Normally countries shift from agriculture to industry and then later to services, but India shifted directly from agriculture to services. What are the reasons for the huge growth of services vis-a-vis industry in the country? Can India become a developed country without a strong industrial base?

Published: January 29, 2015

The natural economic progression of a nation goes from agrarian economy, to industrial economy to a service economy. India leap-frogged from an agrarian economy to a service economy. India has immense human resources, that are well-educated and fluent in English, and labour is also cheap, thus propelling the service sector. The license Raj, restrictions on foreign investment, lack of measures to promote private industry, import of cheap manufactured goods all contributed to the lack of substantial growth in the manufacturing sector.

India’s economy faces certain distortions due to the unique development of India’s economy. These anomalies can be corrected only by focussing on growth of industrial base. The service sector contributes to 60% of GDP but employs only 24% of the workforce. This is why a large pool of able labour has not been absorbed in India. The manufacturing sector tends to be labour intensive, hence renewed emphasis on the manufacturing through programmes like ‘Make in India’ will serve to correct this anomaly and raise employment in proportion with growth in GDP. An industrial economy sees a spurt in exports. Since India skipped this step, its exports are still not high, even though it has potential. Boost to the manufacturing sector, large-scale production of goods at competitive prices, creation of new SEZs, easier clearances and a relaxed tax regime will eventually lead to rise in exports. Since India skipped the manufacturing stage, its heavy industries sector is relatively under-developed. Through NIMZs and other innovative ventures, foreign investment in India’s domestic manufacturing sector must be encouraged. This will also lead to a growth in infrastructure and production abilities of the country.

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