The observations made in this blog refer to the following illustrations:-
Gross State Domestic Product (GSDP) by Industry of Origin (at 2004-05 Prices) for a set of selected states given in the blog posts titled:-
In the above mentioned blog posts an attempt has been made to choose good mix of states (few relatively developed states and few not so developed states) for illustrating changes to GSDP from 2004-05 to 2013-2014 (P). The data for 2013-14 are given as projected values in data source. Changing composition of domestic produce may be one of the ways to develop an initial understand on any economy.
One way to look at the structure of an economy is to compare the shares of its three main sectors – agriculture, industry and services – in the country’s total output and employment. Initially agriculture in developing economies is the most important sector. But as the income per capita rises, agriculture loses its primacy, giving way first to rise in the industrial sector, then to rise in service sector. The two consecutive shifts are called industrialization and post industrialization. All growing economies are likely to go through these stages, which can be explained by structural changes in consumer demand and in relative labour productivity of the three main economic sectors – Growth of the Service Sector, World Bank
A. Observations on GSDP Data:
1. Changes in GSDP of the states during the period 2004 to 2014 suggest that increase in production of Industry sector and Services sector have outperformed increase in production of Agriculture and Allied sector. Thus, percent contribution on Agriculture and Allied sector to the gross domestic production of the states has reduced over the years. While, this has been a general trend across the states, there are a couple of exceptions. GSDP of Jharkhan (JK) has contribution from Agriculture and Allied sector as 15% in the year 2014, which is exactly same in terms of percentage contribution as was in the year 2004-05. GSDP of Madhya Pradesh (MP) shows 1% increase in contribution from Agriculture and Allied sector in the year 2014 as compared to that of the year 2004-05. In MP, a surge in agricultural produce in last three years accounts for the marginal increment in contribution to GSDP. Fisher-Clark Theory of stages of development suggest that as industrialization takes place in an economy, the share of primary or agriculture sector in total output and employment gradually diminishes, while that of the secondary or manufacturing sector increases. This popular theory has been re-interpreted and extended by many economists to explain empirical observations related to increase in contribution from service sector during post-industrialization phase in advanced economies and also in under developed economies.
2. The process of structural change in recent decades has turned developed economies into services economies.... Traditional ideas associate services growth with both their lower apparent relative productivity and higher levels of income. Although there is some validity to these theories, current evidences and recent data reveal other underlying elements that act as driving forces on services: changes in production factor, changes in productive systems, changes in market and changes in institutional system. These changes are related to factors such as information and communications society, globalization and demographical and territorial changes. Among these factors some stand out: integration between goods and services, which has increased the intermediate demand for business services, the inter-relation between new technologies, innovation and services; the importance of human capital and qualifications (particularly in advanced services) and specialization; the role of international trade and investment; and finally, though it is regulations and institutional changes, the role of the state in economy. Moreover, the influence of statistical factors is, to a certain extent present in the advances experienced by services as a sector. Large enterprises traditionally considered manufacturers became tertiary companies, when their production of services exceeded a certain threshold. (Growth and Productivity in Services Sector: The State of Art, 2010 Working Paper, Andrez Maroto-Sanchez, ISSN: 1139-6148)
3. Growth in services has led to higher use of services in manufacturing sector (it may be noted that Manufacturing and Mining sectors are clubbed together as Industry sector in calculation of GSDP). This has in turn led to higher output and productivity growth in the manufacturing sector, which implies that the service sector will be able to generate its own demand in the future. (2005, Banga, Critical Issues in India’s Service Led Growth)
4. WTO ranked India as 8th largest exporter (3.3% of world exports) and 7th largest importer (3.1% of the world imports), in commercial services trade. Service sector is the largest and fastest growing sector in the Indian economy making as high as 59% contribution in total GDP of India. Services export is one of the key thrust areas of the Government of India. Services exports have recorded about seven fold increases in ten years from US$ 20.76 billion in 2002-2003 to US$ 142.325 billion in 2011-2012 and US$ 105.84 billion up to December, 2013. (SEPC, Government of India)
5. Data on Share and Growth of Services Sector in 2012-13 (TABLE - 2) suggest a relatively proportionate share of all the states with a varying percentage growth for the given year. Now, this may hold true in general, but when it comes to specific services a pattern may be observed. For example, one such area of service is Computer Software / Services (refer TABLE -1 of blog post - Sharing Data on State Wise Export of Computer Software and Services compiled by ESC). If we look at the data in a sub-section of ‘Exported Services’ under Computer Software / Services the data, it reveals a region wise disparity in the export of computer software / services is skewed in favour of South and West regions of India. The contribution from East region has consistently been below 4% (in last three years). Assuming the same economic legislation for exports, this disparity is suggestive of existence of regional supremacy on production of international quality computer software services. In this case, however, one possible explanation could be presence of relative matured Economic Clusters in some regions in comparison to other regions.
