ECONOMICS — DU EXAM NOTES

(COMPLETE)
India's Industrialisation, Deindustrialisation, GVCs & Services Sector
All 50 pages covered | Shri Aurobindo College, University of Delhi

Reading 1: Chakraborty & Nagaraj (EPW 2020) | Reading 2: Mukherjee (EPW 2021) | Reading 3: Rupa
Chanda (Uma Kapila Ed., pp. 786-821)
ARTICLE 1: Has India Deindustrialised Prematurely?
Chakraborty & Nagaraj | EPW, December 5, 2020, Vol. LV No. 48

1.1 What is Deindustrialisation?

Defined as a decline in the share of manufacturing (industry) in BOTH:
• Domestic output (GDP), AND
• Aggregate employment (total employment)

★ EXAM TIP: Always state BOTH criteria in exam — output AND employment. Many
students miss one.

Premature vs Natural Deindustrialisation

• Natural: In advanced economies after high per capita income and industrial maturity —
normal transition to services.
• Premature: In LDCs BEFORE attaining industrial maturity. Workers move to low-productivity
informal jobs, NOT modern services. Associated with Washington Consensus reforms,
market-orientation, debt crisis of 1980s (Latin America, Africa). See: Palma 2014, Rodrik
2015.
• Rodrik (2015) — 'Double Whammy': Developing countries opened to trade when
manufacturing comparative advantage was weak; advanced economies' declining relative
price of manufactures squeezed manufacturing everywhere.

KEY: Kaldor's First Law of Economic Growth: Faster growth of manufacturing output →
faster GDP growth, due to backward/forward linkages, scale economies, and positive
knowledge spillovers. LDCs that deindustrialised prematurely lost these externalities.

1.2 The Central Argument & Data

• India has NOT deindustrialised. BUT industrialisation has STAGNATED for three decades
since 1991.
• Manufacturing share in GDP: roughly constant at ~15% (manufacturing) and ~27% (industry
including construction), 1990-91 to 2012-13
• India ranked 4th globally in manufacturing (2017) = ~2.5% world industrial output — barely
changed 2007-17
• China overtook the US to command ~25% of global manufacturing value-added by 2017

Definitions of Variables
Measure Source Key Period
Manufacturing/Industry National Accounts Statistics (NAS) 1990-91 to 2012-13 (old series;
share in GDP new 2011-12 base NOT used)
Manufacturing NSS Employment-Unemployment 1993-94, 2000-01, 2011-12
employment share Survey (UPSS definition)
(national)
 Measure Source Key Period
Manufacturing Census (main + marginal workers) 1991, 2001, 2011
employment share
(national)
State output NSDP — Net State Domestic 1990-91, 2000-01, 2010-11
Product, constant 2004-05 prices
District employment Census for 362 districts (90%+ 1991, 2001, 2011
population)

★ EXAM TIP: The new NAS series with base year 2011-12 was NOT used — reliability
concerns (Nagaraj & Srinivasan 2017). Mention this in exam to show awareness of data
issues.

1.3 National Trends

• NSS manufacturing employment ratio: ROSE by 2 pp from 10.5% (1993-94) to 12.6% (2011-
12)
• Census manufacturing employment ratio: Barely changed 9.5% (1991) → 10.1% (2011)
• Difference: NSS shows rise mainly due to construction boom in industry (mining + mfg +
electricity + construction = 15% to 24.4% NSS)
• Industry (broad) census ratio: 16.7% (1991) to 21.9% (2011) — also mainly construction

1.4 State-Level Trends (Table 1 & 2 in article)

Manufacturing NSDP as % of total NSDP (constant prices, major states):
State 1990-91 2000-01 2010-11 Employment trend (2011)
Maharashtra 22.9 18.3 19.7 Rose
Tamil Nadu 23.8 18.5 18.3 Highest share 15.8%
Gujarat 21.6 21.5 24.8 Rose (industrialised both output
& employment)
West Bengal 9.4 8.9 9.3 Rose 15.9% to 18%
Bihar 18.9 13.2 10.1 Rose 3.9% to 5.5%
UP 14.2 11.9 13.9 Rose 7.4% to 9.2%
Kerala 10.2 9.6 7.1 Rose 14.2% to 13.4%
Punjab 13.4 15.2 19.8 Rose 12% to 13.5%
Key point: Gujarat truly industrialised — both output and employment shares rose. Most states
deindustrialised by output measure but GAINED by employment.

KEY: State rank correlations for manufacturing employment are 0.99 across 1981-1991,
1991-2011, and 1981-2011. The hierarchy (Maharashtra, UP, Tamil Nadu on top;
Punjab, Odisha, Haryana at bottom) has been essentially FROZEN since 1981.

