India by Bimal Jalan

Author:Bimal Jalan
Language: eng
Format: epub
ISBN: 9789386495853
Publisher: Penguin Random House India Private Limited
Published: 2017-07-26T04:00:00+00:00

India in the New Global Economy

A most remarkable feature of the so-called ‘new economy’ in the twenty-first century is the role of the services sector (of which the IT [or information technology] sector is a part) in generating growth in income and employment. It may be recalled that the focus of attention in conventional economics, including development economics, was on the production of goods—manufactured products and agricultural commodities. It was, of course, recognized that the services sector (which included transport, communication, trade, banking, construction and public administration, etc.,) was an important source of income and employment in most economies. However, overall, the growth of services was perceived, at best, as a by-product of developments in the primary and secondary sectors and, at worst, as a drag on the prospects for long-term economic growth. Services were believed to be mainly non-tradable activities with slow productivity growth and low employment potential. In developing countries, the conventional view of the growth of the services sector was even worse. It was seen to divert scarce resources away from the production of goods and contribute to the accentuation of income inequalities.

In the twenty-first century, there has been a phenomenal change in the conventional view of services and their role in the economy. The development of certain services is regarded as one of the preconditions of economic growth, not as one of its consequences. The boundary between goods and services is also disappearing, as services of various kinds are delinked from the manufacturing process and become essential elements of the productive structure. Many industrial products are not only manufactured, they are also designed, marketed, advertised, distributed, leased and serviced. A significant and rising part of the value added by manufacturers now consists of services.

The change in the image and role of services has been brought about by unprecedented and unforeseen advances in computer and communication technology. An important aspect of the ‘services revolution’ is that geography and levels of industrialization are no longer the primary determinants of the location of facilities for the production of services. As a result, the traditional role of developing countries is also changing—from being mere recipients to becoming important providers of long-distance services.

From India’s point of view, some of the long-term global developments since the 1990s that provide opportunities for substantial growth are:

The fastest-growing segment of services is the rapid expansion of knowledge-based services, such as professional and technical services. With regard to these services, India has a tremendous advantage because of a developed structure of technological and educational institutions and lower labour costs.

Progress in information technology is making it increasingly possible to unbundle the production and consumption of information-intensive service activities. These activities—research and development, computing, inventory management, quality control, accounting, personnel administration, secretarial, marketing, advertising, distribution and legal services—are performed in all economic sectors.

Unlike most other prices, the world prices of transport and communications services have fallen dramatically over the years. By 1960, sea-transport costs were less than a third of their 1920 level. The cost of a telephone call fell more than tenfold between 1970 and 2000.

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