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"India's Development: Manufacturing vs. Services



  Jun 11, 2024

"India's Development: Manufacturing vs. Services



Viksit Bharat
 
To achieve the goal of “Developed India” by 2047, the Indian government faces a crucial decision: whether to prioritize the manufacturing sector or the services sector. This debate involves balancing economic strategies to ensure sustainable growth, job creation, and poverty alleviation.

MANUFACTURING SECTOR:

Government Focus:

• The Indian government under Prime Minister Narendra Modi has been emphasizing manufacturing through various subsidies and incentives.
• The Production-Linked Incentives (PLI) scheme offers $28 billion in subsidies to boost output in 14 sectors.
• Significant investments have been made in physical infrastructure, doubling central government capital expenditure over the past decade.

Challenges:

• Competing with countries like China and Vietnam, which have fewer labor regulations, is challenging.
• Protectionist policies have isolated India’s manufacturing sector from global supply chains.
• Despite efforts, manufacturing’s share of the economy has not significantly increased, remaining at around 17%.

Geopolitical Considerations:

• Geopolitical competition with China influences India’s focus on manufacturing, aiming for self-reliance and economic leadership in Asia.
• National policies like Atmanirbhar Bharat emphasize self-reliance, mirroring China’s focus on manufacturing for national greatness.

SERVICES SECTOR:

Expert Opinions:

• Respected economists like Raghuram Rajan argue for a greater focus on the services sector.
• The services sector includes IT, legal, accounting, logistics, and consulting, areas where India has a cultural and linguistic advantage.

Potential Benefits:

• Services can provide high-value jobs and are less capital-intensive compared to manufacturing.
• Most value-added in products often comes from services related to manufacturing, such as R&D, design, marketing, and branding.

Current Performance:

• India’s services sector has the potential to leverage its command of English and cultural appeal.
• Despite this potential, the government’s focus remains heavily skewed towards manufacturing.

CONCLUSION:

While there are strong arguments for developing both sectors, the current government’s emphasis is on manufacturing due to geopolitical reasons and the pursuit of self-reliance. However, the services sector offers significant potential for economic growth and job creation, which may need more attention in future policy considerations.


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