1.5 District-Level Trends

 • 1991-2011: 256/362 districts (70.7%) showed INCREASE in manufacturing employment
share (>1%)
• Only 75 districts (20.7%) showed decline of 1%+; 126 (34.8%) no change
• But 2001-2011 (high-growth decade): 227/362 (62.6%) showed DECLINE —
deindustrialisation coincided with India's fastest growth period
• Coefficient of localisation (0 = even; 1 = extreme concentration): Rose from 211/362 districts
(1991-2001) to 211 (1991-2011) — manufacturing getting more concentrated
• Rank correlation across 362 districts = 0.8-0.9 — stable at industry level too
• Bareilly (UP): Rose from rank 162 to rank 43 (2011) — Moradabad and Aligarh also rose
• Varanasi (UP): DECLINED from 23% → 19.1% mfg share (handlooms & silk declining)
• Dhanbad (Jharkhand): Declined 13.4% → 10.2%

1.6 Industry-Level Changes

Industry Group Share in mfg Share in mfg
employment 1991 (%) employment 2011 (%)
Textiles, apparel, leather & footwear 25.2 29.5
Food, beverages & tobacco 18.3 16.9
Basic metals & fabricated metal products 8.8 9.6
Manufacturing NEC (gems, jewellery, recycling) 14.3 19.2
Machinery NEC 4.2 1.6
Wood and cork 7.6 5.9
Non-metallic minerals 7.7 6.4
Chemicals & chemical products 4.0 3.2
Consumer goods (textiles + food + leather) = 58% (1991) → 66% (2011). Capital goods and
intermediate goods (metals, machinery) DECLINED in weight. Weight of capital + intermediate
goods in IIP fell from 35.5% (1993-94) to 25.4% (2011-12) — rising import dependence.

★ EXAM TIP: The shift from metals/machinery to consumer goods is India's divergence
from East Asian industrialisation. South Korea had 28% of manufacturing workers in
metals in 1989; Taiwan 33%. India never reached these levels, and the share has since
declined.

1.7 Conclusions — The Crossroads Argument

• India has NOT deindustrialised — shares broadly stable
• BUT structural transformation from agriculture → manufacturing has STALLED
• Industrial output grew 6-7% annually, in line with GDP — Kaldor's dynamic externalities NOT
spreading
• India at crossroads: Asian industrialisation path (state-led, successful) vs Latin American
deindustrialisation and dependent development
• Evidence: Unlike China's post-1978 reforms, India's post-1991 reforms did NOT cause
significant spatial reallocation of manufacturing
• Nagaraj (2017): Only successful development path = STATE-LED INDUSTRIALISATION
ARTICLE 2: Is India Moving Up the Global Value Chain?
Deeparghya Mukherjee | EPW, May 15, 2021, Vol. LVI No. 20 | Data: OECD-TiVA December 2018

2.1 GVC Framework — The Smile Curve

A standard value chain has three stages. Value-added is HIGHEST at the two ends (upstream &
downstream) and LOWEST in the middle (assembly).
Stage Activities Value Added
Upstream R&D, product development, design, HIGHEST
standardisation
Middle Sourcing raw materials, manufacturing, LOWEST
assembly
Downstream Transport, logistics, branding, distribution, HIGH
marketing, post-sale services

KEY: OECD analysis: Countries with fastest growing GVC participation have GDP per
capita growth rate 2% higher than average. India needs to move from middle-stage to
upstream/downstream participation.

2.2 Types of GVC Participation (Table 2)

• Backward participation = foreign value-added in India's exports (how much India uses
imported inputs to produce exports)
• Forward participation = India's value-added in other countries' exports (India's inputs used by
others)
• Total India backward participation (2015): ~19% of gross exports
• Backward > forward in manufacturing (India imports to assemble and export)
• Forward > backward in IT/information services (India exports value to global production)

Sector Backward Backward Forward Forward

2005 2015 2005 2015
Total 18.77 19.09 16.64 14.93
Textiles, apparel, leather 15.31 16.39 1.45 1.14
Coke & refined petroleum 45.32 46.99 0.43 0.31
Chemicals & pharma 23.19 16.39 1.45 1.42
Basic metals & fabricated metals 32.81 36.45 1.49 1.01
Computers & electrical equipment 34.64 36.24 2.36 1.87
IT & information services 9.32 7.62 0.18 0.46
Other business services 10.40 10.06 0.50 0.61

