India's manufacturing and services sector

Between 1970 and 2013, services as a share of India’s gross domestic product grew from 34 percent to 53 percent, while manufacturing’s share grew from 19 percent to only 23 percent. Yet, employment rose faster in manufacturing than in services. It grew 9 percentage points from 1994 through 2012 compared to 4 percentage points in services. The result, as shown in the figure below, is that aggregate labor productivity (output/employment) has grown rapidly in services while stagnating in manufacturing.
india services and manufacturing
The combination of growth in services and stagnation in manufacturing is puzzling because both sectors operate in the same economic environments and under similar government regulations. Moreover, the high productivity of services relative to manufacturing makes India an outlier in international comparisons. The figure below contrasts the relative productivity of services in India to that of several other Asian countries.
india services and manufacturing
The figure shows that, while other Asian countries have lower relative services productivities, it is the opposite case for India. Further, none of the other countries have seen either the level or the growth of relative services productivity as witnessed in India, where services were nearly four times as productive as manufacturing in 2012.

Major reasons for the growth of service sector in India:

    In recent times the service sector is increasing at a very fast pace. After the liberalization in the year 1991, the contribution of service sector is continuously increasing in the growth of our economy. However, agriculture is still dominating the Indian economy. Service sector are growing not only in volume but also in sophistication and complexity. The growth of service industry is the result of combination of several reasons, they are,
  • Increasing affluence(wealth)
Here with the increasing affluence, there has been an increase in the demand for those services, which the customers used to perform by themselves. For example, service provided by the gardener, servants, car driver etc.
  • More leisure(free time) time
This factor has lead to an increase in those services which are related to entertainment, because of increase in leisure time in today's people life. For example tourism industry has grown because of more leisure time available to the people.
  • Greater life expectancy(hope)
With increase in the average life of the people, there has been an increase in the service which is related to field of health care, for example medical services, pathology laboratory, nursing homes. Health care services etc.
  • Greater complexity of the product
With the growing complexity of the product, there has been an increase in the services which are indirectly supporting the maintenance of these complex products. For example Air-conditioner, car, computer, and other complex products require service every yearly of every half yearly.
  • Higher percentage of working women
With the passage of the time, there has been an increase in the working women. This has indirectly leaded to increase in the growth in the services such as, domestic servants, baby sittings, etc.
  • Increasing complexity of life
This has lead to an increase in the services of marriage bureau, legal service, income –tax consultants, placement services, etc.
  • Increasing number of new products
There are certain products which, if invented will lead to growth in the service sector .computer being the invention of the 21st century has lead to software industry which is totally a sieve industry.

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