India’s Future Economy

Context: While India's manufacturing sector has turned out to be a failure, India’s future economy will be steered by the service sector.

Reasons to rule out manufacturing as the driver of India’s future economy

• Need for trade protection: as envisaged under Atmanirbhar Bharat initiative may lead to business lobbies demanding even more protection.
• Low export competitiveness: Thus, India cannot replicate the export orientation of the East Asian manufacturing story, or that of Bangladesh.

Potential of Services sector in India’s future economic growth

• High ratio of trade in services: 60% of India’s trade is in services globally, only around 33%.
• Prospects of growth in service exports in future: In five years, it may account for the lion’s share of India’s export basket and reduce the share of merchandise exports to less than half.
• Comparative advantage in infotech and related skills.
• Highly digitalized consumer base in India.
• Fastest growing start-up segment: Every fifth start-up now uses deep technology.

Problems associated with an economy build based on the service sector

• Disadvantageous for poorly educated: As the prospects for white-collar work will be more compared to blue and black-collar and thus may lead to concentration of wealth.

Way forward:

• For enterprises in India: They should become creative shops specializing in newer areas like artificial intelligence and big data.
• For Government: More fiscal transfers to the bottom tier by taxing the concentrated wealth at the top.