★ EXAM TIP: Coke & refined petroleum has the highest backward participation (46-47%)
because India imports crude and re-exports refined products. This is a processing
economy characteristic, not industrial depth.
2.3 India's Export Structure — Sector Shares (Table 1, 2005-2015)
• Manufacturing = ~55% of India's gross exports throughout
• Top 10 sectors = 76% of India's gross exports
• IT and information services: rose from 15% to 19% of exports
• Chemicals & pharma: 6% to 9%; Textiles: 12% to 9% (declined); Coke & petroleum: 7% to
11% then back to 6%
• Value-added content in manufacturing exports: 65-78% for most industries (domestic
content strong)

2.4 India's Contribution to Foreign Final Demand (Table 3) — KEY DATA

This ratio measures India's growing importance in global value chains relative to the world. A rise =
India gaining GVC share.
Sector 2005 (%) 2010 (%) 2015/16 (%)
Textiles, apparel & leather 14 20 20
Coke & petroleum 4 8 6
Chemicals & pharma 2 3 4
Basic metals & fabricated metals 2 4 3
IT & information services 24 36 36
Other business services 8 13 16
Transport & storage 2 2 3
Total manufacturing ~3 ~3.5 ~3-4

KEY: IT sector: India's contribution to foreign final demand rose from 24% to 36% (2005-
2016) — the clearest sign of India genuinely moving up the value chain. Textiles stable
at 20%. Most manufacturing sectors show only marginal increases.

2.5 Conclusions & Policy Recommendations

• India has grown GVC participation in both trade and value-added terms (2005-2015)
• Progress most significant in TEXTILES (stable high share) and IT/INFORMATION
SERVICES (strong upward trend)
• GVC participation increased MORE for manufacturing than services (scope for
fragmentation/offshoring is lower in services)
• DECLINE in GVC participation metrics between 2010 and 2015 in some sectors — a
concern
• India's backward participation relatively higher in manufacturing; forward in IT — consistent
with India being an assembler in manufactures but a value-provider in IT
Policy recommendations:
○ Better port infrastructure; road and railway connectivity to ports
○ Amend labour laws to facilitate formal manufacturing employment
○ Develop skilled labour base; encourage R&D and innovation
○ WTO multilateral trade facilitation adherence; rethink local content requirements
○ Medium-term FTAs in manufacturing sectors to boost efficiency
ARTICLE 3: India's Services Sector — Trends, Opportunities &
Challenges
Rupa Chanda | Chapter 29, Indian Economy Since Independence, Ed. Uma Kapila (Revised July
2020) | Pages 786-821

3.1 Introduction — Post-1991 Reform Context

• 1991 Balance of Payments crisis triggered comprehensive reforms: liberalisation of trade,
FDI, industrial policy
• CAGR of Indian economy: 5.7% (1990-2004) → 7.5% (2005-16)
• Services sector = FASTEST growing sector throughout the post-reform period
• 'Leapfrogging': India moved from primary sector (agriculture) directly to tertiary sector
(services), bypassing the usual primary → secondary → tertiary sequence seen in other
developing countries
• Between 1980 and 2016: Agriculture's share in GDP declined by ~30 percentage points,
offset by rise of ~23 pp in services. Services (incl. construction) = 61.4% of GDP in 2016, up
from 38.3% in 1980

★ EXAM TIP: 'Leapfrogging' from primary to tertiary is India's distinctive structural

transformation. This contrasts with East Asia where industry rose before services. DU
exams frequently ask about structural change — always mention this.

3.2 Growth Trends — Detailed Data (Table 29.1 in article)

Sector CAGR 1980s CAGR 1990s CAGR 2001- Average 2005- Average
16 09 2010-16
GDP 5.85% 5.6% 7.33% 8.3% 7.0%
Agriculture 3.48% 2.93% 2.90% 3.2% 3.7%
Industry 7.48% 6.28% 7.53% 8.8% 7.0%
Services 6.05% 7.85% 8.71% 10.1% 7.9%
Services CAGR has CONSISTENTLY exceeded GDP growth. Peak: 10.1% (2005-09). Deceleration
post-2008 financial crisis to 7.9% (2010-16), but still above GDP.
Sub-sectoral variation: Communication, banking, insurance, construction, trade & distribution = >7%
CAGR (2000-09). Railways and public administration = <4%. Construction declined from >8%
(2005-10) to 4.2% (2011-16).

3.3 Services and Employment

• Services employment share rose only modestly: 21.6% → 23.8% (ILO, 1991-2001)
• Tertiary sector employment: only +4.2 pp increase (1993-94 to 2007-08), while GDP share
rose 10+ pp — implying LOW employment elasticity
• India's services employment share at 28.7% (2014) was the LOWEST among major
services-producing countries (others average ~2/3)
• By 2017: Services employment = 33.5% — still below international norms
• Employment concentrated in: trade & distribution, construction, hotels & restaurants,
community services — NOT high-value IT/BPO
• High-growth segments (communication, financial services) had relatively LOW employment
elasticity — growth from productivity gains and technology, not labour absorption
 KEY: The paradox: India's services sector grows rapidly in output but absorbs little
labour. Surplus agricultural labour cannot easily migrate to skill-intensive IT/BPO. This
limits the poverty-reduction potential of services-led growth.

