India shifted directly from agriculture to services.Reasons behind huge growth of services

Q. Normally countries shift from agriculture to industry and then later too services, but

India shifted directly from agriculture to services. What are the reasons for the huge

growth of services vis-à-vis industry in the country? Can India become a developed

country without a strong industrial base?

Ans. India's service sector dominates Indian economy with contribution upto 60% while

manufacturing contributes around 26% and agriculture only 14% of Economy. Large

growth of service sector vis-à-vis industrial sector is because

• Pre 1991 Industrial sector was heavily regulated by licensing and other regulations while no such regulation restricted services sector

• Restrictive labour laws like IDA, Contract law made intensive industries leery of expansion

• State led industrialization led to growth of inefficient industrial companies which could not expand efficiently or could pace up technologically

• Discouraging FDI in India which led to suppressing of investment needed for growth and starved industries of needed latest technology

• Closed Indian economy gave industrial houses monopolies and thus little incentive to invest in efficiency or develop new technology

Without industrial growth India cannot become developed country as services sector

cannot employ millions of youth who have emerged due demographic dividend and

moving away from agriculture due to lower productivity. These low skill manufacturing

jobs will drive economic prosperity of India. Developed countries economies have large

services sector due to internal demand generated by prosperity of industrial sector.

Thus for generation of large scale employment and economic progress India needs

large industrial base and initiatives like “Make in India‟ & NIMZ policy are in right

direction.