The services sector contributes nearly 61.5% to India’s GDP. The services sector has become the mainstay of the Indian economy. Despite the launch of the Make in India initiative in 2014, the manufacturing & industry sector contributes only 23% to India’s GDP. Whereas the agriculture sector contributes 15.4% to India’s GDP. As can be seen from the graph below, the share of the services sector is higher for the high-income countries barring China. In the case of China, the manufacturing & industry sector contributes nearly 40% to the Chinese GDP. However, India’s services sector has grown despite the lack of growth in the manufacturing & industry and agriculture sectors.
The IT/ITeS segments generate a bulk of the revenues for the overall services sector in India. As per the NASSCOM report, India’s information and technology sector recorded a growth of 7.7% with revenues of 191 billion US$ in the Fiscal year 2020. The sector also added 205000 new jobs in the fiscal year 2020. The sector has the potential to reach 350 billion US$ in revenues by 2025. By the year 2016, the sector had generated 3.7 million direct jobs and 10 million indirect jobs. The sector is poised to generate a total of 7 million direct jobs and 20 million indirect jobs by the year 2025. These are all impressive numbers.
Besides the IT/ITeS segment, healthcare and tourism add substantially to the overall services sector in India. And then, space, transportation, logistics, and other services form the core of the overall services sector in India.
- Why has the services sector grown and the manufacturing sector has lagged behind in India?
One reason could be entrepreneurship in India. The Indian entrepreneurs have built the entire services sector on their own with very minimal support from the state. In other words, the services sector required very minimal state support and therefore the sector has grown in India. However, wherever state support is necessary, those sectors have not done well in India. For example, manufacturing & industry definitely require state support and as can be seen from the above graph, the manufacturing & industry sector has not done well for a low-income country like India. Manufacturing contributes 16% to India's GDP out of the total of 23% contribution of the combined manufacturing & industry sector. The Indian policymakers have been looking to increase the share of the manufacturing sector from the current 16% to 25% to India’s GDP. And yet, the manufacturing sector has not grown. Make in India program was launched in 2014 with this sole objective, and yet, results are nowhere to be seen.
A low-income country like India can not move to the middle-income level unless and until the manufacturing & industry sector grows. India may not be able to replicate China’s numbers, however, it goes without saying that the manufacturing & industry sector needs to grow in India not only to boost India's economic growth but also to generate millions of jobs that India needs badly.
The Indian entrepreneurs have developed the services sector on their own. It’s time Indian entrepreneurs are encouraged to grow the manufacturing & industry sector as well. Since the manufacturing & industry sector requires state support in terms of developing the technical infrastructure in the country, therefore, Indian entrepreneurs shall not only be encouraged to grow the manufacturing & industry sector but also be encouraged to frame policies for the Make in India project.
It is now certain that bureaucrats and economists can’t understand the technicalities of a hard subject such as manufacturing & industry. Therefore, it is beyond the scope of the bureaucrats and economists to frame policies for the manufacturing & industry sector. The need of the hour is to involve entrepreneurs in the policymaking roles when it comes to the Make in India initiative. Without involving entrepreneurs in the formal policymaking roles, it would be difficult to frame good policies and develop the necessary technical infrastructure for the manufacturing & industry sector.
The data pertaining to the services sector highlight that whenever the sector was left to its entrepreneurs, that sector grew tremendously. The IT/ITeS sector further strengthens this argument. The manufacturing & industry sector can become a growth sector for the Indian economy in the coming years provided entrepreneurs are making the policies for this sector. Will this happen?
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