economic-revival-depends-more-on-services-sector

Context: In 2004-05, services constituted 43.5% of the economy. By 2019-20, the proportion had jumped to 50.4%. Given this, any recovery can only happen with the revival of services.

Background:

  • India's services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction. It is also called tertiary sector.
  • Covid-induced lockdown,: Most  of  these  sectors  have  either been asked to remain shut or norms of social distancing have ensured that people are staying away. Cinema halls are shut and people have stopped going out to eat.

Global pattern of evolution of economic sectors

  • First manufacturing then services: Historically, it has been observed that countries first develop a robust manufacturing sector before creating a robust services sector. 
  • As factories grew around cities, an industrial middle class was formed. Service businesses emerged to attend to the needs of the growing industrial middle class.
    • Building factories generates funds for upgrading them, which then increases pressure to invest in improving roads, bridges, ports, railroads, power grids, and water systems.
    • All this creates jobs, which pay people and give them the purchasing power to demand services. 
    • The manufacturing share of gross domestic product rises steadily before peaking between 20%-35%.
  • Patterns not followed in India: The size of the manufacturing sector has varied between 15%-16% of the economy in the last decade and a half. India developed service sector befor manufacturing sector.
    • Huge informal sector: With the manufacturing sector not creating enough jobs, people have had to fend for themselves to earn a living which is reflected in the informal services sector, with the huge number of street vendors and small businesses.

Concerns due to lockdown

  • Self employed sector hit: As long as social distancing norms are to be followed, services (including the self-employed) will continue to remain unviable.
  • As per the Report on Fifth Annual Employment-Unemployment Survey (2015-16): “67.5% of self-employed workers had average monthly earnings [of] up to ₹7,500 and things have not improved much. 

Need for the revival of services

  • Services form half of the economy: Care Ratings point out that two-thirds of the economic sectors would broadly be operating at 50-70?pacity by end Q3 ie. December.
  • Services like hospitality, tourism, travel, entertainment, would take a much longer time to reach normal level.

Revival of the self-employed sector: The ability of the self-employed to survive is limited. Given that most of them haven’t done much business since end- March, economic revival is not possible unless these individuals get back to business.

Image Source: https://marketrealist.com/2014/11/indias-services-sector-increased-share-gdp/