Services-Led Industrialization in India: Prospects and Challenges

1. Introduction India has become one of the fastest growing economies in the world over the last two decades, arguably aided in this performance by economic reforms. One of the striking aspects of India's recent growth has been the dynamism of the service sector, particularly information technology (IT) and IT enabled services, while, in contrast, manufacturing has been less robust. The contribution of the service sector was particularly striking in the 1990s, which not only saw rapid growth (averaging over 6 percent since 1992), but also a higher contribution – over 60 percent (Hansda, 2001) – from services. This growth trajectory, which has been termed " services-led " industrialization, or even a " services revolution " (Gordon and Gupta, 2004) seems to stand out from the previous experience of economic development, which followed the traditional path from agriculture to manufacturing, with services becoming important at a later stage. In India, in contrast, there was a sharp increase in the share of services in GDP, from 37% in 1980 to 49% in 2002,