3.4 Trade in India's Services Sector

• Services exports: $2.9 bn (1980) → $6.7 bn (1995) → $16.7 bn (2000) → $183.9 bn (2017)
— more than TENFOLD growth 2000-2017
• Services imports: $2.9 bn (1980) → $10.2 bn (1995) → $19.2 bn (2000) → $154 bn (2017)
• India has moved to a slight services TRADE SURPLUS — important offset against
persistent goods trade deficit
• India's share in world services exports: <1% in 1980s and 1990s → 1.9% (2005) → 2.9%
(2010) → 3.44% (2017)
• Services exports CAGR (1996-2005): 23.5% p.a. — second only to Ireland (compared to
China's 15.3%)
• Post-2008 deceleration: Average 9.9% p.a. (2005-17)
• CAGR (1995-2017): India at 11.1% — FASTEST among all major countries (Figure 29.3)
• Share of services in India's total exports: 18.1% (1995) → 37.7% (2017)

3.5 Structure of Services Exports — Shift Towards 'Other' Commercial

Services (Table 29.2)
Category 1990 2000 2005 2010 2017
(%) (%) (%) (%) (%)
Transport 20.7 11.9 12.5 11.3 9.2
Travel 33.7 20.7 14.4 12.4 14.9
Other commercial services (IT, business, 45.6 67.4 73.1 76.3 75.7
finance etc.)
Composition of 'Other' services (Table 29.3 in article):
• Computer & information services: 30.61% of 'other' in 2000, 28.74% in 2017 — still largest
• Other business services: 31.29% (1990) → 32.16% (2017) — stable large share
• Financial services: 2.18% (2000) → 2.45% (2017)
• R&D: 0.65% (2005) → 1.64% (2017) — growing but still tiny
• Total value of 'other' commercial services: $2.1 bn (1990) → $38.1 bn (2005) → $139.3 bn
(2017)

3.6 Competitiveness — RCA Analysis

Revealed Comparative Advantage (RCA): >1 = competitive advantage. India's RCA in OVERALL
services vs goods:
• RCA for services: 0.98 (1990) → 1.07 (1990) → 1.63 (2005) → 1.60 (2017) — strong and
growing
• RCA for goods: 1.07 (1990) → 0.89 (2000) → 0.81 (2017) — declining
• Between 1990 and 2017: RCA for services rose ~50%; RCA for goods declined ~17%
But within services:
• 'Other' commercial services (IT + business): RCA peaked but NOW DECLINING — India
losing competitive edge
• Computer & information services specifically: RCA declining — most concerning
 • Transport services: RCA consistently <1 (India is NOT competitive in transport)
• Travel: RCA <1 (0.5-0.6 range)
• Other business services: Largest segment but RCA < 1 during 2000-17

★ EXAM TIP: Three structural concerns in RCA: (1) IT/computer services advantage is
declining; (2) Other business services (biggest segment) lacks RCA; (3) Competitiveness
in 'other' services concentrated in just TWO subsectors — highly fragile.

3.7 IT-BPO Services — Detailed Data

• IT-BPO sector turnover: $70 bn (2009, ~6% of GDP) → $152.6 bn (2016-17, ~8% of GDP)
• NASSCOM target: $350 bn revenue by 2025
• Employment: 3.7 million direct jobs; largest private sector employer; BPO alone = 1.15 mn
jobs (2017)
• Between 2001 and 2017: IT-BPO created 3.7 mn jobs; in 2014-16 alone = additional
600,000 jobs
• Export breakup (2016-17, $117 bn total): IT services = $66 bn; Business process services =
$22 bn; Software products & engineering = $25 bn
• India's share in global IT services market: 52%; in global BPO sourcing market: 38% (2016-
17)
• ICT services as % of total service exports: India at 55-70% range (among world's highest —
Figure 29.10)
• Major markets: US = 62% of IT-BPO exports; UK = 17%; Continental Europe = 11%; Asia-
Pacific and Middle East growing
• Verticals: BFSI (banking, financial services, insurance) = most important, despite 2008 crisis;
healthcare and retail growing rapidly
• Offshoring model: offshore-onsite mix = 25:75 (25% at client site, 75% done in India) —
shifting further towards offshore with automation
• AT Kearney Offshore Location Attractiveness Index: India consistently HIGHEST ranked —
skill availability, favourable business environment, low cost
• India accounts for 55% of offshore IT-BPO market (2017); 24% of 271 new global delivery
centres set up by US firms in 2017 were in India