6. In general, among the states taken for consideration, the surge in contribution to GSDP from Service sector is supported with consistent incremental increase in contribution from Industry sector. Analysis of graphs in the blog suggest that in the recent past, the synergic benefits of increased service sector production on industrial production appears to be more pronounced for developing states like Bihar (BR), Odisha (ODS) and Jharkhand (JK) and less pronounced for relatively developed states of Andhra Pradesh (AP) and Karnataka (KNK). One of the possible reasons for relatively less pronounced correlation in bringing synergic benefits of increased production in services sector to corresponding increase in industrial production could be attributed to higher percentage of export oriented services produced by relatively developed states like AP and Karnataka. This phenomenon could be explained through example of ICT (Information and Communications Technology) Services (a sub-sector within services sector also called ‘Computer Software / Services’). A very few of the states in India have well established clusters dedicated to export ICT Services. Many of these clusters are located within SEZs (Special Economic Zones) and are extremely productive. Looking into distribution of these SEZs in federal states of India, suggest that these clusters are major contributors to share of Indian exports in the areas of computer software services (Refer Table – 1, Table - 2 and Table – 4 in the link). When production of services is calculated for the states in which these clusters are located, a significant contribution to the calculation comes from the services produced locally and exported abroad. Therefore, while considering a correlation between growths in services sector vis-a-vis industrial sector of the state under consideration, exported value of software services should be discounted. This is not happening with the data being used for this analysis (where Services produced are not being segregated on the basis of whether the produce were sold for domestic use or were exported). Therefore, in such cases it becomes important to understand that in what way the services produced in Indian clusters are being fed back to local industries. In this regards, one more important point to consider could be the markets of local industries. Local industries may like to take strategic benefits of enabling services (like (say) software services, financial services) only if they are competing in a competitive market. Thus, it may also be useful to study the markets of the major industrial products manufactured locally.
7. Further observation on Comparative GSDP of the selected states from 2004 to 2014 reveals that for the year 2004-05, only two states have got higher contribution from Industry sector as compared to Services sector namely Chhattisgarh (CG) and Jharkhand (JK). Rest all the states have higher contribution of Services sector in GSDP in comparison to contribution from Industry sector. On considering, the structure of an economy based on comparative share of three main sectors – agriculture, industry and services in GDP (or GSDP in this case), it appears as if phenomenon of industrialization and post industrialization are going-on simultaneously in Indian states. In 2004-05, CG and JK were inclined towards Industrialization phase of the economic development. All other states (in the sample) had already begun journey towards Post Industrialization. In JK, Services sector produce overtook Industry produce around year 2008-09. The same happened little late in Chhattisgarh sometime around the year 2011-12. In comparing these two states over the given period, JK seems to have better synergy in its industrial and services production and it has growth much faster with steeper curves in comparison to CG. This could be due to earlier transition of JK towards Post Industrialization phase in comparison to CG. A deeper understanding of industrial dynamics among these two states and comparison with other similar states (like say Bihar (BR) and Odisha (ODS)) will be required to understand these two states.
