Modi sarkar should bet on services for dream growth

If one observes the samurais of growth driving the GDP rate above seven per cent, one wouldn’t find them in the swanky corporate offices of Mumbai and Delhi, but in the markets close to one’s home. These growth warriors make our lives easier by running eateries, repairing shops and providing dozens of similar services and amenities. They are the third force of India: services (the rest two are agriculture and manufacturing), which has changed the DNA of the economy by generating umpteen number of skilled jobs, thus creating the bedrock of progress at a time of depression.


That said, Budget 2016 may have been balanced and well taken by the markets, but it showed that the Modi government is running about two years late. Had the government caught the pulse of the economy, it could have corrected the flaws made in agriculture in 2014 itself when the first signs of trouble in rural economy surfaced and graduated towards focusing on growth in services in the years to come.

However, in those days, PM Narendra Modi was hell-bent on convincing farmers that the Land Acquisition Bill would bring them development and prosperity. He let the crisis aggravate in rural areas. It took him the destruction of three crops followed by a shameful debacle in Bihar to realise the economy’s basic challenges.

Today agriculture and manufacturing account for only 34 per cent of the economy. A sizeable 66 per cent comes from the services sector, which includes the huge retail and wholesale trade, hotels and restaurants, transport, communications, storage, financial services, professional services, building construction and services related to it – including social services and community services. The 2015 economic survey shows services lead the growth chart when it comes to the Centre and states’ revenue, employment, foreign investment and exports.


At a time when manufacturing and agriculture are not receiving fresh investment, the services sector provides the much required value addition. Value addition is an economic measure to gauge how much investment is going into which area. The Central Audit and Accounts department has released statistics on value addition, according to which in 2014-15 gross value addition in the services sector grew from 7.8 per cent to 10.3 per cent. According to the economic survey, in 2014-15, while the general capital investment growth rate was 5.6 per cent, it grew at the rate of 8.7 per cent in services.

Thus, had the enormous engine of the services sector not been running, we would have been in dire straits. This is why the services lead in attracting foreign investment. The 2014-15 economic survey shows that foreign investment in the top ten services grew by 70.4 per cent. This growth has continued in 2015-16.

The growth in services has come from Indian market’s traditional regimes.

Last year, India marked 8 to 11.5 per cent growth in trade, repairing, hotels and restaurants, professional services and transport. In states with limited industrial investment too the economy is largely based on services. In 21 states of the country, services account for 40 percent of the GDP. If there was no growth in their services, the states would have faced greater difficulty than the Centre because they have fewer sources of revenue.

If one looks at the Indian economy in the backdrop of sources of fresh employment, consumption expenditure, urbanisation and growth, one will find that it has metamorphosed into a different shape altogether.

In the context of this change, budgets look inconsistent. This is why even after two years of Make in India, manufacturing has not picked up. On the contrary, the government pays little attention to vibrant sectors. As a result, the fastest growing services sector has been encumbered with the heaviest tax burden.

The government fails in indentifying the priorities perhaps because we have not been able to change the old ways of measuring growth. The latest and most practical criterion to measure it is the rise and fall in employment. Another indicator of growth and slowdown is increase or decrease in consumption. In USA, the policymakers and Wall Street folks do not look at the complex statistics of GDP to calculate growth, but figures of the monthly increase in employment and consumption. Employment should be a good measure of growth for a country like India, where a massive youth population is moving around carrying putative demographic dividend cheques that nobody is willing to encash.

We could have seen budgets that were more practical, up-to-date and close to economic realities had the government chosen to look at India’s current scenario in the light of the new criteria of growth. By this standard, the 2014 budget should have focused on agriculture, and we should have moved towards Budget 2015 by targeting select industries where huge scope of growth and employment resides. Budget 2016 could then have focused on the services sector, which is the hub of India’s enterprise and needs no new taxes, only facilities and encouragement.

The divergence between Budget 2016 and the current economic situation shows the country runs faster than the ideas of government. Even though the government, after a long flight of fancy, has landed on the terra firma of reality, two precious budgets have been squandered. However, they are not the final word on policy; change can happen any time.

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