The
observations made in this blog refer to the following illustrations:-
Gross
State Domestic Product (GSDP) by Industry of Origin (at 2004-05 Prices) for a
set of selected states given in the blog posts titled:-
In
the above mentioned blog posts an attempt has been made to choose good mix of
states (few relatively developed states and few not so developed states) for
illustrating changes to GSDP from 2004-05 to 2013-2014 (P). The data for
2013-14 are given as projected values in data source. Changing composition of
domestic produce may be one of the ways to develop an initial understand on any
economy.
One
way to look at the structure of an economy is to compare the shares of its
three main sectors – agriculture, industry and services – in the country’s
total output and employment. Initially agriculture in developing economies is
the most important sector. But as the income per capita rises, agriculture
loses its primacy, giving way first to rise in the industrial sector, then to
rise in service sector. The two consecutive shifts are called industrialization
and post industrialization. All growing economies are likely to go through these
stages, which can be explained by structural changes in consumer demand and in
relative labour productivity of the three main economic sectors – Growth
of the Service Sector, World Bank
A. Observations on GSDP Data:
1. Changes
in GSDP of the states during the period 2004 to 2014 suggest that increase in
production of Industry sector and Services sector have outperformed increase in
production of Agriculture and Allied sector. Thus, percent
contribution on Agriculture and Allied sector to the gross domestic production
of the states has reduced over the years. While, this has been a general trend
across the states, there are a couple of exceptions. GSDP of Jharkhan (JK) has
contribution from Agriculture and Allied sector as 15% in the year 2014, which is
exactly same in terms of percentage contribution as was in the year 2004-05.
GSDP of Madhya Pradesh (MP) shows 1% increase in contribution from Agriculture
and Allied sector in the year 2014 as compared to that of the year 2004-05. In
MP, a surge in agricultural produce in last three years accounts for the
marginal increment in contribution to GSDP. Fisher-Clark Theory of stages of
development suggest that as industrialization takes place in an economy, the
share of primary or agriculture sector in total output and employment gradually
diminishes, while that of the secondary or manufacturing sector increases. This
popular theory has been re-interpreted and extended by many economists to
explain empirical observations related to increase in contribution from service
sector during post-industrialization phase in advanced economies and also in
under developed economies.
2. The
process of structural change in recent decades has turned developed economies
into services economies.... Traditional ideas associate services growth with
both their lower apparent relative productivity and higher levels of income.
Although there is some validity to these theories, current evidences and recent
data reveal other underlying elements that act as driving forces on services:
changes in production factor, changes in productive systems, changes in market
and changes in institutional system.
These changes are related to factors such as information and
communications society, globalization and demographical and territorial
changes. Among these factors some stand out: integration between goods and
services, which has increased the intermediate demand for business services,
the inter-relation between new technologies, innovation and services; the
importance of human capital and qualifications (particularly in advanced
services) and specialization; the role of international trade and investment;
and finally, though it is regulations and institutional changes, the role of
the state in economy. Moreover, the influence of statistical factors is, to a
certain extent present in the advances experienced by services as a sector.
