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Service Sector Growth in India from the Perspective of Household Expenditure

Deepankar Basu (dbasu@econs.umass.edu) teaches at the Department of Economics, University of Massachusetts Amherst. Debarshi Das (debarshidas@iitg.ernet.in) teaches at the Department of Humanities and Social Sciences, Indian Institute of Technology, Guwahati.

This paper aims to examine India’s recent service sector-led growth from the perspective of household expenditure. Using household-level expenditure data from three “thick” rounds of the Household Consumer Expenditure Survey (1993–94, 2004–05, and 2011–12), we present evidence of two empirical trends. First, a significant portion of demand for services comes from poor households; and second, a puzzling trend has emerged since 2004–05—the shrinking of the difference in the share of monthly expenditure spent on services between rich and poor households. We present a simple model of consumer behaviour with a hierarchy of preferences, lexicographic ordering, and consumption thresholds to evaluate this puzzle.

This paper aims to examine India’s recent service sector-led growth from the perspective of household expenditure. Using household-level expenditure data from three “thick” rounds of the Household Consumer Expenditure Survey (1993–94, 2004–05, and 2011–12), we present evidence of two empirical trends. First, a significant portion of demand for services comes from poor households; and second, a puzzling trend has emerged since 2004–05—the shrinking of the difference in the share of monthly expenditure spent on services between rich and poor households. We present a simple model of consumer behaviour with a hierarchy of preferences, lexicographic ordering, and consumption thresholds to evaluate this puzzle.

Updated On : 2nd Dec, 2017

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