.
There was growing regional variations in India. In the States of Tamil
Nadu, Andhra Pradesh, Kerela, Karnataka, Maharashtra and West Bengal, the
dependence of the work force on agriculture sector declined. On the other
hand, an increase in the share of work force in agriculture sector was noticed
in the States of Odisha, Rajasthan and Punjab. Further, states such as Punjab,
Maharashtra, Gujrat, Haryana, Madhya Pradesh having high per capita income
have lower portion of working force in the primary sector and greater portion
in secondary and tertiary sector. While there is reverse situation in States like
U.P., Rajasthan, Assam, Bihar and Odisha with low per capita income.

5.6 OCCUPATIONAL STRUCTURE IN INDIA

The occupational structure in India reflects character of the one found in
an under developed economy. It reflects predominance of agriculture sector,
which in itself is a backward sector of the economy. Table 5.1 shows temporal
Demographic Characteristics and Occupational Structure 63

changes in occupational structure in India since the beginning of previous

century. This table also helps in understanding the relationship between economic
development and occupational structure.
It is clear from Table 5.1 that India was dominated with 52.7 percent of
the population engaged in primary sector in 2004. In other developed countries
of the world, the percentage of working population in agriculture is far less
than in India. In England and USA, it is just 2 percent, in Japan 12 percent and
in Germany 4 percent. Agriculture is likely to remain over-burdened on account
of only moderate job opportunities in the non-agricultural sectors, pointing at
the backwardness of our economy.
Table 5.1: Occupational Structure of India 1901-2004 (Percentage)
Year/Sector Primary Sector Secondary Sector Tertiary Sector
1901 71.7 12.6 15.7
1911 74.9 11.1 14.0
1921 76.0 10.5 13.5
1931 74.3 10.2 15.5
1951 72.1 10.7 17.2
1961 71.8 12.2 16.0
1971 72.1 11.2 16.7
1981 68.8 13.5 17.7
1991 66.8 12.7 20.5
2001 57.2 17.6 25.2
2004 52.7 18.8 28.5
Source: Various Census Reports
There has been dormant growth of industries. The industrial sector could
absorb only 18.8 percent of the working population. While in USA, England
and Japan 32, 42 and 39 percent of the working population respectively, is
engaged in the industrial sector. Disguised unemployment in the agriculture
sector due to lack of job opportunities in the non-agriculture sector can be
overcome through a substantial push to the industrial sector.
In India, only 28.5 percent of the population is engaged in the service
sector as against 66 percent in USA, 56 percent in England and 49 percent in
Japan. This shows truncated growth of tertiary activities. Expansion of tertiary
sector may offer substantial job opportunities as products of this sector have
high income elasticity of demand and labour productivity of this sector is
about four times high than that in the primary sector.
64 Issues in Economic Development

As Table 5.1 shows there has been 19 percent decline in work force
engaged in the primary sector, while the share of secondary and tertiary sectors
has increased by 6.2 percent and 12.8 percent respectively over a period of
over one century. In earlier period, the proportion of working force actually
went up from 71.7 percent in 1901 to 76 percent in 1921 indicating deterioration
in economic conditions (low income low productivity and poverty). Since
then there was a slow decline in this proportion during most of the remaining
period. It is quite obvious that the fruits of economic progress in terms of
change in whatsoever occupational structure could be realized over the half a
century of development since 1951. During this period, non-agricultural sectors
fail to raise job opportunities in required number to absorb surplus labour from
the primary sector with rapidly growing population in rural and urban areas.
This is an account of ‘jobless growth’ in these sectors with the use of modern
sophisticated capital intensive technology not suitable in the context of India’s
resource endowment.

