Dynamic Growth in India: Toward Service Sector
A pronounced shift in the sectoral composition of output (and employment) towards the services sector was initiated in India in earlier decades, but its pace has accelerated in the post reforms period. The above average
growth rate of the services sector that this implies has also been accompanied by an increase in the growth rate of aggregate output in the 1990s. Yet the growth within the services sector has not been uniform, e.g., the growth of business services has been much more rapid than, say community services and pers onal services. The paper attempts to explain, in a preliminary way, the increase in the so-called premature dominance of the services sector in India. It also attempts to explain why the dominance of services sector characterized by low productivity growth can also lead to high aggregate growth in the economy. There are two important differences between the developed and developing countries like India vis-à-vis the increasing importance of the services sector in their economies. First, as is believed in many quarters, the observed growth in the
services sector of countries like India has been attained at an earlier stage of development than would be predicted by time-series and cross-section. Secondly, and more importantly, the 'premature' dominance of the services sector has been attained in countries like India in the context of an increasing and not a falling aggregate growth rate. The increase in the dominance of the services sector witnessed in the 1970s in the developed countries at the cost of manufacturing (a phenomenon dubbed as de-industrialization), was accompanied by a deceleration in their growth rates. The paper makes use of available literature to explain these differences.
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