March , 2019
Can the service sector drive the Indian economy for long
14:12 pm

Rajiv Khosla

Countries, be it developed or developing, are confronting the problem of economic dualism where the technology-oriented sector, which is highly advanced and globally integrated owing to the use of capital intensive resources, employs lesser manpower for production and the social sector absorbs more labour force in spite of having lesser productivity and fails to compete at the international level. It gives rise to a catch-22 situation for policymakers regarding the sector to be promoted, i.e., technology or social.

Economists offer three strategies to sail through this predicament. In the first approach, complete focus is on making investment in skills and training of the labourers as has been done by China. The Chinese made substantial investment in modernising the education sector in general and technical education in particular. A pool of economically efficient engineers (vis-à-vis the US and Europe) churned out the latest technology enabled commodities, which management graduates sold in the big Chinese market. By perfecting their supplies in domestic market, the Chinese companies gained confidence to beat the competition at the international levels. For a country like India, this needs to be done from the school level itself as it is not expected to yield the desired results after the school level.

The second strategy offered is to allow the magnificently operating firms to absorb more manpower. It is projected that many such areas in the supply chain, which do not require high level of skills should be opened up for ordinary labourers. Even the government can help the absorption of labourers by extending subsidies for the use of labour oriented devices. But there is a fear that absorption of more labour or unnecessarily doing something unnatural can take a toll on the operations of the firm in terms of competitiveness.

Hence, another strategy is proposed wherein it is emphasised that those sectors which do not require advanced skill sets should be promoted. Precisely, these sectors can be tourism, telecommunication and hospitality, and such other sectors that fall under the aegis of the service sector. Fortunes of all the subdivisions and subsectors are closely connected to each other. For example, an increase in tourist arrivals in India will not only help hotel and airlines industries but will also augment well for the crafts and artifacts industry. Further, the development of these sectors does not require a high dose of training for the workers. This stratagem suits the requirements of a country like India.

To the extent our growth pattern is concerned, we have violated the age old iron law of development wherein industrialisation is considered to be the route to development. The services sector is being overtly relied upon to be the driver of growth and job creation. With a share of almost 55% in India’s gross value added, the services sector is still India’s key driver. But in order to vertically move up, India needs accelerated investments in both physical and human infrastructure. However, the government’s intentions and seriousness to boost the service sector can be assessed from the latest allocations made by it.

If we talk about the allocations towards the elemental sector, i.e., education which is considered to be the backbone for boosting any economy, the recently placed interim budget seems to have failed to strengthen the falling standards. Allocation for the education sector is just Rs. 8837 crore more than last year, allocation of Rs. 95010 crore which is to be further divided into school education and higher education. Further, the budget has completely shifted its focus from elementary education and has failed to offer the strategies to cope with 84 million (as per 2011 census) children, who are not in schools besides catering to the shortage of 9.3 lakh school teachers and closure of nearly two lakh government schools in the country.

Another vital sector- tourism- which is expected to spell good fortunes for the country has also not been dealt fairly. Though claims are made that enhancement of the income-tax exemption up to Rs. 5 lakh and raising of the threshold on bank fixed deposit interest to Rs. 40000 will correspondingly result in an increased disposable income and offer an opportunity for increased travel and tourism spending. But the fact remains that directly only Rs. 1106 crore have been allocated for the integrated development of tourist circuits across the country. Amid the fund crunch, potential areas like rural tourism, eco-tourism and health tourism cannot be kicked off.

The telecommunication sector, which is witnessing an intense competition among major players has also failed to get any big allocations. Because of the ongoing price war, major players are trying to retain the customers by matching each other’s dirt cheap tariffs and it was expected that the Indian Finance Minister may defer some statutory payments so that telecom companies which are already reeling under debt may service their loans. However, due to the indifferent attitude of the government, the sector will continue to suffer. 

Similarly, in the case of health sector, the share of the National Health Mission has gone down from 61% in 2014-15 to less than 49% in 2109-20. Also, the government has reduced capital expenditure by 43% over the actual expenditure that took place in 2017-18. In fact, meagre allocations have silently worked towards collapsing the public health services and strengthening commercial insurance based schemes.

Nothing has emerged to be more important than the defence sector in the wake of the Pulwama attacks. When an analysis of allocations about the defence sector is made, the less said the better. Of course, the disbursed amount of Rs. 3.19 lakh crore is an increase over the Rs. 2.98 lakh crore which was allocated last year but an analysis of these uncomplicated figures state that only Rs. 1.08 lakh crore is meant for capital outlay while the rest of the Rs. 2.11 lakh crore will get exhausted in paying salaries of defence personnel. In fact, this allocation towards defence sector is the lowest since 1962.

In light of the above discussion, it appears that we are failing to marshal our resources properly. An economy which is endowed with a population largely consisting of the youth in the age group of 15 to 34 years needs proper planning of priority sectors where available resources need to be invested.

  Dr. Rajiv Khosla is Associate Professor in Institute of Management, C/o DAV College, Chandigarh

[The views expressed here are personal and don’t reflect those of the government]


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