PROJECT

ON

Service Sector and Rural Economy of India

SUBMITTED TO:

Faculty- Economics

Prof. Dr. Hanumant Yadav

SUBMITTED BY:

Ayushma Awasthi

Roll No.- 49

Semester II

Section- B

B.A., LL.B (Hons.)

SUBMITTED ON:

Feb 25, 2013

Hidayatullah National Law University Raipur, Chhattisgarh

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TABLE OF CONTENT

1) Acknowledgement.........................................................................................032) Objectives.......................................................................................................043) Methodology..................................................................................................054) Introduction...................................................................................................065) Rural Transformation in Sectoral Incomes and Employment........................076) Revolution in Rural India...............................................................................117) The Role of Service Sector Planning..............................................................138) Conclusion......................................................................................................159) Bibliography and Webliography.....................................................................16

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ACKNOWLEDGEMENTS

I feel highly elated to work on the topic ‘Service Sector and Rural Economy of India’

because it has significant importance in the current scenario.

I express my deepest regard and gratitude for our Faculty of Economics. His consistent

supervision, constant inspiration and invaluable guidance have been of immense help in

understanding and carrying out the importance of the project report.

I would like to thank my family and friends without whose support and encouragement, this

project would not have been a reality.

I take this opportunity to also thank the University and the Vice Chancellor for providing

extensive database resources in the Library and through Internet.

Ayushma Awasthi

Roll No. - 49

Section -- B

Semester – II

B.A.-L.L.B (Hons.)

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OBJECTIVES

1) To determine the importance of rural India for the development of the economy.2) To explore the contribution of service sector in rural economy of the country.3) To determine the condition of Service Sector in Rural economy of India.4) To understand what all can be done for the development of service sector in the rural

economy.5) The need for planning for the development of service sector in rural economy.

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METHODOLOGY

The methods and ways adopted in a particular research work is a determining factor for the project. Ignoring the accuracy of the methodology can be detrimental for the researcher.

Keeping the above statements in mind, I have relied on the secondary data available in the various sites of the internet. The data I have utilized for the project work basically comprises of various articles, papers and e-books present on the internet.

It has proved really useful in the making of the project.

This project is a descriptive and analytical study which is mainly based on secondary sources like books, internet, journals, etc.

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INTRODUCTION

India’s economic growth and development to a large extent is predicated upon the development of its rural population. Currently, the majority of India’s population – around 700 million – lives in about 600,000 small villages and are engaged primarily in agriculture and related activities.1 Since a very large labour force in agriculture necessarily implies very low per capita incomes, a substantial portion of India’s current agricultural labour force has to move to non-agriculture sectors for incomes in all sectors to go up.

The Indian rural market generates about 50 per cent of the country’s gross domestic product (GDP). Rural India comprises around 840 million people, and growing income levels and greater ambitions are progressively driving demand there. In the period 2009–2012, rural consumption per person increased annually at 19 per cent, according to data from National Sample Survey Organisation (NSSO).

The consumption habits of India’s rural populace are gradually mirroring those of their urban counterparts. Due to this changing behaviour and the sheer size of the market, the hinterlands are a tremendous investment opportunity for companies. Today, premium products are penetrating the market and brands are no longer a novelty.

Even as India’s rural economy is set to surpass the size of its urban markets, the service sector is all geared up to tap the rural market. The most dynamic sector in the last decade globally has been the services sector. India is said to have out-paced a number of countries with her growth in the services sector powered by software and BPO services. A large share of the export growth in the country is also fuelled by the growth of the services sector.

With a population of 800 million people, India’s rural economy is set to reach the $425 billion mark by 2017, surpassing the size of its urban markets. The service sector, which has thus far been largely city-centric, is expected to lead this growth across the country’s villages.2

Even in the 1990s it was seen that the share of the services sector was rising. There was, however, a debate as to whether this was growth led or low productivity residual employment crowding into the sector due to poor agricultural growth and slowing down of the manufacturing sector. However, in the decade beginning 2000 India has seen a boom of economic growth and the service sector is clearly surging ahead. What concerns the economy is whether much or any of this high productivity, high income growth of the service sector is

1 Atanu Dey, Rural Infrastructure & Services Commons, Chapter No. 10.2 Ibid.

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occurring in rural India far been largely city-centric, is expected to lead this growth across the country’s villages.3

3 Supra Note 1.

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RURAL TRANSFORMATION IN SECTORAL INCOMES AND EMPLOYMENT

Economic diversification has occurring in the composition of the sectors in India which clearly can be considered as dynamic structural change. To what extent is this reflected in the rural areas or is the dynamism, particularly in the modern services sector restricted to the urban areas? The rise in the share of service sector is often followed by subsequent rise in total employment. But in Indian case, the service led growth has failed to create significant number of jobs in economy (Banga R, 2006). While we had noted a faster rate of growth of services than industry in GDP in India, we find that the growth of employment was higher in industry than in services (Table 6). This could imply that on the whole the services sector is more productive than the industry sector. Overall employment growth was much higher in urban areas (3.2 percent) compared to rural (1.6 percent) in the period 1993-94 to 2004-05. A rural urban comparison showed that the growth of employment was higher in industry in rural areas while employment grew faster in the urban areas in services sector.4

