07/03/2019. The characteristics of the service industry itself determines that the service-oriented industrial structure has a lot of beneficial effects on the economic development of a country. For example, it can promote export trade of tech-services, the demand for resources and so on. For India, however, the service-oriented industrial structure poses more problems than benefits.
First, lack of development in the manufacturing sector limits the increase in employment of the labor force. The rapid development of the service industry in India since 1990s is mainly due to the rapid development of software industries. However, those who are engaged in service industries such as software require well-educated and well-trained professional skills. The labor demand created by these service industries is not big enough for the Indian population. At present, the employment rate in such services industries is only about 30% while their contribution to GDP is about 70%. Therefore, the service-oriented industrial structure, especially the development of high-tech services, to a certain extent, is not conducive to the transfer of India’s large number of rural surplus labor that still takes comprise 66.4% of India’s overall labor force population by 2017.
Second, the service industry does not have a solid foundation for sustainable development. After independence in 1947, India’s manufacturing industries developed to a certain extent, but because of its large population and the great needs, the base of India’s manufacturing sector that constructed in a short time remained fragile. Therefore, the service-oriented industrial structure is formed on the basis of no strong industry, and the foundation for development is not firm and it is difficult to develop continuously.
Third, the lack of incentives for infrastructure construction, affects the growth of the real economy. Since India deregulated its economy in the early 1980s and began formal economic reforms in 1991, one of the important factors for the rapid development of the software outsourcing industry in India is precisely because the demand for infrastructure in the service sector is low due to the software industry having lower requirements for other social sectors than mass manufacturing, which means its stimulus effect on infrastructure is small, too. From an infrastructure point of view, the software industry is viable as long as it solves network and power supply problems. However, manufacturing industries, on the other hand, is a huge system. There are not only network and power requirements, but also roads, bridges, railways, freight terminals, container loading and a series of requirements. And all of this demand needs the government and private capitals to carry out continuous inspection, repair and improvement in order to achieve sustainable development. Thus, service-oriented industrial structure affects India’s infrastructure construction and, to a certain extent, the development of the real economy such as manufacturing.