The Enigmatic Services Sector of India

Swati Virmani, V N Balasubramanyam

Research output: Working paper

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.
Original languageEnglish
PublisherMunich Personal RePEc Archive
VolumeMPRA Paper No. 89174
Publication statusPublished - 26 Sep 2018

Fingerprint

Service sector
India
Agriculture
Wisdom
Manufacturing sector
Income
Manufacturing
Paradigm
Liberalization
Costs
Economic policy
Consumer services
China
Productivity
Kuznets
Emerging economies
Raw materials

Cite this

Virmani, S., & Balasubramanyam, V. N. (2018). The Enigmatic Services Sector of India. Munich Personal RePEc Archive.
Virmani, Swati ; Balasubramanyam, V N. / The Enigmatic Services Sector of India. Munich Personal RePEc Archive, 2018.
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Virmani, S & Balasubramanyam, VN 2018 'The Enigmatic Services Sector of India' Munich Personal RePEc Archive.

The Enigmatic Services Sector of India. / Virmani, Swati; Balasubramanyam, V N.

Munich Personal RePEc Archive, 2018.

Research output: Working paper

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N2 - 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.

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Virmani S, Balasubramanyam VN. The Enigmatic Services Sector of India. Munich Personal RePEc Archive. 2018 Sep 26.