Table 1: Growth of Employment in Rural and Urban Areas, 1993-2005.5

Within the industry sector, it was employment in the construction industry that grew the fastest particularly in rural areas. Among the services sector, employment growth was highest in rural and urban areas in the dynamic new sectors of communications, finance and business services. Within this also the rural urban differential was striking, with communication and banking and insurance showing much faster growth of employment in the urban areas. It was appear that the new and modern industry with rapid export growth was growing faster, not just in terms of GDP but also employment in the urban areas.

Table 2:Growth of Employment in Rural and Urban Areas, 1993-2005

4 Barry Eichengreen and Poonam Gupta, The Service Sector as India’s Road to Economic Growth, Indian Council For Research on International Economic Relations.5 Jeemol Uni and Ravikiran Naik, Rural Structure Transformation: Case of the Services Sector in India.

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Agriculture, forestry and fishing are almost fully confined to the rural areas and it has declined only marginally as can be expected over the period 1970-71 to 2004-05. Within industry the share of GDP in manufacturing in rural areas rose from 25 to 42 percent and that of utilities from 39 to 46 percent. Within manufacturing the share of rural incomes in both the organized and unorganized sector appears to have risen. The share of income from construction in rural areas maintained itself at around 43 percent.

It is in the services sector that the sectoral transformation in incomes is more prominent. The traditional sectors of trade and hotels and restaurants and railways and other transport retained an almost constant share of income around 28-30 percent from 1980-81 to 2004-05.

The dynamic and new service sectors that we identified above showed a marked decline in its share in incomes in the rural areas. The share of communications sector in GDP in rural areas declined from 35 to 25 percent, banking and insurance from 19 to 14 percent during 1970-71 to 2004-05 and real estate and business services from 48 to 32 percent during 1970-71 to 1999-00 (Table 5). Other personal services, such as education and health, showed a slight

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decline in share of incomes in rural areas from 42 percent in 1980-81 to 39 percent in 2004-05.

This raises questions with regarding to the nature of structural transformation that is occurring in India. Is this new IT led, communication and services industry mainly concentrated in the urban areas? Does this imply that rural India is not sharing the fruits of the new service sector led growth of the economy?

A similar composition of shift in services sector in employment is also noted. The share of employment in manufacturing and traditional services such as trade, hotels and restaurants remained more or less the same during the decade 1993-93 to 2004-05. The share of employment in rural areas in the dynamic sector of communications fell from 42 to 35 percent and of banking and insurance from 30 to 23 percent in the decade. Therefore it would appear that the share of both incomes and employment in new sectors with the dynamic export growth was restricted to the urban areas. Hence it would be argued that the benefits of this rapid growth in the perhaps more productive and high income earning sector were not obtained in the rural areas.

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Table 3:Share of Rural in Total Employment in 1993 to 2005 (Percentage) 6

6 Supra Note 2.

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REVOLUTION IN RURAL INDIA

The analysis of growth in exports, incomes and employment in the Indian economy has led us to believe that the most dynamic segments of the economy are the IT led sectors of communications, banking and insurance and business and professional services. The latter include both ITES and BPOs. We also found that these industries were growing faster in the urban compared to the rural areas. A recent paper argued that the IT labour market has been deepening and thickening (Basant and Rani, 2004). Labour market deepening occurs through extending to new areas, when the diversity in the demand and supply of skills gets enhanced. With specialization and increase in scale, the demand for skills in specific segments grows, which is referred to as thickening. To what extent have these processes in IT related skilled labour market growth occurred in the rural areas?

The number of IT workers has been growing in the economy. The IT workers can be classified according to occupation and by industry. The overall share of IT workers in the rural areas was very low, 11 percent in 2004-05 and declining since 1993-94. Further, the distribution of IT occupations into computing machine operators, data processing and system analysts/programmers showed a striking difference in the nature of work of the IT workers in urban and rural areas. In urban areas nearly a third of the IT workers were professionals even in 1993-94, while they rose to nearly 9 percent in rural areas only in 2004-05. The IT workers in rural areas were the less qualified data processing or machine operators.

Table 4:Distribution of IT Workers by Occupation in Rural (% Rural of Total)

The lack of diversity of IT related occupations in rural areas as compared to the urban is also noted in the classification by industry groups. The variety of industries, in which IT workers were engaged in rural areas were restricted to manufacturing, business services and public administration, and more recently into trade and communications. Further, while there was an increase in the proportion of worker in IT in manufacturing in rural areas, those in business services showed a decline. Of course some new areas of penetration of IT was noted in 2004-05 in rural areas.

