Friday, October 30, 2015

Industrial(Manufacturing) Sector vs Services Sector in India Advantages and Disadvantages

India's industrial capabilities are not upto the mark as it shifted directly from agricultural economy system to services economy system. The rise of industrial/manufacturing sector in India has been not in accordance with the capabilities that India possesses.

Some reasons of why India has not been able to develop itself into an Industrial based economy similar to what USA and CHINA have done - 

1. Till 1991, the Indian economy was a closed economy i.e. no LPG (Liberalisation Privatisation and Globalisation) was there, so foreign capital was not invested in India in adequate amount for setting up industrial base.

2. Lack of skilled manpower in the country which can be employed in the manufacturing industry.

3. Before LPG(Liberalisation, Privatisation and Globalisation), Government made investments in industrial sector but those were without appropriate technology and were limited in scope.

4. Inspector Raj deterred small scale entrepreneurs from setting up their own manufacturing business. Industrial licensing system before 1991 made it almost impossible for small and medium scale entrepreneurs to start their venture.

5. Even after, Liberalisation, Privatisation and Globalisation(LPG) the process of opening up the economy had many loopholes. Foreign and Indian investors faced many difficulties like cumbersome regulatory provisions, inadequate infrastructure, environment hurdles etc. while setting up industrial bases in India. Some examples include POSCO steel plant of South Korea, Kudankulam Nuclear Power Plant of Russia and many others.

In view of these difficulties for manufacturing sector, services sector had many contextual advantages which ensured its rapid growth in India -

1. Services sector is not investment intensive.

2. The clearance procedure in services sector is relatively less cumbersome. Also the public reaction against services business is mild whereas the same against any manufacturing business can be violent and criticizing as the setting up of an industry can have its own social and environmental repercussions.

3. Skill requirement in services sector is relatively less and easily available in Indian market.

4. India due to its huge population has a ready made market so as soon as a service business is set up profit starts flowing which is not in the case of an industrial business. Also the time taken in the establishment of a service sector business is much less than that required for setting up of an manufacturing industry.

But if we observe the global scenario we can easily see that the countries that are developed today have followed the pattern of shifting from Agriculture to Industry to Services. The most important reason of why a country should have an efficient industrial base is that it ensures least dependence on imports from foreign countries and also boosts employment inside the country and controls inflation. We have already read about anti dumping duty being imposed by India on Chinese products because China has a superior manufacturing ability which India miserably lacks. So if India has to become developed in the coming 20 to 30 years it has to develop its industrial/manufacturing base. The importance and utility of industrial sector cannot be compensated off by the presence of services sector.

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