Model Answer
0 min readIntroduction
Economic liberalisation, initiated in India in 1991, was largely conceived as a strategy to invigorate the industrial sector by dismantling the ‘License Raj’ and promoting private investment. However, the Indian economic narrative post-liberalisation has been significantly shaped by the phenomenal growth of the services sector. While industry witnessed moderate expansion, it was the services sector – encompassing IT, finance, tourism, and business services – that propelled India’s economic growth, contributing significantly to GDP and employment. This unexpected outcome necessitates an examination of the factors that facilitated this sectoral shift.
The Initial Focus on Industrial Liberalisation (1991-Early 2000s)
The initial phase of economic reforms (1991-1992) primarily focused on industrial sector liberalisation. Key measures included:
- Dereservation of industries from the public sector.
- Abolition of industrial licensing (except for a few sectors).
- Relaxation of restrictions on foreign investment (FDI).
- Reduction in import tariffs.
However, the impact on industrial growth was initially slow due to infrastructural bottlenecks, rigid labour laws, and global economic conditions. The industrial sector’s growth rate remained relatively modest during this period.
The Rise of the Services Sector
Concurrently, the services sector began to exhibit remarkable growth, driven by several factors:
- Global Trends: The late 20th and early 21st centuries witnessed a global shift towards a knowledge-based economy, with increasing demand for IT and business process outsourcing (BPO) services.
- India’s Comparative Advantage: India possessed a large pool of skilled English-speaking manpower at relatively low cost, making it an attractive destination for outsourcing.
- Policy Support: Government policies promoting IT and software exports, such as the establishment of Software Technology Parks (STPs) in 1991, played a crucial role.
- Technological Advancements: The proliferation of the internet and telecommunications infrastructure facilitated the growth of IT-enabled services.
Sectoral Contribution to GDP: A Shifting Landscape
The contribution of different sectors to India’s GDP reveals the changing economic landscape:
| Sector | 1990-91 (%) | 2000-01 (%) | 2010-11 (%) | 2022-23 (Provisional) (%) |
|---|---|---|---|---|
| Agriculture | 30.7 | 22.1 | 15.7 | 18.3 |
| Industry | 24.6 | 27.6 | 27.6 | 24.6 |
| Services | 44.7 | 50.3 | 56.7 | 58.0 |
Source: National Statistical Office (NSO), Government of India (Data as of knowledge cutoff - 2023)
As the table illustrates, the services sector’s contribution to GDP steadily increased from 44.7% in 1990-91 to 58.0% in 2022-23, surpassing both agriculture and industry. This growth was particularly pronounced in the IT and financial services sub-sectors.
Sub-sectors Driving Growth
- Information Technology (IT): The IT sector, including software development, IT services, and BPO, became a major export earner and employment generator.
- Financial Services: The banking, insurance, and capital markets sectors experienced significant growth due to liberalisation and financial sector reforms.
- Tourism and Hospitality: Increased disposable incomes and improved connectivity led to a rise in tourism, boosting the hospitality sector.
- Business Services: Areas like consulting, market research, and logistics also witnessed substantial growth.
Example: The success of companies like Infosys, TCS, and Wipro in the IT sector exemplifies the growth potential unlocked by liberalisation and global demand.
Conclusion
In conclusion, while economic liberalisation in India was initially aimed at revitalising the industrial sector, the services sector emerged as the primary engine of economic growth. This was driven by a confluence of global trends, India’s comparative advantages, supportive policies, and technological advancements. The shift highlights the dynamic nature of economic development and the importance of adapting to changing global landscapes. Sustaining this growth requires continued investment in education, infrastructure, and skill development to maintain India’s competitiveness in the global services market.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.