ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Service Sector Growth in India from the Perspective of Household Expenditure

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.

1Introduction

The service sector in India has grown rapidly over the last two decades. This phenomenon has attracted a lot of scholarly attention in recent years, both because this growth departs from well-known patterns (Kochhar et al 2006) and also because of its potential implications for poverty, inequality, and welfare (Singh 2006; Rakshit 2007; Basu and Maertens 2009; Mattoo 2009; Eichengreen and Gupta 2011; Nayyar 2012).1 While most studies look at service sector growth in India from a macroeconomic perspective, in this paper, we connect it to the behaviour of households.

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Published On : 20th Jan, 2024

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