A services-led export strategy holds appeal only up to a point

Indian policy cant afford to focus on service exports at the cost of our current employment-oriented manufacturing thrust

- SOUMYA KANTI GHOSH & DISHA KHETERPAL

The recently announced interim budget resonated with the government's aim of making India a developed economy by 2047. Instead of going for populist policies, the budget focus on infrastructure and R&D will go a long way in making India a manufacturing hub. The budget has been a confluence of measures aligning with the broad vision of the government to increase the contribution of manufacturing to 25% of GDP by 2025. Greater investment in physical and digital infrastructure will go a long way to make India an important player in global supply chains.

Notably, the last decade witnessed the share of manufacturing in India's real GDP move up from 17.3% to 17.7%. Meanwhile, the share of the agriculture sector declined from 16.5% to 14.4% and that of the services sector rose from 51.1% to 54.6%, of which an 89% increase is attributable to the financial, defence and public administration sub-sectors. This is not surprising, given that the government has taken several initiatives for the financialization of savings and modernization of Indian defence, among other steps.

Against this background, we would like to introspect on the suggestion made in the recent book, Breaking the Mould: Reimagining India's Future by Raghuram Rajan and Rohit Lamba, that India should focus primarily on high valueadded services rather than low-value-added manufacturing exports to boost its exports.

Interestingly, notwithstanding the brouhaha over export-led growth, the share of average weighted contribution of private consumption to GDP growth has been at 55.6%, while that of net exports has been at a negative 9.8% (its positive contribution being outstripped by imports) for the past two decades ending 2023-24. Thus, India's economic story has always been led by robust consumption, with net exports acting as a drag.