Is the service sector growth enough for economic growth?Very recently the Prime Minister made a ridiculous statement that a person selling "pakoda" is also employed. This is absolute trash, as that is only service sector, self-employment, and cannot be counted as employment, by any stretch of imagination.
Yet, we should answer one question: if the service sector growth, enough for economic growth? Can this be sustained at all times? I, for one, firmly believe that the answer is a firm no.
Let me explain with several examples, as to how this cannot be the perfect engine for growth or real economic growth. Yet, sadly, most of economic growth is only service sector growth.
In Tamil Nadu, it contributes to not less than fifty percent of the entire GDP.
For instance, if you drive down the Chennai to Bangalore Highway or the Chennai to Tiruchirapalli Highway, you will see many boards simply saying "Kumbakonam Degree Coffee". Those from even the Southern States may not understand what this means. Kumbakonam is a small town, some ninety kilometeres from the bigger town called Tiruchirapalli, which also has an airport.
Kumbakonam is known for its temples, but it is also known for its brand of filter coffee. There is a process of doing it. The taste is so special, and there is an entire industry built around this special coffee. However, there is a huge amount of perfect competition, and the growth of retail outlets does not zoom at any point in time, more so, if they do not double up as food centers offering the range of South Indian food.
Ditto for the new private schools, that are now struggling to admit students from various villages. The Government schools are also facing decreasing intake. The reason: the second highest decline in birth rate, after Kerala, in India. If present trends continue, there will be a consolidation among such schools. The Arts and Science colleges and the Engineering colleges also face the music and many are simply closing down.
The only industry that flourishes is the hotel industry in cities like Chennai and Coimbatore. The latter is famous for its "bajji-bonda" shops that are dime a dozen in every locality. Priced at just Rs5/- apiece, this industry has huge turnover.
In general, the service sector grows only because India has a huge population, expected to beat China in the next few years. However, even within the service sector, there will be segmentation of a huge kind, when there is a recession. For example, during to very reasonable pricing, the "kaiyendhi bhavans" as they are called in Tamil (mobile shops offering food items at very cheap prices), are increasing everywhere in Tamil Nadu, as direct employment is restricted to contract employment.
Similarly, only the manufacturing sector can increase both the direct jobs ( including contract jobs), and also increase service sector jobs, for example, those involved in transportation. It can increase employment in ancillary industries and all this will, in turn, increase the number of schools or colleges or new shops and establishments, when the money supply becomes better.
However, for all this to happen, there should be growing demand. For example, cars. If people stop buying new cars, then there will be stagnation. Yet. this is a sunrise industry.
This cushion of secondary and tertiary sector growth is not possible in the service sector, since there will always be owner managers or immediate family members only engaged in small businesses.
Members may please share their views on this very important topic.