Large enterprises traditionally considered manufacturers became tertiary
companies, when their production of services exceeded a certain threshold. (Growth
and Productivity in Services Sector: The State of Art, 2010 Working Paper,
Andrez Maroto-Sanchez, ISSN: 1139-6148)
3. Growth
in services has led to higher use of services in manufacturing sector (it may
be noted that Manufacturing and Mining sectors are clubbed together as Industry
sector in calculation of GSDP). This has in turn led to higher output and
productivity growth in the manufacturing sector, which implies that the service
sector will be able to generate its own demand in the future. (2005, Banga, Critical
Issues in India’s Service Led Growth)
4. WTO
ranked India as 8th largest exporter (3.3% of world exports) and 7th largest
importer (3.1% of the world imports), in commercial services trade. Service
sector is the largest and fastest growing sector in the Indian economy making
as high as 59% contribution in total GDP of India. Services export is one of
the key thrust areas of the Government of India. Services exports have recorded
about seven fold increases in ten years from US$ 20.76 billion in 2002-2003 to
US$ 142.325 billion in 2011-2012 and US$ 105.84 billion up to December, 2013. (SEPC, Government of
India)
5. Data
on Share
and Growth of Services Sector in 2012-13 (TABLE - 2) suggest a relatively
proportionate share of all the states with a varying percentage growth for the
given year. Now, this may hold true in general, but when it comes to specific
services a pattern may be observed. For example, one such area of service is
Computer Software / Services (refer
TABLE -1 of blog post - Sharing Data on State Wise Export of Computer Software
and Services compiled by ESC). If we look at the
data in a sub-section of ‘Exported Services’ under Computer Software / Services
the data, it reveals a region wise disparity in the export of computer software
/ services is skewed in favour of South and West regions of India. The
contribution from East region has consistently been below 4% (in last three
years). Assuming the same economic legislation for exports, this disparity is
suggestive of existence of regional supremacy on production of international
quality computer software services. In this case, however, one possible
explanation could be presence of relative matured Economic Clusters in some
regions in comparison to other regions.
6. In
general, among the states taken for consideration, the surge in contribution to
GSDP from Service sector is supported with consistent incremental increase in
contribution from Industry sector. Analysis of graphs in
the blog
suggest that in the recent past, the synergic benefits of increased service
sector production on industrial production appears to be more pronounced for
developing states like Bihar (BR), Odisha (ODS) and Jharkhand (JK) and less
pronounced for relatively developed states of Andhra Pradesh (AP) and Karnataka
(KNK). One of the possible reasons for relatively less pronounced correlation
in bringing synergic benefits of increased production in services sector to
corresponding increase in industrial production could be attributed to higher
percentage of export oriented services produced by relatively developed states
like AP and Karnataka. This phenomenon could be explained through example of
ICT (Information and Communications Technology) Services (a sub-sector within
services sector also called ‘Computer Software / Services’). A
very few of the states in India have well established clusters dedicated to
export ICT Services. Many of these clusters are located within SEZs (Special
Economic Zones) and are extremely productive. Looking
into distribution of these SEZs in federal states of India, suggest that these
clusters are major contributors to share of Indian exports in the areas of
computer software services (Refer Table – 1, Table - 2 and
Table – 4 in
the link). When
production of services is calculated for the states in which these clusters are
located, a significant contribution to the calculation comes from the services
produced locally and exported abroad. Therefore, while considering a
correlation between growths in services sector vis-a-vis industrial sector of
the state under consideration, exported value of software services should be
discounted. This is not happening with the data being used for this analysis
(where Services produced are not being segregated on the basis of whether the
produce were sold for domestic use or were exported). Therefore, in such cases
it becomes important to understand that in what way the services produced in
Indian clusters are being fed back to local industries. In this regards, one
more important point to consider could be the markets of local industries.
Local industries may like to take strategic benefits of enabling services (like
(say) software services, financial services) only if they are competing in a
competitive market. Thus, it may also be useful to study the markets of the
major industrial products manufactured locally.
7. Further
observation on Comparative
GSDP of the selected states from 2004 to 2014 reveals that
for the year 2004-05, only two states have got higher contribution from
Industry sector as compared to Services sector namely Chhattisgarh (CG) and
Jharkhand (JK). Rest all the states have higher contribution of Services sector
in GSDP in comparison to contribution from Industry sector. On considering, the
structure of an economy based on comparative share of three main sectors –
agriculture, industry and services in GDP (or GSDP in
this case), it appears as if phenomenon of industrialization and post
industrialization are going-on simultaneously in Indian states. In 2004-05, CG
and JK were inclined towards Industrialization phase of the economic
development. All other states (in the sample) had already begun journey towards
Post Industrialization. In JK, Services sector produce overtook Industry
produce around year 2008-09. The same happened little late in Chhattisgarh
sometime around the year 2011-12. In comparing these two states over the given
period, JK seems to have better synergy in its industrial and services
production and it has growth much faster with steeper curves in comparison to
CG. This could be due to earlier transition of JK towards Post
Industrialization phase in comparison to CG. A deeper understanding of
industrial dynamics among these two states and comparison with other similar
states (like say Bihar (BR) and Odisha (ODS)) will be required to understand
these two states.