8. For the sake of analysis on selected sample of states, all the values for Services sector produce are put together in one graph in the blog-post (Please refer Graph – 1 and Graph - 4). All the states have recorded consistent increase in Services sector produce. Jammu & Kashmir (J&K), CG, JK, ODS, BR and MP could be clubbed in one category (say Category A). All these states have Service sector produce in the range of 10,000 – around 50,000 crore INR in the year 2004-05. The other category (say Category B) could be of those states having much more than 50,000 crore INR in the year 2004-05. Generally speaking Category A states have doubled their produce in 2013-14 (P) from those of their respective levels in 2004-05 and Category B states have tripled their produce during the same span of time. If we rank all the states on the basis of production in services sector in the year 2004-05 and again in the year 2013-14 (P), all the states will retain their respective positions in ten years, except for Delhi (DL) and KNK. DL took over KNK in the year 2008-09. So their respective rankings will get exchanged in 2013-14 (P) rankings in comparison to that in the year 2004-05.
9. Service produced by ODS (falling in Category A) in 2014-15 (P) is marginally ahead of services produced by Kerala (falling in category B) in 2004-05. Thus, in a way ODS could be said to be running ten year behind Kerala (KL) in terms of production of services. Similarly, values in the year 2013-14 (P) for MP and BR are very close that of the value of AP in 2004-05. Now, from this point onwards, the growth trajectory taken by these new states entering Category B will be interesting to look at. However, a closer look at the journey of service sector in last ten years for KL and AP could help ODS, MP and BR in some ways to shape future roadmap.
10. It is evident that for the states in Category A (this includes Chhattisgarh) are consistently lagging behind in Service sector produce from those in Category B. The same thing holds true to the states within Category A. The states on the top are consistently consolidating their respective positions year after year in terms of Service production. And it appears as if this trend may continue until states on the top start retarding (may be after reaching a threshold from where it may not be possible to continue with same pace of growth).
11. Let us observe Industrial production patternsregistered by these states during last 10 years (Graph - 2 and Graph - 5). In this case, the picture looks much more competitive. In this case, it may be reasonable to group those having Industrial produce less than 35,000 crore INR in 2004-05 in Group A (this will include MP, KL, ODS, JK, BR, CG, DL, J&K), while those more than this value be in Group B (Gujrat (GJ), TN, AP, KNK). While Group B states are analogues to Category B in terms of general trends of growth. However, these states are producing less value in terms of INR as compared to their respective produce in Services sector.
12. In 2013-14 (P) MP, KL, ODS are almost there at the same value of production as AP and KNK were in 2004-05 in terms of Industrial produce. JK looks to be closing towards 50,000 INR mark and BR is catching up aggressively (one must notice that BR improved its produce by around four times in 10 years). DL has been the only state, which looks to be getting stagnated registering just a marginal increment to its production value in 2004-05 throughout the journey of 10 years.
13. CG was going good until 2008-09. Thereafter, it stagnated till 2011-12. From this point onwards, it appears to be going ahead with the same elevation as JK. Comparative assessment based on Industrial production (for entire span of 10 years) suggests CG may not have done well. ODS, JK and KL, were at comparable levels in earlier years have gone far ahead during the period. BR was approximately half in value of production to CG in 2004-05 and has gone ahead in 2013-14.
14. In the graphs (Graph - 3 and Graph - 6) showing ‘Agriculture and Allied’ (to be referred to as Agriculture in this document) sector DL is at the bottom and this is very well on expected (the state does not have significant land available for cultivation) lines. This is followed by J&K, which has difficult geographical terrain. Agriculture production for these two states seems to have plateaued around constant values. AP has out-performed all other states and is at the top. MP was going neck and neck with GJ and KNK until 2010-11 but in last three years it has registered exceptional growth. TN and BR have been close competitors and so have CG and JK been. KL was ahead of ODS till 2008-09 and things have reversed after that.
