DMPQ-The growth of Indian economy since 1991 reforms can be described as the service sector led economic growth. Analyze its major impacts on the Indian Economy? Do you think that service sector led growth is sustainable in the long run? Give reasons with statistical support?

  • The period 2000-2010 was a golden period for growth of services in India, one of rapid services-led economic growth in India; the economy grew at an average annual rate of 7.2 per cent, and around 63 per cent of this growth came from growth of services.
  • Such growth leads to a belief that India is already in 3rd stage of development having bypassed both the agricultural modernization and industrial development. Historically, the developed countries of today went through a long period of manufacturing-led growth before entering a phase of services-led growth. The emerging economies of today, other than India, have all experienced manufacturing-led growth.

Such development pattern has led to 3 pronged problems:

  1. Regional imbalance: The service-led growth has favored the already developed states and metro cities and has created further regional imbalance. The states like Maharashtra, Karnataka, Delhi, and Haryana accounts for more than half of services sector’s new investments. While states like Bihar, Orrisa and Northeast region has seen virtually no growth in services sector investment in their states.
  2. Sectoral imbalance: The fastest growth of services sector also means that there is sectoral imbalance, which is not very good for a country, as in long run for services to thrive we need the production to grow, else it would only lead to inflation, as money generated by services will chase limited goods.
  3. Unemployment: The service sector can’t generate mass employment and has also a ruralurban and educated-illiterate bias, leading to a situation that only a limited section of labour force, which is privileged to have experience the formal higher education and hails from urban areas and have English speaking ability are at undue advantage over their rural brothers. As an estimate only 8% of Indian labor force has access to high paying corporate sector jobs.

Is services-led growth Sustainable?

  • In India 53.2% of the labor force (persons) is still employed inprimary sector, followed by 25.4% in services sectorand 21.5 % in secondary sector. The largest proportion of the labor force is engaged in primary activities; although the share of the primary sector in gross domestic product has been steadily declining.
  • The services sector led economic growth can be sustainable only if the surplus laborparked in agricultural sector is shifted to industria land services sectors. Since the labor absorption capacity the manufacturing sector is low because ofits increasing use of labor saving technology, therefore increasing employment is services sector isa more viable option for sustainable development as many of the services sector activities are labor intensive.
  • A development model that is sustainable and improves the quality of human life would be model where more employment opportunities are generated leading to better standard of living and reduction in poverty and disguised unemployment. Given the population size of our country, all the physical resources in the country are already out stretched. Further development of industry would aggravate the depletion of already strained resources.
  • The growth of manufacturing sector is not only slow but also requires huge capital investments and resources. The development of employment opportunities in services sector is more cost effective.
  • Further the increasing technology also means that Services are no longer non-tradable, IT revolution has rather meant that this can be done at much cheaper costs today and thus, services doesn’t thrive on the domestic demand only as per the classical view, which considered services as an auxiliary sector.
  • There has been a services revolution of sorts in 21st century, wherein more than 70 percent of global growth has come from services, contrasting this with the fact that services still account for only 20 per cent in global trade, shows a lot of potential is still untapped.
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