8. For the sake of analysis on selected sample of
states, all the values for Services sector produce are put together in one
graph in the blog-post
(Please refer Graph – 1 and Graph - 4). All the states have recorded consistent
increase in Services sector produce. Jammu & Kashmir (J&K), CG, JK,
ODS, BR and MP could be clubbed in one category (say Category A). All these
states have Service sector produce in the range of 10,000 – around 50,000 crore
INR in the year 2004-05. The other category (say Category B) could be of those
states having much more than 50,000 crore INR in the year 2004-05. Generally
speaking Category A states have doubled their produce in 2013-14 (P) from those
of their respective levels in 2004-05
and Category B states have tripled their produce during the same span of time.
If we rank all the states on the basis of production in services sector in the
year 2004-05 and again in the year 2013-14 (P), all the states will retain
their respective positions in ten years, except for Delhi (DL) and KNK. DL took
over KNK in the year 2008-09. So their respective rankings will get exchanged
in 2013-14 (P) rankings in comparison to that in the year 2004-05.
9. Service produced by ODS (falling in Category
A) in 2014-15 (P) is marginally ahead of services produced by Kerala (falling
in category B) in 2004-05. Thus, in a way ODS could be said to be running ten
year behind Kerala (KL) in terms of production of services. Similarly, values
in the year 2013-14 (P) for MP and BR are very close that of the value of AP in
2004-05. Now, from this point onwards, the growth trajectory taken by these new
states entering Category B will be interesting to look at. However, a closer
look at the journey of service sector in last ten years for KL and AP could
help ODS, MP and BR in some ways to shape future roadmap.
10. It is evident that for the states in Category
A (this includes Chhattisgarh) are consistently lagging behind in Service
sector produce from those in Category B. The same thing holds true to the
states within Category A. The states on the top are consistently consolidating
their respective positions year after year in terms of Service production. And
it appears as if this trend may continue until states on the top start
retarding (may be after reaching a threshold from where it may not be possible
to continue with same pace of growth).
11. Let us observe Industrial production patternsregistered by these states during last 10 years (Graph - 2 and Graph - 5). In this case, the picture
looks much more competitive. In this case, it may be reasonable to group those
having Industrial produce less than 35,000 crore INR in 2004-05 in Group A
(this will include MP, KL, ODS, JK, BR, CG, DL, J&K), while those more than
this value be in Group B (Gujrat (GJ), TN, AP, KNK). While Group B states are
analogues to Category B in terms of general trends of growth. However, these
states are producing less value in terms of INR as compared to their respective
produce in Services sector.
12. In 2013-14 (P) MP, KL, ODS are almost there at
the same value of production as AP and KNK were in 2004-05 in terms of
Industrial produce. JK looks to be closing towards 50,000 INR mark and BR is
catching up aggressively (one must notice that BR improved its produce by
around four times in 10 years). DL has been the only state, which looks to be
getting stagnated registering just a marginal increment to its production value in 2004-05 throughout the journey of 10
years.
13. CG was going good until 2008-09. Thereafter,
it stagnated till 2011-12. From this point onwards, it appears to be going
ahead with the same elevation as JK. Comparative assessment based on Industrial
production (for entire span of 10 years) suggests CG may not have done well.
ODS, JK and KL, were at comparable levels in earlier years have gone far ahead
during the period. BR was approximately half in value of production to CG in
2004-05 and has gone ahead in 2013-14.
14. In the graphs (Graph - 3 and Graph - 6) showing ‘Agriculture and Allied’
(to be referred to as Agriculture in this document) sector DL is at the bottom
and this is very well on expected (the state does not have significant land
available for cultivation) lines. This is followed by J&K, which has
difficult geographical terrain. Agriculture production for these two states
seems to have plateaued around constant values. AP has out-performed all other
states and is at the top. MP was going neck and neck with GJ and KNK until
2010-11 but in last three years it has registered exceptional growth. TN and BR
have been close competitors and so have CG and JK been. KL was ahead of ODS
till 2008-09 and things have reversed after that.