5.7 CONCEPT OF NATIONAL INCOME AND ITS

ESTIMATION IN INDIA
Economic prosperity of any country can be judged by its national income.
Foundation of economic progress is laid by the volume and the distribution of
national income. Information about national income serves as the mirror of a
country’s economic health. Every country endeavours to attain progressive
growth in its national and per capita income. Rising national income enables a
country to come out of the vicious circle of poverty. It paves the way for
improved standard of living of the residents of the country.
According to National Income Committee of India, “National Income
measures the value of final goods and services produced in a year’s time. It
includes all economic activities being done by the people of that country.” In
this way,
(a) National Income is the total income of a country in a year’s time.
(b) It is the sum of monetary value of final produced goods and services.
(c) Depreciation of capital is deducted from the gross value and net income
received from abroad (export earnings minus import payments) is
added.
National income is the sum of C + I + G + E – M
Where C = Total Consumption Expenditure
I = Gross Investment
Demographic Characteristics and Occupational Structure 65

G = Total Government Expenditure

E – M = Exports – Import, i.e., Income from abroad
GDP = Gross Domestic Product = Gross Value of total goods
and services produced in a year within geographical limits of a country.
NDP = GDP – Depreciation
GNP = GDP + Net Income from abroad.
NNP = GNP – Depreciation
National Income or ‘Y' = NNP at factor cost.
Thus, Y = C + S
Output or ‘O' = C + I
At equilibrium,
Y = O or C + S = C + I or S = I
On the basis of abovementioned definitions it can be said that ‘National
Income is the monetary value of total goods and services produced in a country,
in a year’s time’.
No serious effort was made in India during British period to measure the
national income of the country. After independence, GOI appointed National
Income Committee in August 1949 under the chairmanship of Mahalanobis, to
estimate the national income of India. In 1951, the committee submitted its
first report where in, it estimated the national income of India for 1948-49 as
`8,650 crore and per capita income as `246.9. The committee submitted its
second report in 1954 wherein, national income was estimated for the period
1950-54. Thereafter, Central Statistical Organization, CSO has been assigned
the job of estimating and publishing national income figures on yearly basis.
Till recently, CSO has been estimating and publishing national income
figures at the current and constant prices of 2004-05 (revised seriess).

5.8 CHANGES IN SECTORAL SHARE IN GROSS VALUE

ADDED IN POST INDEPENDENCE ERA
To understand the growth process of any country, it is essential to know
the relative contributions of different sectors of the economy to its gross value
added. As a developing country proceeds on the growth path, the relative
contribution of primary sector activities to its national income declines and
that of secondary and tertiary sectors rise. Table 5.2 tells us about the changes
that happened in the Gross value added at factor cost by industry of origin (at
constant prices of 2004-05) during plan period.
 Table 5.4: Gross Value Added at Factor Cost by Industry of Origin at Constant Prices ( 2004-05 Series )
66

Year Agriculture Manufacturing Trade Hotel Financing Community Gross

Forestry, Construction Transport and Insurance Real Social and Value Added
ValueFishing, Electricity Gas Communication Estate and Personal at Factor
Mining and and Water Business Services Cost (2 to 6)
Quarrying Supply Services
1 2 3 4 5 6 7
1950-51 150,191 40,138 30,792 23,325 28,474 279,618
(53.7) (14.4) (11.0) (8.3) (10.2)
1960-61 240,340 73,555 51,879 31,252 40,741 410,279
(58.6) (17.9) (12.6) (7.6) (9.9)
1970-71 258,665 126,356 84,205 43,735 68,218 589,787
(43.9) (21.4) (14.3) (7.4) (11.6)
1980-81 305,906 183,970 133,906 65,041 101,666 798,506
(38.3) (23.0) (16.8) (8.1) (12.7)
1990-91 444,880 325,450 237,736 155,165 180564 1347,889
(33.0) (24.1) (17.6) (11.5) (13.4)
2000-01 592,227 570,571 508299 338661 338,723 2348,481
(25.2) (24.3) (21.6) (14.4) (14.4)
2010-11 828,431 1262,722 1344024 849,189 634,167 2918533
(16.8) (25.7) (27.3) (17.3) (12.9)
2011-12 864,557 1369,932 1402,261 945534 665246 5247,530
(16.5) (26.1) (26.7) (18.0) (12.7)
Source: Economic Survey 2014-15 A-5
Note: 1. Figures in brackets show the percentage contribution of Industry of origin in total Gross Value Added.
2. Totals under column 7 may not add up Gross Value Added of totals of item under column 2 to 6 due to splicing technique applied.
Issues in Economic Development
Demographic Characteristics and Occupational Structure 67