3.8 Modes of Services Trade & Barriers

Mode Type India's Status Key Barriers
Mode 1 Cross-border (IT, Strongest — India's core Data protection regs (EU GDPR);
BPO, data flows) export mode; offshore outsourcing backlash in US; H1B
delivery model restrictions
Mode 2 Consumption Medical tourism; Capacity and quality constraints; visa
abroad (tourism, education exports; barriers for foreign students
healthcare, tourism improving
education)
Mode 3 Commercial Growing — Indian firms Host country regulations; licensing;
presence expanding abroad in IT, sector-specific restrictions (retail,
(subsidiaries, JVs) pharma, hospitality, legal)
finance
Mode 4 Movement of India 3rd after Canada & H1B visa restrictions tightened;
natural persons Mexico — 554,628 non- 'requests for evidence' spike; wage
(software immigrant admissions in minimums raised; qualification
US (2017); 276,178 H1B recognition absent; EU GDPR
 Mode Type India's Status Key Barriers
professionals, (51% of all specialty
doctors) occupation visas)

★ EXAM TIP: Mode 4 is India's OFFENSIVE interest in WTO negotiations. Key data:
Indians filed 64% of H1B petitions (2007-2017) far ahead of China (9%). Companies:
Infosys, Cognizant, TCS, Wipro, IBM India dominate H1B. This is increasingly under
threat.

3.9 Domestic & External Barriers to Services Exports

Domestic barriers:
• Infrastructural constraints (transport, logistics, telecom quality)
• Financial constraints on firms
• Regulatory and technical standards-related issues
• Capacity, quality, and regulatory barriers to contestability in services markets
• India ranks POORLY on: Enabling Trade Index (WEF) for transport & communications;
Logistics Performance Index (World Bank); Innovation & sophistication sub-index (Global
Competitiveness Report, WEF — declining)
• Services FDI more restricted than manufacturing FDI in India

External barriers:
• Immigration caps and labour market regulations (quantitative visa caps, discretionary fee
hikes)
• Lack of qualification recognition (no MRAs in most professional services)
• Opposition from regulatory bodies and professional associations abroad
• EU GDPR: Data transfers to India require India to meet EU privacy law standards — India's
data protection law not yet meeting 'adequacy' test
• Mode 1 backlash: US protectionist bills (2009, 2010) to ban outsourcing of government
contracts

3.10 Services-Manufacturing Linkages (Servicification) — CRITICAL SECTION

This is one of the most important exam topics in this reading:
• WTO data: Services value-added = ~1/3 of manufacturing exports in developed countries;
26% in developing countries
• India shows HIGHER services value-added in exports than other developing countries — but
mostly domestic origin
• Services value-added contribution in India's GROSS exports = over 50% in 2015 — greater
than manufacturing, comparable to Singapore, Hong Kong, UK, US
• Modern services (IT, finance, business) surpassed traditional services (transport,
distribution) in value-added contribution to India's exports by 2015
BUT key weaknesses in services-manufacturing integration:
○ IT & information services value-added in MANUFACTURING exports = barely 1% (2015) —
almost none; IT is largely directly exported, not embedded in manufacturing
○ Other business services value-added in manufacturing exports = just over 3% (2015) — very
low
○ Competitive segments like R&D and business services contribute very little — low innovation
in manufacturing
 ○ Transport & storage value-added in manufacturing exports: DECLINING — weak logistics
link
○ Manufacturing relies mainly on trade & distribution services (traditional) — not on modern,
knowledge-intensive services

KEY: Key concern: India's globally competitive IT sector is NOT embedded in its
manufacturing exports. IT exports are largely standalone (intra-services). This is
indicative of problems: low scale, fragmentation, poor infrastructure, and regulatory
barriers in manufacturing preventing IT adoption. India diverges from Make in India's
stated goals.

3.11 FDI in India's Services Sector

• Share of services in FDI inflows rose from 10.5% (1990-94) → 28.3% (1995-99); CAGR 36%
between 1992/93 and 2001/02
• 2016-17: Services accounted for 62% of FDI inflows ($22 bn) vs manufacturing FDI of $11.9
bn
• Provisional 2017-18 estimate: 75% or $28 bn
• Cumulative FDI into services (Jan 2000 - Mar 2018): $222.9 bn = roughly 60% of total
cumulative FDI
• Services FDI CAGR (2013/14-2017/18): 28.4% vs manufacturing FDI CAGR of only 2.1%
• Composition of services FDI (2016-17, Figure 29.11a): Communication (largest), retail &
wholesale trade, financial services, computer services, business services, construction
• Key significant FDI approvals: Japan for bullet train (construction); Amazon India (logistics);
Google (broadband)

