What is important for Economy: Manufacturing or Service

Supporters claim manufacturing is important because it will help create lots of jobs. Critics, like former RBI governor Raghuram Rajan, say India has lost the manufacturing race. They cite scant job creation in PLI projects, and advise focusing on services to create jobs.

But, beyond politics, manufacturing is not about jobs. Not in India, not anywhere else.

• China, the world’s largest factory, with a manufacturing output of $5 tn, employs around 100 mn workers in manufacturing – that’s less than 20% of its workforce.
• India, with a manufacturing output of $500 bn, employs 27-62 mn workers (depending on the survey one is quoting) – that’s less than 15% of workers.

So, manufacturing is not a massive jobs sink. As Indian manufacturing approaches Chinese levels of productivity, chances are that it will need fewer workers, not more. With increased automation, the employment intensity of manufacturing is on a secular decline.

For example, Bajaj Auto, India’s largest two-wheeler manufacturer, produced less than 2 mn two-wheelers in 2008-09. In 2023-24, production doubled to nearly 3.7 mn. During the same period, the total number of workers employed by Bajaj remained roughly the same.

No wonder bulk of the population, even in highly industrialised Asian countries, is employed in services. In China, despite its monster manufacturing capacities, half of its workers are employed in services.

But it’s not about jobs at all because:

• Balance trade deficits An economy high on services and limited manufacturing runs into an issue with trade deficits. Most services are non-tradable – a barber or chef, for example, can’t deliver his or her services remotely across territories. While some services can be traded, like IT, there are limits to their scalability. An economy that has limited tradables – goods and services that can be exported across large distances – typically ends up with large trade deficits.

India needs a larger manufacturing base along with flourishing service sector, and a jobs ‘debate’ is a waste of time

 👇 Please Note 👇

Thank you for reading our article!

If you don’t received industries updates, News & our daily articles

please Whatsapp your Wapp No. or V Card on 8278298592, your number will be added in our broadcasting list.