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3
Introduction...........................................................................................................................................4
Research objective and research questions............................................................................................6
Literature Review..................................................................................................................................7
Explanation of the proposed methodology..........................................................................................10
Significance of the study and the limitations.......................................................................................12
References...........................................................................................................................................13
Abstract
This paper seeks to determine the reasons that drive Indias growth story as a Services dependent
economy, which is in sharp contrast to the other economies in the Asian neighborhood and in the list
of newly independent nations that are mainly driven by the Manufacturing sector. It hopes to capture
the key demographic, economic, geographical, political, policy and socio-cultural issues that have
impacted Indias growth story in this way. The systems dynamic methodology will be used to
determine the key causes for the preponderance of the Services sector in Indias growth. Secondary
economic and political literature will be reviewed to establish causal loops if any. A thorough
understanding of the key stakeholders will be established, to appreciate the role played by each of
these prospectively and retrospectively in arriving at the current situation. In understanding the
reasons for the dominance of the Services sector, future actions that can be taken to give greater
impetus to the Manufacturing sector will also be established. The key limitation of the study is that
the inferences drawn from the experience of neighboring countries might not be directly
applicable/replicable to India given the deeply embedded cultural differences of these countries.
Keywords: Indian services sector, manufacturing sector growth, system dynamics
Introduction
Since the economic liberalization in 1991, India has witnessed as a steady growth rate of GDP of over
6.5%. While most young independent nations experience growth that is mainly driven by the
manufacturing and agriculture sector, the services sector has been the main driver for Indias growth
story is the past two decades. This is in sharp contrast to China, another young nation that shares
similar geographical drivers, which has witnessed growth that is mainly driven by the manufacturing
industry. The share of industry in GDP was 46% in China and 20% in India in 2010. In the same
period, the share of agriculture and allied activities was 14% and the share of Services was 66% for
India. Other Asian nations like South Korea and Vietnam have also experienced growth that is mainly
driven by the manufacturing industry. Thus India represents a peculiar case in the Asian region and in
the list of newly independent nations in its position as a nation that has witnessed a strong growth
trajectory that has been mainly driven by the Services sector.
Services
Stakeholder Analysis
Private
Private
Sector
Sector
companies
companies
Public
Public
Sector
Sector
companies
companies
Financial
Financial
institutions
institutions
Growth of
Services
sector vis-avis
Manufacturi
ng Sector
Domestic
Domestic
investors
investors
Internation
Internation
al
al
investors
investors
Governme
Governme
nt
nt
Policy
Policy
makers
makers
There are various stakeholders in the growth of the Services sector vis--vis the Manufacturing sector
in India. The stakeholders can be classified broadly under the categories above. Each of these
categories encompasses many stakeholders.
Stake
Power
Equity
Formal or voting
Economic
Political
Public sector
companies, private
sector companies
Economic
Influencers
Foreign investors,
Domestic investors
Financial Institutions
Policy makers
Government
Literature Review
1.
2.
productivity.
The article, The Post-reform Performance of the Manufacturing Sector in India, Asian
Economic Papers (May 2004), will be used to analyze the development of the manufacturing
sector in India. Manufacturing played an important part in sustaining India's economic
growth in the 1970s and 1980s. The economic reforms of the early 1990s did not lead to
sustained growth of the manufacturing sector. After acceleration in the mid-1990s, growth
slowed in the decade's second half. The analysis presented in this paper reveals that
manufacturing-sector growth in the post-reform period is "input driven" rather than
"efficiency driven," with significant levels of technical inefficiency. The paper advocates
policies to improve production efficiency by encouraging investment in research and
3.
4.
The report, Economic Sectors: Manufacturing, Country profile India (2004) focuses on the
condition of the manufacturing sector in India. They key elements in the report highlight the
key reasons for the industrial growth following the beginning of the economic policy reforms
process in 1991. The article also focuses on the information technology sector and the
5.
services sector and the key drivers for the growth of these sectors.
The article, Services Sector and economic growth in India, Applied Economics (Dec 2010),
examines the long-run equilibrium and short-run dynamic relationship between services
sector and Gross Domestic Product (GDP) and between services and nonservices sectors in
India. The model is estimated using the optimal single-equation and the maximum-likelihood
system estimators. All the estimators consistently suggest the cointegrating relationship
between services sector and GDP as well as between services and nonservices sectors. The
estimates of long-run elasticity parameters are statistically significant and dimensionally
consistent across the estimators. The conventional Cumulative Sum (CUSUM) and the new
CUSUM and Moving Sum (MOSUM) tests suggest the stability of the equilibrium residuals
and reinforce the cointegrating relationship between the model series. The error correction
model provides some support for unidirectional Granger-causality from services sector to
GDP. The impulse response and variance decomposition analyses instead suggest the
bidirectional causality between services sector and GDP and between services and
nonservices sectors. The stable growth of services sector is essentially crucial to absorb the
adverse effects of exogenous weather shocks in agriculture and industry and provide
resilience to the economy.
domestic and international investors will also be interviewed to understand better their
concerns and optimisms towards the manufacturing and the services sector.
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References
Khuong Vu, India-Vietnam: A Comparative Analysis of Economic Performance, International
Journal of Business Insights & Transformation, Oct 2008 Mar 2009
Kalirajan, Kaliappa, The Post-reform Performance of the Manufacturing Sector in India, Asian
Economic Papers, May 2004 (Kalirajan, 2004)
Pandey, Manish, Manufacturing productivity in China and India: The role of institutional changes,
China Economic Re (Singh, 2010)view (1043951X), Dec 2009
Economic sectors: Manufacturing, Country Profile. India, 2004
Singh, Tarlok, Services sector and economic growth in India, Applied Economics, Dec 2010
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