Normally countries shift from agriculture to industry and then later to services, but India shifted…

Question

Normally countries shift from agriculture to industry and then later to services, but India shifted directly from agriculture to services. What are the reasons for the huge growth of services vis-à-vis industry in the country? Can India become a developed country without a strong industrial base?

Ghissu Editorial · Accepted Answer

India cannot become a developed country on services alone, because services grew on lighter regulation, skilled talent and low capital needs while only industry can employ its mass workforce. About 283 million of India's 615 million workers were still in agriculture in 2023-24 (PLFS).

**Introduction**

India skipped the Clark-Fisher sequence of farm to factory to services: services produce 53.9% of GVA (MoSPI, 2021-24) while manufacturing has stayed near 15-17%, which Dani Rodrik calls premature deindustrialisation.

**Reasons Services Outgrew Industry in India**

1. **Regulatory asymmetry**: The licence raj and Chapter V-B of the Industrial Disputes Act 1947, which required permission to lay off workers in units of 100 or more, shackled factories, while software grew lightly regulated.
2. **Human capital edge**: English-speaking engineers, the Y2K boom and the time-zone advantage helped India's share of world services trade double from 2% in 2005 to 4.3% in 2024 (WTO).
3. **Infrastructure and capital**: Factories need costly power, land and logistics; IT services travel over fibre, need little capital and grow far more steadily than manufacturing, with a standard deviation of 1.22 against 4.20 over FY05-25 (Economic Survey 2025-26).

**Can India Develop Without a Strong Industrial Base?**

1. **Jobs for the many**: About 283 million of India's 615 million workers are still in agriculture (PLFS 2023-24), and only labour-intensive manufacturing can absorb them.
2. **East Asian evidence**: South Korea, Taiwan and China rose through export manufacturing; services-led Singapore is only a city-state.
3. **Strategic autonomy**: Imported electronics and defence gear create supply risks, hence the PLI schemes (2020) and the India Semiconductor Mission (2021).

SKETCH: flow | Industry as the Development Ladder
- Surplus farm labour
- Factory jobs
- Higher productivity
- Rising wages, demand
- Deeper services
- Developed economy

**Conclusion**

India cannot become developed on services alone; industry must employ its millions while services add value. Make in India to Make for the World is the route to Viksit Bharat 2047.

Normally countries shift from agriculture to industry and then later to services, but India shifted directly from agriculture to services. What are the reasons for the huge growth of services vis-à-vis industry in the country? Can India become a developed country without a strong industrial base?

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