Some important observations can be made from Table 5.2:

(i) Primary sector (consisting of agriculture, forestry fishing, minning
and quarrying) has been contributing less and less to the gross value
added at factor cost since the start of economic planning in 1950-51.
During 1950-51 to 199-91 (a period of 40 years) its percentage contribution
declined from 53.7 to 33.0 percent (a decline of nearly 38.5 percent).
This pace of decline has been more sharper during 1990-91 to 2011-12,
when its percentage contribution has come down from 33.0 percent
to 16.5 (i.e., a decline of 50 percent over a period of 22 years.)
(ii) Contribution of manufacturing construction electricity, gas and water
supply to the gross value added have been rising continuously. Its
contribution in 1950-51 was 14.4 only at which has grown up to
26.1percent in 2011-12. This change is enough to prove that India
has been moving towards industrialization at a rapid rate.
(iii) Share contribution of trade hotels, transport and communication has
shown a remarkable progress, especially during the last three decades,
as we see its percentage contribution has risen from 16.8 percent in
1980-81 to 26.7 percent in 2011-12.
(iv) Percentage contribution to the total gross value added of banking,
insurance, real estate and business services has increased from 8.3
percent in 1950-51 to 18 percent in 2011-12 . This contribution has
increased fairly rapidly during 1980-81 to 2011-12.
(v) Share of community, social and personal services has remained rather
sluggish over the plan period.
(vi) When we add up the contributions of items listed in column 4 to 6,
we get an idea about the role of tertiary sector. Here, we find that
tertiary sector’s contribution to the total gross value added was 29.5
percent in 1950-51. It increased to 42.5 percent in 1990-91 (an increase
of 44 percent in a period of 40 years) and further to 57.4 percent (an
increase of 35 percent within the period of 22 years only). Thus
tertiary, sector has presented a remarkable progress during the later
decades (1990-91 to 2010-2011) of plan period. Services have been
marked as the fastest progressing sector of the economy. It has grown
at a progressive rate in recent years. However, on close examination
one finds that the growth of service sector has not been as robust in
terms of employment generation as in terms of gross value added.
68 Issues in Economic Development

Some additional features of the progress of India’s services under can be

mentioned briefly as under:
(i) It needs to be mentioned that India’s exports of services are quite
broad based. Services with regard to travel, transport, information
technology, business, management, constructions communication and
finance have shown remarkable progress. Exports of these service
have facilitated India’s integration with the world economy. In this
regard, India has surpassed even China. During 1990s, India’s exports
of services grew at an annual average rate of 17.3 percent, while at
15.8 percent in China and at 8 percent in Taiwan. During the same
period, world’s exports of services grew at an annual average rate of
5.6 percent.
(ii) Within the service sector some compositional shift can also be noticed.
Some new services like software, advertising, engineering, health
and, accountancy seem to be emerging fast in comparison to traditional
services like transport and travel.
(iii) India is a country with huge labour endowment. It has registered its
presence in the field of global BPO services with a bang. The Indian
BPO industry is expected to grow at fairly rapid rate in future also.
(iv) Only recently, India has entered into an Indo-Singapore Comprehensive
Economic Cooperation Agreement (CECA) with the objective to promote
Singapore’s investment in India’s service sectors like finance,
telecommunication, transport and real estate services.
Annual Growth Rate of Real Value Added at Factor Cost by Industry of
Origin of Constant Prices (2004-05) During 11th Plan
1. Primary sector (Agriculture, Forestry, Fishing, Mining and Quarying) : 4.2%
2. Secondary Sector (Manufacturing, Construction, Electricity, Gas and Water) : 8.12%
3. Tertiary Sector (a) (Trade, Hotel, Transport and Communication) : 9.06%
(b) (Financing, Insurance, Real Estate, Real Estate and
Business Services) : 11%
(c) (Community, Social and Personal Services) : 8.04%