Outward FDI from India

• Services share of India's approved outward FDI: 32.9% (1975-90) → 59.2% (1991-2001) →
53% (2000-14)
• Most outward FDI in IT-IT enabled services (2000-14)
• Main outward destinations: UAE, Singapore, Mauritius, US, UK
• Indian IT firms set up overseas R&D centres for blockchain, AI, cloud computing and
acquisitions in analytics and BPO

3.12 Liberalisation of Services in India

• Most significant feature: Elimination of government monopoly and establishment of
INDEPENDENT REGULATORS in key services
○ Telecom: 100% foreign ownership allowed; government monopoly in long distance and
internet eliminated; TRAI established
○ Insurance: 49% FDI automatic route; IRDAI established
○ Banking: Foreign equity up to 74% in private banks (automatic for first 49%, government
route beyond); up to 20% in public sector banks
• Services on automatic approval route: Construction, hospitals, wholesale cash-and-carry,
computer services, housing
• Recent FDI policy amendments: Construction development, real estate, civil aviation, single
& multi-brand retail, e-commerce, news broadcasting — more liberal conditions

Challenges in Liberalisation
 • Retail: Only partially open to multi-brand FDI — opposition from traders, concerns over
displacement of small retailers
• Legal services: Closed to foreign firms due to Bar Council resistance
• Higher education: Foreign Education Providers Bill — concerns over standards, equivalence,
consumer protection, impact on public institutions
• Overall: Liberalisation debate centres on equity-efficiency trade-offs and impact on domestic
players

3.13 India's Multilateral & Regional Engagements in Services

WTO/GATS
• India: pro-active in services negotiations under GATS, pushing Mode 1 and Mode 4 interests
• 2004: India submitted joint proposal on 'Service Provider Visa' under GATS (with other
developing countries) — to expand market access for intra-company transferees, contractual
service suppliers, independent professionals
• 2004: Joint proposal on Mode 1 market access in outsourcing services
• Doha Round: India received pressure to bind Mode 3 (commercial presence) in banking,
insurance, telecom; India largely took quid pro quo approach — offered Mode 3 in return for
Mode 1 & 4 access
• India's August 2005 revised offer: Improved Mode 3 commitments — but Doha Round
stalled
• TISA (Trade in Services Agreement): Plurilateral agreement among 23 countries, >70% of
global services trade — India did NOT join
• 2017: India submitted draft TFS (Trade Facilitation in Services) text to address behind-the-
border barriers — later moderated

FTAs (Bilateral/Regional)
• India-Singapore CECA (2005) — first major bilateral agreement including services
• India-Korea CEPA (2010); India-Japan CEPA (2011); India-Malaysia CECA (2011)
• ASEAN-India FTA expanded to include services and investment (2015)
• Negotiations underway with EU, Australia
• RCEP (ASEAN + Japan, Korea, Australia, NZ, China): India withdrew in 2019
• India's FTA strategy: Offer goods concessions in return for services and Mode 4 access
• Challenge: Despite commitments, FTAs have NOT delivered effective market access —
behind-the-border barriers remain; no MRAs in professional services; FTA evidence
suggests limited gains for India

★ EXAM TIP: India's trade negotiation position: OFFENSIVE in Mode 1 (IT/BPO) and
Mode 4 (movement of professionals); DEFENSIVE in Mode 3 (commercial presence)
especially retail, legal, and education. DU may ask you to describe India's 'offensive and
defensive interests' in GATS.

3.14 COVID-19 and India's Services Sector

• IHS Markit India Services PMI: Crashed to 5.4 (April 2020) from 49.3 (March 2020);
recovered to only 12.6 in May 2020
• Foreign demand index fell to unprecedented 0 in April 2020
• World Bank projection: India's GDP to contract 3.2% in 2020-21
 • Most affected: Aviation (expected $3.6 bn loss in Q1 2020-21); restaurants (40-50% revenue
drop); travel & hospitality (Rs 5 trillion revenue loss, 35-40 million potential job cuts per Care
Ratings)
• Also affected: IT/BPO, business support, marketing — slowdown in economic activity
reducing discretionary spending
• India's services exports: -8.9%; services imports: -18.4% (April 2020 vs previous year)

New Opportunities Post-Covid

• IT as 'black swan' moment: Covid-19 accelerating digital transformation; outsourcing shifting
to digital services; more offshoring due to financial pressures of companies globally
• Remote working models embedding offshore delivery in service contracts — lowers costs,
expands talent pool for Indian IT
• Healthcare sector: Clinical trials, diagnostics, health data analytics, telehealth — growing
demand; Mode 4 opportunities for doctors, nurses, paramedical workers
• Automation and AI: May reduce dependence on human labour; Indian companies must
become resilient and flexible
• Government schemes relevant: Champion Services, Startup India, AatmaNirbhar package
• Key requirement: Personal Data Protection Bill — must be enacted to meet EU adequacy
test for cross-border data flows

