India’s Shift to a Services-Led Economy and Its Challenges
Red Book
Red Book

Interview Guidance Program (IGP) for UPSC CSE 2024, Registrations Open Click Here to know more and registration

India's Shift to a Services-Led Economy and Its Challenges

Source: The post India’s Shift to a Services-Led Economy and Its Challenges has been created, based on the article “Services led exports are a mixed blessing for us” published in “Live mint” on 19th December 2024

UPSC Syllabus Topic: GS Paper3- Indian Economy- changes in industrial policy and their effects on industrial growth.

Context: The article highlights India’s shift to a services-led economy, driven by strong service exports surpassing merchandise exports. It notes India’s success in high-value services but warns of job inequality, uneven sectoral growth, and the need to address economic disparities. India’s Shift to a Services-Led Economy and Its Challenges.

For detailed information on Challenges with India’s service-driven growth read this article here

Why Are India’s Service Exports Outshining Merchandise Exports?

  1. In November 2024, India’s service exports were projected to surpass merchandise exports.
  2. The trade deficit reached a record $37.9 billion in November, but strong service exports were a positive sign.
  3. Services are less affected by tariffs and geopolitical issues compared to goods.

What Makes Service Exports Resilient?

  1. Unlike goods, services face fewer protectionist barriers and geopolitical risks.
  2. Despite challenges in IT and AI disruptions, Global Capability Centres (GCCs) have emerged as key growth drivers.
  3. GCCs offer higher-end services and better value realization than traditional IT companies.

How Is India’s Service Sector Different from China’s Manufacturing?

  1. While China became the global factory for low-cost goods, India moved up the value chain in services.
  2. From basic IT tasks like Y2K fixes to customized software and GCCs, India’s talent pool drives high-value services.
  3. India ranks fifth globally in service exports and aims for $2 trillion annual exports by 2030.

What Are the Challenges of a Services-Led Economy?

  1. Limited Job Creation: Services create fewer jobs than manufacturing. Fresh workers from rural areas are easily trained for factory work, but services demand higher education and skills.
  2. Income Inequality: Services pay higher wages than manufacturing, leading to increased income disparities.
  3. Sectoral Employment Mismatch: Agriculture and industry employ 69% of the workforce, while services employ only 31%, despite services contributing 55% to GDP.
  4. Stagnant Manufacturing Growth: Manufacturing remains at 17% of GDP, showing India’s leapfrogging from agriculture to services skipped the middle manufacturing phase.
  5. Social Discontent Risk: Uneven growth between employment and sectoral output can spill over into social tensions, threatening national progress.

Question for practice:

Examine the reasons behind the resilience of India’s service exports compared to merchandise exports and their implications for the economy.


Discover more from Free UPSC IAS Preparation Syllabus and Materials For Aspirants

Subscribe to get the latest posts sent to your email.

Print Friendly and PDF
Blog
Academy
Community