First, What Is Services Growth?
When economists talk about 'services growth', they are referring to the increased output of the services sector, which is the largest part of India's economy. This sector doesn't produce physical goods but provides valuable intangibles. It includes a vast
range of industries, from IT and software, banking and finance, to hospitality, retail, transport, and healthcare. Growth is often measured using an economic indicator called the Services Purchasing Managers' Index (PMI). This index is compiled from surveys of companies and tracks variables like new orders, business activity, and sentiment. A reading above 50 on the PMI indicates that the sector is expanding, while a reading below 50 suggests it is contracting. It’s a key snapshot of the sector's health.
And What Does 'New Hiring' Really Mean?
New hiring data, often released in official jobs reports, tracks the net change in employment over a period. These figures tell us how many jobs were added or lost in the economy. However, these numbers don't always tell the whole story. They often don't distinguish between different types of employment. For example, a rise in jobs could be driven by part-time, temporary, or gig economy roles, which don't offer the same security or benefits as full-time positions. In India, a significant portion of services employment is informal, which further complicates the picture. So while headline numbers might show job growth, the quality of those jobs is a crucial, separate question.
The Disconnect: Productivity and Technology
One of the biggest reasons for the gap between services growth and hiring is a surge in productivity. Companies are getting better at doing more with less. Technology, especially automation and artificial intelligence (AI), is a massive driver of this trend. A company can scale up its services to a much larger customer base without a proportional increase in its workforce. Think of a fintech app that can serve millions of users with a relatively small team of engineers, or AI-powered customer service bots that handle queries once done by people. This 'output-intensive' growth means revenue and business activity can climb steeply, while headcount grows only modestly. This phenomenon is sometimes referred to as 'jobless growth'.
Hiring Is a Lagging Indicator
Another key concept is that hiring is often a 'lagging indicator'. This means employment trends tend to follow changes in the broader economy, rather than lead them. A business owner might see a few good months of sales (services growth), but they will often wait to see if this growth is sustainable before committing to the significant long-term cost of a new full-time employee. They might first try to increase efficiency, use temporary staff, or ask existing employees to work more. Only when they are confident that the demand is here to stay will they start the recruitment process. This natural caution creates a time lag between when business picks up and when new jobs are widely created.
The Mismatch of Skills and Job Quality
In India, the disconnect is also about the type of jobs being created. High-growth, high-paying jobs in modern services like IT, finance, and professional services are often concentrated in a few urban hubs and require advanced skills. Simultaneously, much of the job growth in the services sector has been in lower-paid, informal roles in areas like retail and transport, which offer little security or career progression. This creates a structural imbalance where even as the sector expands, it doesn't create enough quality jobs to match the number of people entering the workforce or the rising education levels of job seekers. The result is a widening gap between the skills the workforce has and the skills that high-growth companies demand.