15. Agriculture produce may continue to increase
but its significance in GSDP is expected to keep on decreasing. However, food
security is a critical issue for India. Moreover, this is the only sector whichis still giving employment to around half the working population of India (Graph - 7).
16. Data
for Per Capita Net State Domestic Product (Per Capita) for the period 2004-05
to 2013-14 shows that CG has always been below the National Per Capita in terms
of value of Per Capita (TABLE -1). For example for the
year 2012-13, 16 States / UTs were found higher Per Capita than the National
Per Capita Value of 67839 INR and 15 States/UTs were found to have lower per
Capita than the National Per Capita. For this year amongst States / UTs, CG was
ranked at 24th position. In comparison to CG, following states were
found to have lower Per Capita ODS, MP, JK and BR, while J&K was marginally
above CG and KNK, AP, GJ, TN and DL were having higher values of Per Capita (in
reference to values for year 2012-13). The relative positions of the states
have been found to be more or less same for entire 10 years period from 2004-05
to 2013-14.
17. CG
has been in 10th position in terms of Rate of increase of Per Capita
for the year 2012-13 (TABLE - 4). And the general trend for
rate of increase in Per Capita looks to be in favour of lesser developed states
(BR, MP, ODS, J&K, CG and JK are at relatively higher positions in
comparison to KNK, AP, KL, GJ and TN).
18. It is observed that even though CG has
slightly higher Per Capita with respect to some of the closely comparable
developing states, its Industrial production and its production of Services
need to catch-up with consistent performances shown by these comparable
developing states in recent past.
B. References
1. Chapter 9: Growth of Service Sector,
Development Education program by World Bank Website - -http://www.worldbank.org/depweb/beyond/beyondco/beg_09.pdf
2. CRITICAL ISSUES IN INDIA’S SERVICE-LED
GROWTH, WORKING PAPER NO. 171, Rashmi Banga, OCTOBER 2005, INDIAN COUNCIL FOR
RESEARCH ON INTERNATIONAL ECONOMIC RELATIONS - http://www.icrier.org/pdf/WP171.pdf
3. Small Business and Entrepreneurship
Council (SBE Council) is a 501c (4) advocacy, research, training and networking
organization dedicated to protecting small business and promoting
entrepreneurship; Website - http://www.sbecouncil.org/about-us/facts-and-data/
4. SEPC, an Export Promotion Council set by
Ministry of Commerce & Industry, Government of India; Website - http://www.servicesepc.org/services-export-data/
5. Growth and Productivity in Services
Sector: The State of Art, 2010 Working Paper, Andrez Maroto-Sanchez, ISSN:
1139-6148; Website - http://www2.uah.es/iaes/publicaciones/DT_07_10.pdf
6. An evaluation of SME development in
Malaysia, 2006, Saleh and Ndubisi; Website - http://www.geasiapacifico.org/documents/IBRP1.pdf
7. Article on Forbes website, 21 MAY 2012
on work of Professor Yijiang Wang of the Cheung Kong Graduate School of
Business in Beijing; Website - http://www.forbes.com/sites/jackperkowski/2012/05/21/china-in-transition/
8.
OECD (2012), "Internationalisation
of SMEs (Dimension 10): Encourage and support SMEs to benefit from the growth
of markets (Small Business Act Principle 10)", in OECD/, SME Policy Index:
Eastern Partner Countries 2012: Progress in the Implementation of the Small
Business Act for Europe, OECD Publishing. DOI: 10.1787/9789264178847-17-en;
Website - http://www.oecd-ilibrary.org/finance-and-investment/sme-policy-index-eastern-partner-countries-2012/internationalisation-of-smes-dimension-10_9789264178847-17-en
9. Per Capita Net State Domestic Product at
Current Prices for a set of selected states given in the blog post titled:-
10. Place
of Chhattisgarh in All India Census of MSME: Registered Sector:-
11 State wise distribution of SEZs in India http://www.sezindia.nic.in/writereaddata/pdf/listofoperationalsezs.pdf
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