3.15 Summary & Conclusions (Rupa Chanda)

• Services sector has OUTPERFORMED all other sectors of Indian economy since 1991
• IT-IT enabled services and business services = most important segments in India's global
services presence
• Significant liberalisation has occurred, though fraught with political economy challenges
(retail, legal, education remain contested)
• India is a key proponent of GATS; pushing cross-border mobility and unrestricted data flows
— but limited progress under WTO
• Three key concerns about the NATURE of India's services growth:
○ (1) Services growth has NOT created commensurate employment — low employment
elasticity, unable to absorb surplus agricultural labour
○ (2) Sector depends on exports of skill-based services — limited ability to draw surplus labour
unless it becomes more broad-based
○ (3) Weak value-added linkages with manufacturing — services remain largely standalone,
not embedded in manufacturing
• Looking ahead: Need broad-based growth within services + greater services-manufacturing
integration for balanced, employment-oriented, productivity-enhancing growth
SYNTHESIS & EXAM PREPARATION

4.1 Cross-Article Comparison Table

Dimension Chakraborty & Mukherjee (GVC) Rupa Chanda
Nagaraj (Services)
Core finding No deindustrialisation; India growing in GVC; Services outperforms
but industrial most in IT & textiles but low employment &
stagnation weak mfg linkage
Manufacturing Share ~15-27% of Backward GVC 25- IT not embedded in mfg
GDP; stable; consumer 45%; value content 65- exports; traditional
goods dominant 78%; mainly assembler services dominate mfg
linkage
IT/Services Silver lining post-1991; Forward participation in CAGR 8.7%+
replaced manufacturing IT rising (24% → 36%) consistently; IT-BPO
as engine $152.6 bn; RCA
declining
Key problem Structural Participation declining Low employment
transformation stalled; 2010-15; low value- elasticity; weak mfg
Kaldor externalities lost added in manufactures linkage; Mode 4 under
threat
Comparison with India lagged; no China moved up faster China's services exports
China regional reallocation in GVC; India below CAGR at comparable
post-1991 Taiwan, Korea, China pace (9.6% in 2005-17)
Policy prescription State-led Infrastructure, labour Services-mfg
industrialisation reform, WTO integration; Mode 4
(Nagaraj 2017) facilitation, FTAs access; data protection;
digital transformation

4.2 Likely DU Exam Questions with Answer Pointers

Q1: Has India deindustrialised prematurely? Critically examine. [15-20 marks]

• Define deindustrialisation — BOTH output AND employment criteria
• Distinguish premature (LDC, pre-industrial) vs natural (post-industrial, normal)
• Cite Palma (2014), Rodrik (2015), Kaldor's First Law
• Evidence against deindustrialisation: NSS 10.5% → 12.6%; Census 9.5% → 10.1%; state
rankings stable (r=0.99); 70.7% districts gained employment share
• Evidence of stagnation: GDP share flat ~15-27%; no reallocation; consumer goods rising,
capital goods declining; import dependence rising
• Comparison with China: No spatial reallocation in India; China's manufacturing localisation
shifted post-1978
• Conclusion: Stagnation, not deindustrialisation; India at crossroads between Asian path and
Latin American path

Q2: Analyse India's role in Global Value Chains. [10-15 marks]

• Define GVC, backward/forward participation, smile curve
• India's export structure: manufacturing 55%, 10 sectors = 76%; IT rising 15% to 19%
• Backward participation higher in manufacturing (petroleum highest at 47%); forward higher
in IT
 • India's contribution to foreign final demand: textiles stable at 20%, IT rose 24% → 36%
• Manufacturing GVC participation rose more than services (fragmentation scope)
• Concerns: Decline 2010-15; low value-added in capital goods; not yet comparable to East
Asian economies

Q3: Evaluate the role of India's services sector in economic development. [15-20 marks]
• Growth: CAGR 6.2% → 7.3% → 8.7%; always above GDP growth
• Trade: Exports $2.9 bn (1980) → $183.9 bn (2017); share 18.1% → 37.7%; slight surplus
• IT-BPO: $152.6 bn; 52% global IT market; 38% BPO; 3.7 mn jobs; US = 62% market
• Competitiveness: RCA in services rising but declining within IT; transport RCA <1
• Challenges: Low employment elasticity (28.7% employment vs >60% output); weak mfg
linkage; IT barely embedded in manufacturing exports (only 1%)
• Liberalisation: TRAI, IRDAI, banking reforms; but retail, legal, higher education contested
• International: GATS advocate for Mode 1 & 4; FTAs with Singapore, Korea, Japan, ASEAN;
India pulled out of RCEP (2019)
• Covid: PMI crash to 5.4; opportunities in digital transformation, healthcare
• Sustainability: Needs mfg integration, broader employment, personal data protection

