In an era marked by economic uncertainties for developing nations, a shift in growth strategies is underway globally. Traditionally, manufacturing has been the key driver of prosperity, but new research from the World Bank highlights the growing importance of placing services at the forefront of development.

Enroll now for UPSC Online Course

Comparative Growth over the Decades

• Transformation of India’s economy: The transformation of India’s economy over the decades, shifting from an agrarian focus to a more service-driven model with industrial growth in between.
• Engagement in different sectors: The economy of a nation first goes to agriculture, then through manufacturing, and finally the service sector. In the agricultural phase, the majority of the workforce was engaged in agricultural activities. To date, the scenario is still the same but the issue is, the productivity of this sector is comparatively low as compared to the service sector which contributes more to the economy. 
• Lack of job opportunities: Another issue that India has faced was not being able to create enough job opportunities in the manufacturing sector whereas, on the other hand, the service sector extends job opportunities only to skilled labourers like the IT sector. Low and semi-skilled workers were not in high demand in the service sector.

Reasons behind India not being able to pull out population from the agricultural sector

• Lack of innovation: There has been little innovation in agriculture to incentivize the shift from traditional work to more advanced technologies. This would ideally push workers to seek livelihoods in urban areas, but the situation remains unchanged.
• Lack of skills: Efforts to improve farmers’ skills or establish factories in rural areas have been limited, unlike in China. China has significantly enhanced primary education, leading to improved learning outcomes. 
  • This, in turn, has boosted the manufacturing sector, making China the world’s largest manufacturing hub. 
  • The development of manufacturing units at the grassroots level is driven by strong education and public awareness of the need for innovation.
• Low learning outcome: Because India has a very low learning outcome, no improvisation was seen or can be seen in the manufacturing sector apart from big industrial groups. 
  • In a true sense, we can only witness a boom in the manufacturing sector only if there is grassroots level improvisation. 
• Limited accommodation in the service sector: After the 1990s, the contribution of the service sector started to increase but because the learning outcome has always been low, only those who managed to get themselves skilled got accommodated in the service sector. 
• Understanding the importance of manufacturing hub: India recognizes that the manufacturing sector, not the service sector, can absorb the excess workforce. However, despite efforts to revamp the service sector, progress has been limited.

Check Out UPSC NCERT Textbooks From PW Store

Why is there a need to focus on the service sector?

• Security for the developing nations: For developing countries around the world, especially the poorest, the economic terrain has seldom been so slippery. Developing countries would do far better to put services in the lead role, with manufacturing and agriculture serving as the supporting cast.
• Losses of low-income countries: These countries (< or <= $1135) have already suffered a lost decade, with virtually zero per capita income growth since 2010.
• Demographic shift in middle-income nations: Many middle-income countries ($1136- $4465)like India, Kenya, and Vietnam are coming to terms with a demographic shift that puts them at risk of growing old before they grow rich.
• Risk of stagnation and debt: Many high-income countries risk stagnation because of sky-high debt and economic productivity growth. New research from the World Bank shows clearly that it does not.
• The spillover effect of the sector: Services include a wide range of activities- finance, health, tourism, and logistics-and the benefits they generate spill over to other sectors. Yet, relative to manufacturing, they continue to get a bad rap.
• Hold over global GDP: Services now account for more than two-thirds of global GDP (66.66%) and half of global trade (once you factor in services that are used in manufacturing and agriculture).
• Asian miracle: East Asia, once thriving on a manufacturing-led growth model, is now adapting to new challenges such as aging populations and a fragmented global economy. 
  • As a result, the share of services has grown significantly—rising from 44% to 53% in China and from 44% to 48% in other East Asian economies over the past decade.
  • These sectors now account for nearly 50% of employment in the region, up from 42% a decade ago.

The reason behind the growing importance of the service sector

• Digital Development: The rise of digital technologies, with nearly three-quarters of East Asia and the Pacific having internet access (up sevenfold since 2000), and modest service trade liberalization.
• Competition in Services: Opening services to competition has boosted labor productivity across sectors, including manufacturing and agriculture, by improving efficiency in pricing, delivery, and payments.
• Transport and Logistics Growth: The expansion of the transport sector and improved logistics have eased farmers’ efforts in delivering goods.

Steps the Government should take to foster the growth of the Service Sector

• False choices: Must reject the false choice between supporting services and supporting manufacturing.
• Efforts of the policymakers: Policymakers should do both while maximizing the potential of the services sector to deliver growth and jobs.
• Strengthening the scope of medical tourism: The agents involved in medical tourism should be made a bit more polished to deal efficiently with foreign patients. Their extension of service facilities would further boost India’s economy. 
• Double-down approach: The government should engage in a double-down approach in the service sector (as was the opinion of Raghuram Rajan) which can hasten India’s efforts to become a developed economy. If the roadways, logistics, infrastructure, and supply chain are well developed, it would further ease the carrying of goods from one location to another. 
• Boosting of the tourism industry: As tourism too comes in the service sector, if foreign tourists have a good experience, it would further boost the region’s service sector. But unfortunately, the scenario seems to go haywire in India. 
  • Recent news of very less foreign along domestic tourists turning up in Goa has circulated in the media for the following reasons:
    • Lack of civic sense
    • Taxi mafia who charges extremely high charges
    • Overpriced hotel charges. Domestic tourists have now started preferring locations like Thailand and Bali (visa on arrival) because of better experience. 
    • Non-cooperation from the natives of Goa. Locals have started considering the tourists to money making machines and have subjected them to varied forms of exploitation 
    • Lack of hospitality of the natives to welcome the tourists 

Enroll now for UPSC Online Classes

Conclusion

By harnessing digital services, enhancing skill development, and fostering inclusive growth through stronger rural and urban connections, India can tackle existing inequalities and regional disparities. Additionally, ensuring a balanced growth of services, agriculture, and manufacturing is essential for achieving comprehensive and sustainable development in the long run.

DOWNLOAD PDF