5.8.1 Problems in Estimation of National Income

In an under developed country like India estimation of national income is
beset with a number of difficulties. Some of them are mentioned below:
(1) Unreliable and Incomplete Data: It is not mandatory for people to keep
record of their production, consumption and saving, etc. Rural people in
Demographic Characteristics and Occupational Structure 69

general do not keep record of their income. Rich people also do not tell
correct information about their income.
(2) Economic and Non-Economic Activities Get Mixed Up: In the absence of
this information it remains unclear, as to which activities are to be included
and which are not in the estimation of national income.
(3) Problem of Double Counting: A same product is used as a final product at
one place or for one economic unit and as intermediate product at the other
depending upon the usage. Sugarcane consumed by a farmer is final product
and when sold to a sugar mill it is an intermediate product. It is difficult to
draw a clear cut demarcation between intermediate and final product.
(4) Unreliable Data Collectors: Further, staff members deployed on the job are
found to be untrained/unreliable/uneducated/non serious. Many a times, they
fill up the columns by guess work.
(5) Barter System: In many parts of the country barter system is practised. No
proper record of transactions is maintained. No information is available about
the part of total output, which is used for self consumption, creating problems
in the estimation of the market value.

5.8.2 Causes of Slow Progress of National Income

Though national income has been growing almost regularly in India, yet
actual achievements have often been lower than the targets. Causes of slow
and uneven progress are mentioned below:
(1) Insufficient Capital: India is a poor country , with low income and low
saving capacity. Consequently, rate of capital formation remains lower than
the required one.
(2) Unskilled Labour: Labour is in abundance in India,. But, large number of
labourers are untrained, unskilled and uneducated, whose productivity remains
low.
(3) Technological Backwardness: In agriculture, micro and small industries
production techniques are traditional and are too orthodox to try and adopt
modern technology in production.
(4) Lack of Finance Available at Reasonable Terms and Conditions: Most of
financial institutions have sprung up in recent decades. Ordinary
entrepreneurs/borrowers find it extremely difficult to manage adequate amount
of funds. They face an uphill task in convincing the creditors about their
credit worthiness. In the absence of timely funds, many schemes/projects
get delayed for too long.
70 Issues in Economic Development

(5) Uneven Distribution of Income and Wealth: The gap between the rich and
the poor has been widening over time. Large percentage of total population
live below the poverty line. The portion of population is unable to contribute
any thing to national income.
(6) High Rate of Illiteracy and Prevalence of Joint Family System: Even at
present, almost one-third of total population of the country is illiterate. They
are unable to contribute their share to national income. In a joint family
system, there are shirkers, who survive at the cost of others. They consume
equally out of the family income without any positive contribution.
(7) Over Dependence on Agriculture along with Rapidly Rising Population:
More than half of total working force in India, derive their livelihood from
agriculture which to a very large extent, still depends on the moods of nature.
Agriculture sector’s contribution to GDP is quite uncertain. On the other
hand, population has been rising at a rapid rate. Standard of living of a large
part of total population is still extremely low.

5.8.3 Suggestions to Improve Rate of Growth of National Income

In the preceding section, some causes of slow growth of national income
have been mentioned. If these hurdles can be removed, some progress can
definitely be made. Some suggestions in this regard, are mentioned below, in
brief.
People should should be persuaded to save more and invest their savings
in productive activities. Population growth must be controlled so that their
saving capacity can rise. Simultaneous growth of all the sectors should be
ensured. Otherwise the lagging sector will hamper the growth of other sectors.
Government should take necessary steps to strengthen economic and social
infrastructure without which economy will not grow at the desired pace. Adequate
attention should be given to skill development. Foreign private investment and
foreign technology should be welcomed so that we can benefit from latest
technology being practised in developed countries of the world. All out efforts
be made to utilise fully the available productive resources in the country.

