Wednesday, July 06, 2011

India's services-led growth

Two aspects of India's services-led growth are striking. One, modern services, comprising IT, financial services and communications have taken off at lower per capita levels than in the OECD economies. Two, there has been rapid growth in traditional services, most of which have been untouched by reforms.

Modern services in India should continue to grow thanks to tradability of these service: India's great good fortune that these services started developing in India precisely at a time when many of them became exportable. Traditional services, such as railways, hotels, trade too have plenty of potential. Hence, services can continue to be an engine of growth in India.

Can they absorb enough of India's labour force? Quite possibly, yes. When you say 'services', most people think IT and programming. They believe services require high levels of training. This is not entirely true. There are plenty of jobs opening up at call centres and data entry centres, jobs that don't require very high levels of training. Financial services and communications also are throwing up jobs in large numbers (on the sales side, for instance) where training required is not very high. So services-led growth can boost employment as well, although it cannot completely substitute jobs created by manufacturing.

More in my ET column, Can services-led growth continue?


Anonymous said...

Agreed. But much would depend upon incidence of Goods & Service Tax, that is proposed by UPA governmnet (don't know exactly when it will be introduced). If the service sector is burdened with high GST rate, it can de-incentivise Service Entrepreneurship and slow down the engine.

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sawan kumar

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Making Life Better said...

India is making an exception with its service led growth. According to me exceptional condition lead to such exception. Indian Human Capital is definetely exceptional in this case.

preeti said...

Nice post. Indian service sector is growing very fast. Now many companies from other countries are very much interested to invest in this sector.

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Anu said...

so if we have efficient and surplus human resource but less capital, we should move from primary to service sector ignoring manufacturing sector .....? i just want to know what problems we will be facing in future ..Anu

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