Monday, March 19, 2012

Indian GDP's explosive imbalance

Let truth prevail
It makes for an impressive headline across India's newspapers each year - "Services sector leads sectoral growth once again; clocks double-digit growth, pushes GDP above 7%".
The latest Economic Survey of India (2011-12) presented in March 2012 pegs the share of Services in India's GDP at a staggering 59%. Agriculture and Industry both account for the rest.

Such a figure not only makes a great headline, but creates a great comfort zone for our politicians. They love it. It gives them something to showcase, and hide the systemic faults. It creates a strong illusion that the entire economy is moving forward at a good pace. An illusion that somehow the great discomfort that stems from poor contributions from both the agriculture and industry sectors can be padded using the impressive growth figures of the services sector. And to top it, taxing this sector gives easy recourse to funds.

But the truth is far from this.

The truth is :
Among the three, the Services sector - by its very nature - is the poorest employer of people. And when such a sector starts dominating the GDP with the wild swagger that we see today, it's the most visible sign that a stage of imbalance has already been reached.

The risk of such an imbalance is clear : Large employment disparity, leading to social chaos. 

Trained manpower is in abundant shortage
India is a huge country, with present population nearing 120 crores (1.2 billion) people. Services sector at present does not employ more than 10-15% of the population. A huge 75% plus of India's working population works in its most unproductive sectors - agriculture and industry.

We cannot ever hope that the service sector will become the biggest employer, or a mass-rapid employer, because it needs "skilled" manpower, and those skills take time to develop; and it has been proven through many studies that the Indian mainstream education system has shamefully failed in staying apace with what corporates want today. Even the National Skills Development Mission cannot hope to remedy the situation because by the time its efforts will start paying off in a big way (if they ever), the imbalance will have tilted the ship over.

The possible solutions:

Give her some hope
  1. Reform agriculture, raise Industrial productivity: Due to legacy factors, Indian agriculture is terribly unproductive. We cannot hope that segmentation of farmlands will stop overnight and consolidation leading to greater productivity will start happening. It will take time - but it can be done. Also the trend of people selling their agricultural lands to make way for modern shopping malls, residential gated communities and industrial hubs is a dangerous indicator of our future food insecurity. Similarly, due to outdated labour laws, industries in several sectors have little incentive to innovate, or create new lines of revenues.
  2. Skills development on a humongous scale: The horrendous situation of mainstream education, the stubborn insistence of Indian parents on "earning formal degrees and diplomas", and the poor social acceptance of vocations that earn well but are not white-collar... these factors contribute to a culture of unproductive white-collarism on a large scale. It's destructive for the nation eventually. The governments (central and state) need to reorient their efforts massively to address these core issues. If skills development starts to happen, a lot of young people can be migrated from agriculture to services sector.
  3. Social change: Parents must start accepting the fact that the world has changed, and degrees have lost much of their significance, if only for the reason that most of what is being taught in Indian colleges is outdated, and most of the teachers who teach them are underpaid, unproductive and disengaged. What results do we expect from such a system! So start putting your kids into vocational training programmes, and if your son can become a great carpenter (and earn 20-30 thousand rupees a month eventually), accept it. Much better than becoming an office-clerk who stagnates and hates it.
  4. Large scale manufacturing growth, and consequent employment: One does not have to think too hard; just use the Chinese trick. The Communist Party realised early on in the 1980s that to save the nation (and hence the Party!) from social turmoil, they needed to generate quick employment for the masses. And they chose the easiest route : industrial production of all sorts, catalysed by easy government policies. India needs to seriously think about this. And it can only happen when New Delhi directs a massively funded central programme, overriding all legacy obstacles.
But as much as we are faced with these problems, we are still running out of time!

If India does not start the process of change now, 2020 will be staring at us with all its seething troubles soon. And we will have only ourselves to blame.

I find no political awareness that's visible, on this topic. It's not a good sign. Wake up folks. We owe it to our coming generations.

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J Rajaram said...

I agree with this stand point. Also, MNCs are looking for better skilled labours out there in Africa and South-East. If they get better skilled labours there at low cost than by the law of globalization, Indian 59% service sector will nose dive.
FDI is more promising than FII because it uses domestic resources and human capital with a firm physical existence i.e. the possibility of shaking FDI out is far less as compared to FII.
We are in ICCU and still our doctors are holidaying carefree! I am restless to act upon it but something worthwhile!

Reflections Of Vishal V Kale said...

Excellent post! We have jumped the standard model of development (Agri-Manu-Service) to one of our own invention: Agriculure---->Services. This can be seen in perspective by the Chinese example, who are following the standard model...

Unknown said...

Is the service sector's growth clocking double digits, leading to rise in GDP, really worth for appreciating for, we, the Indians? Does this really make us feel proud? Is this something our crooked politician should boast and mislead innocent people of this country? Answers to these questions lie deep in the truth articulated and pronounced in this blog.
Although service sector contributes for more than half of GDP, and the rest 2 sectors-agriculture and manufacturing, for remaining, the people employed is far less than in other two sectors taken individually. Is this beneficial for our growing economy? Reply by economists are unsupported. Instead, they are providing us with real and unknown truths. The foremost risk is of large employment disparity that would lead to social chaos. It is evident from present situation that chaos is to happen. Only 15-20% are employed in service sector. Most of the IT companies now demand for skilled labor. And our educational system does not enrich it's students with skilled knowledge. May be it is due to lack of resources, lack of trained professionals, or the time required to make a person skilled. Our system lacks in all respects. But these can be eliminated in due course of time by inducing few measures perfectly into our political, administrative and educational system. Raising industrial sector can boost our economy with increase in industrial sector. Reforming new land laws, supporting farmers with agricultural techniques can help agricultural sector contribute more to our GDP than existing contribution. Skill development should take place at whooping scale. Quick deftness is demand of hour. We should also seek prospective examples from many growing nations which have transformed their economy significantly, like China. Their models need to be analysed and though upon for our own well being. Finally, society stratum has to change it's perception towards moving and changing world and should leave behind antiquated customs and accept new and beneficial ones. These have to be implemented by our government before time elapses and we would have nothing to work upon as a failed nation. Reforms have to be started from now on and to be enforced with maximum efficiency for betterment of our nation and our economic status. Awareness is the key to development.