5.8.4 Limitations of GDP Concept

National income and per capita income determine the economic welfare of
the people of the country by affecting their standards of living. These concepts
need to be computed at constant prices so as to reflect the true purchasing
power of the people. Inspite this fact, GDP concepts may not be adequate
yardstick to measure welfare of the people particularly in developing countries
having comparatively larger non-market sector.
Demographic Characteristics and Occupational Structure 71

Real National Income and Economic Welfare

Many things that affect the economic welfare are not considered while
estimating even the real national income (National income at constant prices).
(1) Services without Remuneration: The services of family members are not
generally evaluated and paid for on the basis of prevailing wage rates.
Furthermost of the work done in institutions like panchayats, village
cooperatives, etc. is honorary. Since everything is not commercialized in
India, tremendous amount of national income effort remains unrecorded.
(2) Distribution and Composition of National Income: If the national income
rises but it is unevently distributed, economic welfare will be adversely affected.
The reason is that people with higher income and wealth get lesser utility
from it in comparison to those having smaller income. Further, more
production of goods of mass consumption rather than luxury or unproductive
goods promote economic welfare.
(3) Leisure: Time off the work may reduce the national income, but stimulates
economic welfare if enjoyment from leisure exceeds the lost wages. On the
other hand, long working hours result in fatigue and exertion adversely
affecting the health of the workers. This causes fall in economic welfare.
(4) Economic Bads: If the manufacturing process causes environmental damage,
the value of economic bad should be deducted from the national income to
get economic welfare. Likewise, economic growth may raise the level of
output and national income, but with it brings pollution of air, noise and
water, congestion, longer waits for public services, disamenities, more
complex life, etc. Further, indiscriminate cutting of trees and deforestation
may increase the national income. But, it results in problems of soil erosion,
scanty rainfal, environmental degradation, etc., causing decline in economic
welfare. Thus, national income measures only a part of the economic welfare.
Real Per Capita Income and Economic Welfare
Real per capita income is a better indicator of economic welfare since it
takes into account population factor also besides price factor. Still some difficulties
arise in taking per capita income as an index of economic welfare.
(1) Uneven Income Distribution: Per capita income is actually the average income
of the residents of the country. It does not imply that income of every individual
in the economy is the same. If disparities of income exist, it will not promote
economic welfare.
(2) Defective Composition of Output: Per capita income fails to provide
information about the compensation of output. If the output of luxury goods,
72 Issues in Economic Development

defence goods and capital goods is more in comparison to goods of mass

consumption (basic goods or use values), economic welfare will be adversely
affected.
(3) Pattern of Public Expenditure: Nature and pattern of public expenditure
affects economic welfare of a country. If the government spends more on
health, education and basic amenities of life, economic welfare will be
promoted.
(4) Inappropriate International Comparison: Per capita income of different
countries is compared in terms of international currency. For example, the
World Bank uses dollar as the currency for international comparison of per
capita income of different countries. However, purchasing power in terms
of goods and services that can be purchased by spending a given amount of
income, may be different in different countries. That is why, economists use
purchasing power parity (PPP) rate that equates the prices of a representative
bundle of goods in different countries.

Countries, particularly developing ones should measure economic welfare

in terms of improvements in the conditions of the people, measured through
Human Development Index (HDI), Physical Quality of Life Index (PQLI)
measured by literary, life expectancy and infant mortality rate is another
index to compare the quality of life among different countries.

5.9 AN OVERVIEW OF IMPACT OF COVID-19 ON

SERVICES SECTOR IN INDIA
The year 2020 was marred by the COVID-19 pandemic as well as consequent
nationwide and worldwide lockdown measures implemented since March, 2020.
The contaction intensive services sector was severely impacted, particularly
sub-sectors such as tourism, aviation and hospitality. The first half of 2020-21
saw services sector contraction by almost 16 per cent. This decline was led
by a sharp contraction in all sub-sectors particularly, trade, hotels, transport,
communication and services related to broadcasting, which contracted by
31.5 per cent in first half of 2020-21. As per the first advance estimates, Gross
Value Added (GVA) of services sector is estimated to contract by 8.8 per cent
in 2020-21, whereas it grew by 5.5 per cent in full 2019-20. Sub-sectors,
‘trade hotels, transport, communication and broadcasting services’, ‘financial,
real estate and professional services’ and ‘Public administration, defence and
other services’, are estimated to contract by 21.41 per cent, 3.68 per cent and
0.82 per cent respectively.
Demographic Characteristics and Occupational Structure 73

