The Enigmatic Services Sector of India

Balasubramanyam, V N and Virmani, Swati (2018): The Enigmatic Services Sector of India.

Abstract

The share of services in India’s GDP, at round 60%, is much higher than that in other emerging economies including China. Since the year 1991 growth of services in the economy has surpassed that of agriculture and manufacturing, a feature that defies received wisdom on the growth pattern of economies. Received wisdom, grounded in the Kuznets paradigm, is that growth in the productivity of agriculture and agricultural incomes provides the manufacturing sector both low cost agricultural raw materials and a demand for its output. In time, the continued growth in incomes promotes the growth of the services sector both through a demand for consumer services and for services as growth promoting inputs into manufacturing and agriculture. India’s services sector, though, has grown alongside an agriculture sector that is none too productive, and a manufacturing sector that accounts for a relatively low 20% of the GDP. This paper provides an explanation, grounded in the country’s history and economic policies of the pre-liberalization era, for the growth of the services sector and argues that, contrary to popular opinion, it can lead the economy.

• Item Type: MPRA Paper
• Language: English
• Keywords: services, growth
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O14 - Industrialization ; Manufacturing and Service Industries ; Choice of Technology; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity

References

Arnold Jens Matthias, Javorcik Beata, Lipscomb Molly and Aaditya Mattoo (2014). “Services Reform and Manufacturing Performance: Evidence from India”, The Economic Journal, Vol. 126, pp. 1-39.

Ark, B.V., Inklaar, R. and McGuckin, R.H. (2002). “Changing Gear Productivity, ICT and Services Industries: Europe and the United States”, Economics Program Working Paper Series #02, the Conference Board.

Balasubramanyam, V.N. and Balasubramanyam, A. (2000). “The Software Cluster in Bangalore”, in Regions, Globalization and the Knowledge-Based Economy, Dunning J (ed.), Oxford University Press, Oxford.

Barro, R and Lee, J. (2000). “International Data on Educational Attainment; Updates and Implications”, Centre for International Studies, Working Paper number 42, Harvard University.

Banga, R. and Goldar, B. (2004). “Contribution of services to output growth and productivity in Indian Manufacturing; Pre and Post Reforms”, Working paper 139, Indian Council for Research in International Relations, New Delhi.

Bhagwati, J. N. (2004). “Splintering and Disembodiment of Services and Developing Nations”, The World Economy, June.

Damodaran, H. (2008). “India’s New Capitalists”, Permanent Black in collaboration with New India Foundation.

Das Debkusum, Erumbau Abdul, Suresh Aggarwal, Pilai Chandradas (2015). “Productivity Dynamics in India’s Service Sector: An Industry level Perspective”, KLEMS Project, Delhi School of Economics.

Eichengreen, B. and Gupta, P. (2009). “Two Waves of Services Sector Growth”, Working Paper Number 235, Indian Council for Research on International Economic Relations.

Eichengreen, B. and Gupta, P. (2011). “The Service Sector as India’s Road to Economic Growth”, Working Paper number 16757, National Bureau of Economic Research.

Eichengreen B and Gupta P (2013). “The real Exchange rate and Export Growth; Are Services Different” , Policy Research Working Paper, World bank Group.

Hill, T.P. (1977). “On Goods and Services”, Review of Income and Wealth, Vol. 23 no 4 pp. 315-338.

Hirschman, A. (1959). “Strategy of Economic Development”, Yale University Press.

India Brand Equity Foundation (2012). “Role of Manufacturing in Employment Generation in India”, New Delhi.

Krishna K L, Deb Kusum Das, Abdul A Erumban, Suresh AggarwalL, Pilu Chandra Das, (2016). “Productivity Dynamics in India’s Services Sector; An Industry Level Perspective”, Working Paper No. 261, Centre for Development Economics, Delhi School of Economics, Delhi.

Kuznets Simon (1995). “Economic Growth and Inequality”, American Economic Review, Vol. 45(1) pp. 1 -28.

Moriki Ohara and Koichiro Kimura, (2010). “Automobile Industry in India: Emerging Conflicts between Scale and Scope” in Industrial Development in China and India: Comparison of the Clusters and Firms Institute of Developing Economies (IDE-JETRO), Japan.

Nayyar Gaurav (2009). “The Demand for Services in India; A Mirror Image of Engles Law For Food”, Discussion Paper number 451,Department of Economics, Oxford University.

Nayyar, Gaurav (2014). “The Services Sector in India’s Development”, Cambridge University Press.

Panagariya Arvind and Daheja (2015). “The Link between Manufacturing Growth and accelerated services in India”, Economic Development and Cultural Change, November, 64(2).

Raychaudri and Dey Roy, T. (2011). “The Economic History of India, 1757-2010”, Third Edition, Oxford University Press.

Roy, S. (2010). “Automobile Industry in India: Emerging Conflicts between Scale and Scope” in Industrial Development in China and India: Comparison of the Clusters and Firms (eds.) Moriki Ohara and Koichiro Kimura, Institute of Developing Economies (IDE-JETRO), Japan.

Sahoo Pravakar and Dash Ranjan Kumar (2016). “What Drives India’s Surge in Services Exports”, The World Economy, Vol. 40, Issue 2.

Upadhya, C. (2004). “A New Transnational Capitalist Class? Capital Flows, Business Networks and Entrepreneurs in the Indian Software Industry”, Economic and Political Weekly, Vol. 39(48), pp. 5141-5151.