A Tryst with Services
Raghuram Rajan & Rohit Lamba in an excellent article point out why India should aspire to be a service-sector focused economy (Rajan and Lamba 2022). They call this alternative vision, a model of economic growth that is “truly Indian”.
A careful reading of the article suggests that the authors envision a world where China dominates with its manufacturing prowess while India becomes a service sector heavyweight.
The spirit and intentions of the vision is commendable, but it requires a careful unpacking and a thorough understanding of present day realities. India’s service sector workforce is 32% of the total workforce, whilst agriculture and manufacturing take up 43% and 28% respectively (O’Neill 2022).
India’s BRICS counterparts, especially Russia, South Africa and Brazil on an average have 62% of their workforce in services, while China has 46% in services & 27% in manufacturing (CIA 2019). Service sector jobs in these countries are mainly in education, IT, financial services, hospitality, tourism etc.
If India has to follow the services path:
a. It must pull more people out of agriculture and manufacturing to services ,
b. They must be highly skilled and educated to take the high wages on the table.
In short, a services economy requires a workforce with high skills & education levels to translate to high paying jobs. A low skill low-pay services job would mean people having to rely on jobs such as agriculture in their villages when things go bad. Case in point, the journey of migrant laborers back to villages during the first lockdown.
A low skill low-pay services job would mean people having to rely on jobs such as agriculture in their villages when things go bad.
How then do we go about achieving this vision?
An ADB report of 2013 outlines a slew of measures such as focused policymaking, a regulatory environment, accessible infrastructure and renewed focus on education (Mukherjee 2013). My two cents in this case would be to invest in cities and education.
In the above-mentioned countries, the rates of urbanization or people living in urban areas are; 87% in Brazil, 75% in Russia, 67% in South Africa and 61% in China (Ritchie and Roser 2018).
In India as per 2011 Census, 31% or 400 million people live in cities. A quick correlation also tells us that higher percentages of people living in urban areas will have higher wages than their rural counterparts. Therefore, to move towards a service economy that promises high wage jobs, investment in cities is imperative.
Urban areas allow for concentration of jobs, services and utilize economies of scale and unlike manufacturing do not have hurdles of land acquisition, displacement of local communities etc.
Several industrial cities of the 20th century realized this early on and embraced the services revolution in the 21st century. London, New York, Mumbai, Ahmedabad are those who realized this and Liverpool, Pittsburgh, Detroit are the ones who didn’t (Fouberg, Murphy, and de Blij 2015, #). Hence, urbanization becomes one of the foundations to build this vision of a services economy.
The same goes for investment in education to create a skilled workforce. Every year, reports from Pratham and similar institutions involved in education speak about low levels of learning in our schools. The past 2 years of pandemic also showed us how children from low-income families could not adapt or access online education.
The Tamil Nadu government is on a mission to bring back children who have dropped out of school (Thapar 2022). We have to build educational institutions and centers that impart the requisite skills to participate in the burgeoning services world. We fondly look back at our IT revolution spearheaded by Infosys, Wipro etc. employing numerous young recent graduates.
We owe that success not just to IITs & NITs, but also to the countless computer education centers such as ApTechs, NIITs etc that propped up in the background. They empowered an average graduate to be part of the IT success story.
We owe the IT success not just to IITs & NITs, but also to the countless computer education centers such as ApTechs, NIITs etc. that propped up in the background.
There will be concerns of fragility in the services sector. An economic downturn such as the financial crisis of 2008 or the pandemic years (2020) can affect jobs and opportunities in these sectors. But, no country that embraced the services revolution regrets their decision despite these setbacks. They improvise or innovate by rebuilding institutions, ensuring a level playing field and making it easier for more people to enter the services than be repelled by it.
The vision outlined by Rajan & Lamba is exciting, but it requires more than just dreaming. The jump to services is courageous, it allows us to recoup the loss we acquired by missing the manufacturing bus. We got it right in the first decades of this century, let’s make sure our efforts are towards getting it right for the years to come. A tryst with services!
References
CIA. 2019. “The World Factbook — The World Factbook.” CIA. https://www.cia.gov/the-world-factbook/.
Fouberg, Erin H., Alexander B. Murphy, and Harm J. de Blij. 2015. Human Geography: People, Place, and Culture. N.p.: Wiley.
Mukherjee, Arpita. 2013. “Service Sector in India.” Asian Development Bank. https://www.adb.org/sites/default/files/publication/30285/ewp-352.pdf.
O’Neill, Aaron. 2022. “• India — Distribution of the workforce across economic sectors 2019.” Statista. https://www.statista.com/statistics/271320/distribution-of-the-workforce-across-economic-sectors-in-india/.
Rajan, Raghuram, and Rohit Lamba. 2022. “No need to copy China, India needs liberalisation 2.0.” Times of India. https://timesofindia.indiatimes.com/india/dont-mimic-chinas-economic-model/articleshow/89572811.cms.
Ritchie, Hannah, and Max Roser. 2018. “Urbanization.” Our World in Data. https://ourworldindata.org/urbanization#citation.