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Table 5: Distribution of IT Workers by Industry and Area 7

Overall it appears that the process of labour market deepening and thickening was mainly occurring in the urban areas. The transformation of the IT sector or It workers into varied industries in the rural areas continued to be limited in rural areas.

7 Supra Note 2.

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THE ROLE OF SERVICE CENTRE PLANNING

Service centres having its specific locations in geographical space and gravity of services act as a very important tool in spatial modeling and shaping various socio-economic and politico-cultural activities of the surrounding region. One has to be very conscious in establishing any unit of function under which the concerned activities may provide maximum benefit at minimum cost. The communication and sustainable development in agriculture may be accounted as one of the very important issue of rural India. In modern technological age the communication media is playing a very important role in spreading the new agricultural techniques and diffusion of innovation. It may serve as unique contribution in a region having diverse terrain conditions where farmers of the remote villages are handicapped with the poor mobility. Thus the identification of service centres and their appropriate utilization in distribution and planning of communication systems along with various agricultural extension services may prove very fruitful. The present paper attempts to analyze and explain the above facts taking into account the Mirzapur District of Eastern U.P. as a case study.8

The concept of service centre planning is almost 25 years old and it would be appropriate to review how it has unfolded over this period. Service centre planning is defined for our purposes, as an exercise where the socio-economic needs of a district are assessed based on factual information from the households, villages or towns of that district or region. The service centres are defined as those focal points around which rural life revolves, and which provide socio-economic services such as trade, transport, communications, agricultural inputs, finance, administration, education and health. There could be a series of service centres offering varying ranges and complexities of the services mentioned which would facilitate the economic development of the districts.9

Ever since this work began in India in the late 1960s, a number of studies have been conducted in different parts of the country, both at the national and sub-national levels, on aspects of supply, demand, impact and dynamics of rural service provision.

50 per cent of the GDP of the country is contributed by the rural economy, and as a decline in the livelihood earning capability of agriculture, and a large population has started moving into the service sector, its regulation is very important. And it cannot be done without the help of Service Centre planning.

8 Sudhir Wanmali and Yassir Islam, Rural Services, Rural Infrastructure and Regional Development in India, The Geographical Journal, Vol.161, No. 2, July 1995.9 Mishra SP and Mishra RP, Service Sector Planning for Communication and Sustainable Development in Agriculture: A Case Study.

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India’s economic growth and development to a large extent is predicated upon the development of its rural population. Currently, the majority of India’s population – around 700 million – lives in about 600,000 small villages and are engaged primarily in agriculture and related activities. Since a very large labor force in agriculture necessarily implies very low per capita incomes, a substantial portion of India’s current agricultural labour force has to move to non-agriculture sectors for incomes in all sectors to go up.

Now, considering the estimates and the current data, the regulation and the records of the same is very essential to be kept. Also, the crucial task of record and regulation has to be done with some responsible authority as the Service Sector planning.

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CONCLUSION

The most dynamic sector in the last decade globally has been the service sector. India is said to have out-paced a number of countries with her growth in the services sector powered by software and BPO services. A large share of the export growth in the country is also fuelled by the growth of the services sector. We identified communications, banking and insurance and business services as the most dynamic segments of the service sector. It appears that the share of both incomes and employment in these new sectors was restricted to the urban areas. Thus much of this high productivity, high income growth of the service sector has not created structural transformation in rural India. The IT and BPO revolution is considered the engine of the recent growth of the services sector. However, it has been noted that the rural workforce has not gained from the labour market deepening in the IT sector. It is, therefore, argued that the benefits of the rapid economic growth in the more productive and high income earning services sectors were not obtained in the rural areas.

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BIBLIOGRAPHY AND WEBLIOGRAPHY

Online Sources:

Rural Services, Rural Infrastructure and Regional Development in India by Sudhir Wanmali and Yasir Islam, http://www.jstor.org/stable/3059972?origin=JSTOR-pdf

India's Growing Services Sector: Database Problems and Issues by Suresh D. Tendulkar, : http://www.jstor.org/stable/40276386

The Service Sector as India’s Road to Economic Growth by Barry Eichengreen and Poonam Gupta, http://www.icrier.org/pdf/Working%20Paper%20249.pdf

http://business.gov.in/Industry_services/rural_economy.php http://www.ibef.org/industry/consumer-markets/indian-rural-market.aspx http://www.jstor.org/stable/10.2307/40276387 www.jstor.org/stable/10.2307/40276386

Books Referred:

Indian Economy,Misra Puri, Himalayan Publishing House, 2010. Indian Economy, Ruddar Dutt and KPM Sundaram, 61st Edition.

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