Subject: Economy

India's unique development trajectory of leapfrogging from agriculture to services, bypassing the traditional manufacturing phase, presents both opportunities and challenges. The services sector contributing 55.3% to GVA in FY25 showcases India's distinctive growth story.

Reasons for Growth of Services Sector

1. Demographic and Educational Advantages

• Large pool of English-speaking, skilled workforce making India a global hub for IT and BPO services.
• Higher education institutions like IITs and IIMs producing quality professionals for service sector.

2. Policy and Economic Reforms

• Liberalization policies of 1991 opened up sectors like banking, insurance, and telecommunications.
• Digital India initiative boosting fintech, e-commerce, and digital services.
• Strong FDI inflows with services sector attracting 19% of total inflows reaching $9.35 billion.

3. Global Market Conditions

• Rising global demand for IT services and business process outsourcing.
• Cost advantage in providing services compared to developed nations.
• Make in India and Production Linked Incentive (PLI) schemes boosting manufacturing sector.

Challenges in Becoming Developed Nation Without Strong Industrial Base

1. Employment Generation

• Services sector's limited ability to absorb unskilled workforce.
• Manufacturing sector showing promise with 7.4% employment growth in FY23.

2. Economic Vulnerabilities

• Over-dependence on services making economy susceptible to global market fluctuations.
• Need for balanced growth across sectors for sustainable development.

3. Innovation and Value Addition

• Manufacturing crucial for technological innovation and value addition.
• Industrial base essential for self-reliance in critical sectors.

The path to becoming a developed nation requires a balanced approach focusing on both services and manufacturing. While India's services sector shows robust growth at 7.2% in FY25, strengthening the industrial base through initiatives like Atmanirbhar Bharat and National Manufacturing Policy remains crucial for inclusive and sustainable development. The success lies in leveraging services sector advantages while simultaneously building strong manufacturing capabilities.