As mentioned in the World Bank’s report ‘India Development Update’, India has achieved the status of the fastest growing economy, having GDP growth at 8.2 per cent over 2023/24. After attaining this status, India has already surpassed the growth record of China, which, by initiating a ‘dual circulation’ strategy, no longer aspires to have an export-oriented model of high-growth.
The new status achieved by India with the highest growth rate among nations demands attention, not only to commend the achievement but also to explore, first, the contributing aspects making for such high growth rate, and second, to assess the impact on the economy as may follow from such performance.
Growth of GDP in India was made possible with contributions from the three major sectors of the economy, broadly spelt out as agriculture, industry (including mining and manufacturing) and services. Of the three, the contribution of services, over the last two decades, has been consistently above those originating from agriculture and industry.
Greater share of services in India’s GDP
The share of services has been 64 per cent of the aggregate contributions to India’s GDP during 2023-24. In contrast, the respective contributions of industry and agriculture were only 22 and 14 per cent, respectively . This brings to the fore the observation that services have been the major driver of India’s current growth story!
Analysis of the same by the World Bank’s India Development Update, however, has a different tone. To cite, “Growth was boosted ….On the supply side, …. by a buoyant manufacturing sector, which grew by 9.9 per cent (in 2023-24) .”
While it remains a good signal for growth of the economy that industry is showing an upturn after a considerable time lag, a rise in the current growth rate of manufacturing (or even its rise over just a few years) cannot be taken as a rise in the share or contribution of industry to the GDP.
We thus continue to hold that despite the rise of late, in the growth rate of industry, it has been the services sector which is still continuing to have a major role in India for pushing up her GDP growth .
We now address the second aspect of the growth story. This concerns the significance (or consequence) of the high GDP growth scenario for the Indian economy over the short and also, over the medium or longer run.
The news on India having the highest growth rate in the world economy can possibly impact the country- rating for India favourably by international credit agencies. Independent of above, it is likely that investors abroad will have more interest in the Indian economy as a destination for new investments. Usually the response comes first with larger inflows of short-term capital. Long-term FDI also may respond favourably, but with a time-lag and having high GDP growth rates for some time.
As for short-term portfolio capital, those are normally parked in the stock markets of countries and used in trading of shares, real estates or commodities, by acquiring short term financial assets. Liberalisation of India’s capital market, operational since the early 1990s, and followed by successive de-regulations over time – all brought in an aura of uncertainty in the market which added further volatility in trading.
Above has brought in the need, for those trading in the market, to hedge against uncertainty by using the myriads of derivative instruments. Those entail purchases of forwards, futures, options, swaps on part of short term investors. Above transactions, arising from speculation as the major design behind, do not have their origin in the world of physical activities in the real economy. Instead those originate in the exchange of titles to claims on assets by managing uncertainty with derivatives.
Rentier capital that can be earned by the already wealthy
Transactions as above, having no real counterpart, are identified my Marx as ‘fictitious’ , generating myriads of earnings which today is classified as ‘rentier capital’. Above, however, can only be earned by those who are already in the market, and in possession of some financial wealth, which permits them access to the financial circuits. Operations in the market, achieved with positive returns with capital gains and/or higher dividends on stocks, add to the levels of their financial wealth.
In India, share of the service sector to the GDP, at current prices, has been consistently above 60 per cent in recent times. Of the share, a large fraction is provided by finance, real estate and business- processing activities. Expansions in the speculation-led financial sector in India, led by relatively higher rate of returns on financial assets under what is described as financialisation, can also be held responsible for the current decline of bank-deposits in India and the related squeeze in bank credits to help real expansion.
Data available for 2023-24 indicates a 64 per cent contribution of Services to India’s GDP. Of above, 37 per cent is accounted for by the high-value transactions in the financial ,real estate and business processing , which have no substance in real terms to the economy, and are mostly geared to speculation under uncertainty.
The other contributions from the services sector, consists of ‘trade, hotel and transport’ and ‘construction – with respective shares to the GDP at 30 and 14 per cents during same year. Employment in these activities are mostly tagged to some contractual casual status with offers of very limited benefits if any, to workers at jobs.
As mentioned by the official Periodic Labour Survey Report of 2022-23, the male as well as female workers having ‘principal usual activity’ status as ‘self-employed’, had a 30 per cent activity in non-agricultural occupations during the year. Those jobs, both as ‘self employed’ and in non-agricultural sites, obviously do not qualify as means of providing sustainable livelihoods. In a similar vein the report on the ‘State of working in India 2023 ’ from Azim Premji University mentions a 30 per cent share of services to aggregate employment in the country in an earlier year 2021-22, contrasting the 40 per cent share to the GDP during the year.
Facts produced above relating to the large shares of services contrast the respective shares of industry and agriculture to GDP in 2023-24 – at 22 and 15 per cent respectively – notwithstanding the major role of those sectors as sources of livelihood.
The current high growth rate of industry and manufacturing, mentioned in the meticulous details provided in the World Bank report on IDU, while holding on the welcome promise of industry providing a growing share of the GDP, does not capture the reality – on the current growth story in the report.
Above data on the sector-wise contribution to the GDP of India, or of the significant role of the speculation-led transactions within the services sector as well as the casual and contractualisation of jobs elsewhere as services with their minimal contribution to real output growth – draw us to the debates on ‘jobless growth’ or ‘financial boom along with stagnation in the real economy’.
We wait for changes in policies in India over coming years , to ensure less speculation and more of gainful jobs in the economy, by having a tight regulation on the content and direction of official policies in the economy.
Sunanda Sen has been a Professor in Jawaharlal Nehru University, New Delhi.