Q4: What are the challenges to India's services-led growth model? [10 marks]
• Low employment elasticity — cannot absorb surplus agricultural labour
• Skill-intensive nature — growth not broad-based
• Weak services-manufacturing linkage — IT not embedded in manufacturing
• RCA declining in IT and computer services
• Mode 4 barriers: H1B restrictions, EU GDPR, no MRAs
• Data protection challenges for cross-border data flows
• Automation threat to IT-BPO jobs
• FTA commitments not translating to effective market access

4.3 Master Statistics Table

Fact Number
India's manufacturing share in GDP (2012-13) ~15% (manufacturing); ~27%
(industry)
India's global manufacturing rank (2017) 4th (2.5% of world industrial
output)
China's global manufacturing share (2017) ~25%
NSS manufacturing employment (1993-94 → 2011-12) 10.5% → 12.6%
Census manufacturing employment (1991 → 2011) 9.5% → 10.1%
Districts gaining mfg employment share (1991-2011) 256/362 = 70.7%
State rank correlation for mfg employment (1981-2011) 0.99 (highly stable)
Consumer goods share of mfg employment (1991 → 2011) 58% → 66%
Capital + intermediate goods weight in IIP (1993-94 → 2011-12) 35.5% → 25.4%
India's IT contribution to foreign final demand (2005 → 2016) 24% → 36%
India's total GVC backward participation (2015) ~19% of gross exports
Services CAGR — India vs GDP (2001-16) 8.71% vs 7.33%
Fact Number
Services exports CAGR (1995-2017) 11.1% — highest among major
countries
Share of services in India's total exports (1995 → 2017) 18.1% → 37.7%
India's share in world services exports (2017) 3.44%
IT-BPO sector revenue (2016-17) $152.6 bn (~8% of GDP)
IT-BPO direct employment 3.7 million
India's global IT services market share 52%
India's global BPO sourcing market share 38%
US market share of IT-BPO exports ~62%
India's H1B petitions share (2007-2017) 64% of all filings
Services share of FDI inflows (2016-17) ~62% ($22 bn)
Services GDP share (1980 → 2016) 38.3% → 61.4%
Services employment share (India, 2014) 28.7% — lowest among major
services producers
IT value-added in manufacturing exports (2015) barely 1% — negligible
integration
India's Covid-19 GDP contraction projection (2020-21) 3.2% (World Bank)
India Services PMI (April 2020 — Covid crash) 5.4 (from 49.3 in March 2020)

4.4 Key Authors & Citations for DU Exam

• Chakraborty & Nagaraj (2020) — 'Has India Deindustrialised Prematurely?' EPW Vol. LV No.
48
• Nagaraj, R (2013) — 'India's Dream Run 2003-08'; (2015) — 'Trends and Patterns in
Industrial Growth'; (2017) — state-led industrialisation argument
• Rodrik, Dani (2015) — 'Premature Deindustrialisation', School of Social Science Princeton
— double whammy thesis
• Palma, Jose Gabriel (2014) — De-industrialisation, Premature De-industrialisation and the
Dutch Disease
• Kaldor, Nicholas — First Law of Economic Growth (manufacturing as engine via spillovers,
scale)
• Evans (1979); Cardoso & Faletto (1979) — Latin American dependency theory of
deindustrialisation
• Rowthorn & Wells (1987); Tregenna (2011) — deindustrialisation and trade
• Chaudhuri (2015) — Import liberalisation and premature deindustrialisation; rising import
dependence in capital goods
• Mukherjee, Deeparghya (2021) — 'Is India Moving Up the GVC?' EPW Vol. LVI No. 20;
OECD-TiVA data 2018
• Banga (2017) — GVC linkages on Indian employment (CEP Working Paper, Zurich)
• Goldar et al (2017) — domestic value addition and foreign content in India's exports 1995-
2011 (ECONSTROR WP)
• Shepherd (2017) — openness and innovation, firm-level evidence from India
• Rupa Chanda (2020) — Chapter 29 in Uma Kapila (Ed.), 'Indian Economy Since
Independence'
• UNCTAD TiVA Database; OECD December 2018 release — data source for GVC analysis
• NASSCOM (2017, 2018) — IT-BPO sector data
• AT Kearney (2017) — Offshore Location Attractiveness Index; India ranked highest

Complete Notes — All 50 Pages Covered | Shri Aurobindo College, University of Delhi