It is pertinent to note that while the services sector contracted by over 20

per cent in the first quarter (Q1) of Financial Year (FY) 2020-21, the contraction
narrowed to 11.4 per cent in the second quarter (Q2) of FY 2020-21. This
pace of recovery is broadly aligned with high frequency indicators that point
to a pick in economic momentum with the measured opening up of the economy
from June, 2020.
Thus, India’s services sector activity, which had contracted for five
consecutive months since March 2020 as the Covid-19 pandemic dented
demand, has started to pick up since September, 2020. Services Purchasing
Managers Index (PMI) which was at 85 months high of 57.5 in February,
2020 (before the onslaught of pandemic) nose dived to its lowest level of 5.4
in April 2020. As mobility restrictions were lifted and business resumed,
services PMI shot back sharply to 54.1 in October, 2020. Alas! this recovery
could continue regularly.

POINTS TO REMEMBER

5.1 Introduction
1. While economic development raises the fertility of soil, excessive
population pressure reduces the fertility of human beings.
2. Population as a human resource has twin relationship, with
economic development. In the form of resource factor, people
along with other factor inputs participate in the production of
goods and services. In the form of consumers, they demand
goods and services produced in the country. Therefore, the
size, structure and rate of growth of population is considered
as the most important factor influencing the pace and pattern
of economic development.
3. Occupational structure is an important aspect of an economy.
It provides information relating to the size of work force and
its distribution among different occupations in the economy.
In this way, it assists us in getting an understanding of the
working of different occupations in the economy and their
relative importance.
4. Though the number of occupations in an economy is large,
these are broadly divided into three sectors, namely, primary
sector, secondary sector and tertiary sector.
74 Issues in Economic Development

5.2 Human Resources and Economic Development

Population like fire may prove a good servant but a bad master,
it acts like a double edged sword. On one side, it is the most
active factor of production, other factors being passive or sterile,
that push forward the wheels of growth. On the other side,
too much of population can cause all sorts of miseries like
hunger, unemployment, poverty and high density.

5.3 Demographic Trends in India

1. The demographic trends can be discussed under the following
heads:
(i) Expectancy of life;
(ii) Infant mortality rate;
(iii) Density of population;
(iv) Composition of population (agewise);
(v) Male-female ratio;
(vi) Rural-urban population.
2. Urbanization is a process under which rural population moves
towards towns and cities in search of jobs, better amenities of
education, health and entertainment. Speed of urbanization move
in tandem with the speed of economic development. In India
this process of urbanization got momentum after 1961. According
to population census, in 1991 urban population was 26 percent
only which has increased to about 31.2 percent in 2011.
3. Urbanization has received a boost from (i) commercialization
of agriculture, (ii) development of educational and medical facilities
in cities, (iii) growth of banks, transport and communication
(iv) industrialization (v) population growth (vi) administrative
decisions.
4. Rapid urbanization is the cause of the following problems: (i)
rising air, sound and water pollution affecting adversely the
health of people, (ii) mushrooming of J.J. clusters or slums
and (iii) increasing incidents of antisocial activities–like burglaries,
dacoity, smuggling and prostitution. To check these problems,
mentioned above it is essential that rapid concentration of
urbanisation is checked and satellite towns (suburbs) are developed
around big/mega/cosmopolitan cities.
Demographic Characteristics and Occupational Structure 75

5.4 Economic Development and Occupational Structure

The level of per capita income improves over the years, the
proportion of labour force dependent on agriculture (primary
activities) declines, but that dependant on industry and services
increases.