15. Agriculture produce may continue to increase but its significance in GSDP is expected to keep on decreasing. However, food security is a critical issue for India. Moreover, this is the only sector whichis still giving employment to around half the working population of India (Graph - 7).
16. Data for Per Capita Net State Domestic Product (Per Capita) for the period 2004-05 to 2013-14 shows that CG has always been below the National Per Capita in terms of value of Per Capita (TABLE -1). For example for the year 2012-13, 16 States / UTs were found higher Per Capita than the National Per Capita Value of 67839 INR and 15 States/UTs were found to have lower per Capita than the National Per Capita. For this year amongst States / UTs, CG was ranked at 24th position. In comparison to CG, following states were found to have lower Per Capita ODS, MP, JK and BR, while J&K was marginally above CG and KNK, AP, GJ, TN and DL were having higher values of Per Capita (in reference to values for year 2012-13). The relative positions of the states have been found to be more or less same for entire 10 years period from 2004-05 to 2013-14.
17. CG has been in 10th position in terms of Rate of increase of Per Capita for the year 2012-13 (TABLE - 4). And the general trend for rate of increase in Per Capita looks to be in favour of lesser developed states (BR, MP, ODS, J&K, CG and JK are at relatively higher positions in comparison to KNK, AP, KL, GJ and TN).
18. It is observed that even though CG has slightly higher Per Capita with respect to some of the closely comparable developing states, its Industrial production and its production of Services need to catch-up with consistent performances shown by these comparable developing states in recent past.
1. Chapter 9: Growth of Service Sector, Development Education program by World Bank Website - -http://www.worldbank.org/depweb/beyond/beyondco/beg_09.pdf
2. CRITICAL ISSUES IN INDIA’S SERVICE-LED GROWTH, WORKING PAPER NO. 171, Rashmi Banga, OCTOBER 2005, INDIAN COUNCIL FOR RESEARCH ON INTERNATIONAL ECONOMIC RELATIONS - http://www.icrier.org/pdf/WP171.pdf
3. Small Business and Entrepreneurship Council (SBE Council) is a 501c (4) advocacy, research, training and networking organization dedicated to protecting small business and promoting entrepreneurship; Website - http://www.sbecouncil.org/about-us/facts-and-data/
4. SEPC, an Export Promotion Council set by Ministry of Commerce & Industry, Government of India; Website - http://www.servicesepc.org/services-export-data/
5. Growth and Productivity in Services Sector: The State of Art, 2010 Working Paper, Andrez Maroto-Sanchez, ISSN: 1139-6148; Website - http://www2.uah.es/iaes/publicaciones/DT_07_10.pdf
6. An evaluation of SME development in Malaysia, 2006, Saleh and Ndubisi; Website - http://www.geasiapacifico.org/documents/IBRP1.pdf
7. Article on Forbes website, 21 MAY 2012 on work of Professor Yijiang Wang of the Cheung Kong Graduate School of Business in Beijing; Website - http://www.forbes.com/sites/jackperkowski/2012/05/21/china-in-transition/
8. OECD (2012), "Internationalisation of SMEs (Dimension 10): Encourage and support SMEs to benefit from the growth of markets (Small Business Act Principle 10)", in OECD/, SME Policy Index: Eastern Partner Countries 2012: Progress in the Implementation of the Small Business Act for Europe, OECD Publishing. DOI: 10.1787/9789264178847-17-en; Website - http://www.oecd-ilibrary.org/finance-and-investment/sme-policy-index-eastern-partner-countries-2012/internationalisation-of-smes-dimension-10_9789264178847-17-en
9. Per Capita Net State Domestic Product at Current Prices for a set of selected states given in the blog post titled:-
Place of Chhattisgarh in All India Census of MSME: Registered Sector:-
11 State wise distribution of SEZs in India http://www.sezindia.nic.in/writereaddata/pdf/listofoperationalsezs.pdf