5.5 Occupational Structure at Time of Independence

1. The occupational structure of India at the time of independence
was lopsided. There was predominance of primary employment.
The agriculture sector accounted for the largest share of work
force at around 73 percent, of this mining and quarrying
accounted for 0.6 percent. The percentage of work force engaged
in secondary activities showed a decline. The secondary sector
accounted for 10 percent of work force. Within this sector,
the organized industry employed just about 2 percent of work
force. The share of tertiary sector in total employment at the
time of independence was about 17 percent. Out of this, trade
and transport accounted for about 7 percent, while 10 percent
were engaged in services.
2. India’s excessive reliance on agriculture for livelihood on the
one hand and moderate decline or stagnation in the employment
of secondary and tertiary sectors on the other, produced
lopsidedness even in the development. The much desired shift
in occupational pattern in India in favour of non-agricultural
sectors did not take place.
3. Two reasons were responsible for the relatively stagnant
occupational structure in India. First, when an old technology
is to be replaced with the new one, it is to be supplied by
developed countries. This technology is capital intensive and
labour saving producing adverse effect on employment. This
discourages the urge for change. Second, rural activities constitute
primary sector, while urban activities constitute non-agriculture
sectors. Low productivity of labour in the agricultural sector
and lack of job opportunities in urban areas restrict the movement
of workers to manufacturing and service sectors.

5.6 Occupational Structure in India

1. The occupational structure in India reflects character of the
one found in an underdeveloped economy. It reflects
76 Issues in Economic Development

predominance of agriculture sector, which in itself is a backward

sector of the economy.
2. In India, only 28.5 percent of the population is engaged in the
service sector as against 66 percent in USA, 56 percent in
England and 49 percent in Japan. This shows truncated growth
of tertiary activities. Expansion of tertiary sector may offer
substantial job opportunities as products of this sector have
high income elasticity of demand and labour productivity of
this sector is about four times high than that in the primary sector.

5.7 Concept of National Income and Its Estimation in India

1. Economic prosperity of any country can be judged by its national
income. Foundation of economic progress is laid by the volume
and the distribution of national income. Information about national
income serves as the mirror of a country’s economic health.
Every country endeavours to attain progressive growth in its
national and per capita income. Rising national income enables
a country to come out of the vicious circle of poverty. It paves
the way for improved standard of living of the residents of the
country.
2. No serious effort was made in India during British period to
measure the national income of the country. After independence,
GOI appointed National Income Committee in August, 1949
under the chairmanship of Mahalanobis, to estimate the national
income of India. In 1951, the committee submitted its first
report wherein, it estimated the national income of India for
1948-49 as `8,650 crore and per capita income as `246.9.

5.8 Changes in Sectoral Share in Gross Value Added in Post

Independence Era
1. In an under developed country like India estimation of national
income is beset with a number of difficulties. Some of them
are mentioned below:
(i) Unreliable and incomplete data;
(ii) Economic and non economic activities get mixed up;
(iii) Problem of double counting;
(iv) Unreliable data collectors;
(v) Barter system.
Demographic Characteristics and Occupational Structure 77

2. Causes of slow and uneven progress are mentioned below:

(i) Insufficient capital;
(ii) Unskilled labour;
(iii) Technological backwardness;
(iv) Lack of finance available at reasonable terms and conditions;
(v) Uneven distribution of income and wealth;
(vi) High rate of illiteracy and prevalence of joint family system;
(vii) Over dependence on agriculture along with rapidly rising
population.
3. Still some difficulties arise in taking per capita income as an
index of economic welfare.
(i) Uneven income distribution;
(ii) Defective composition of output;
(iii) Pattern of public expenditure;
(iv) Inappropriate international comparison.

5.9 An Overview of Impact of Covid-19 on Services Sector in India

The year 2020 was marred by the COVID-19 pandemic as well
as consequent nationwide and worldwide lockdown measures
implemented since March, 2020. The contaction intensive services
sector was severely impacted, particularly sub-sectors such
as tourism, aviation and hospitality.

Check Your Progress

1. Discuss with reference to India the statement that the relationship between
population growth and economic development is a two way relationship.
2. Explain the changes in sectoral composition of national income of India.
3. Analyze the changes in occupational pattern of population in Indian
economy. Explain the relationship between the occupational structure
and the level of economic development.
4. Write short note on the role, performance and growth of the service
sector in India.
5. Describe the trends of national income since independence. What reasons
do you think are responsible for slow growth?
78 Issues in Economic Development

6. Analyze briefly the changes in the sectoral composition of national income

and work force in India. Do these changes reflect economic growth?
7. Explain the limitations of GDP concept, discussing relationship between
national income and economic welfare.
8. Explain the impact of Covid-19 on services sector in India.