Fwd: How UPA killed engines of Economi Growth

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From: Vaidyanathan R

 

 

http://prof-vaidyanathan.com/2013/08/21/how-upa-killed-engines-of-economic-growth/

 

 

How UPA killed engines of economic growth--

August 21, 2013 · by Prof Vaidyanathan ·    niticentral.com

The growth rate of our economy has declined from around 8 per cent in the mid part of decade to nearly 5.5 per cent and is expected to be less than 5 per cent in this fiscal year. The Government and economists ascribe this to global slowdown as well as delayed decisions in acquiring land and providing clearances for major infrastructural projects. They are right but only to some extent.

The share of service sector in GDP is around 65 per cent. Whenever the term 'service sector' is mentioned, the immediate recall is IT and companies like Infosys or Wipro. Factually, all software related activities come under business services, which itself is less than 5 per cent of our National Income. We have mentioned the activities, which constitute the service sector in Table-1. We observe that this sector encompasses diverse activities carried on by large multinationals as well as roadside entrepreneurs. Normally, construction is included in the secondary sector along with manufacturing in developed countries. But given the labour intensive construction and major single house construction by smaller contractors, we have included it in service sector.

We find that the service sector had a share of 60 per cent in 2004-05 which increased to nearly 65 per cent of the GDP and it has grown [CAGR] by 17 per cent during 2004/05 to 2011-12 (current prices) which is higher than that of industry at 15 per cent and overall growth rate of 16 per cent. We find that service sector has larger share as well as greater growth during the last seven years. See table-2

Table-1

Activities Constituting the Services Sector

1	Construction
2	Trade
3	Hotels and Restaurants
4	Transport, including tourist assistance activities as well as activities of travel agencies and tour operators
5	Storage and communication
6	Banking and insurance
7	Real estate and ownership of dwellings
8	Business services including accounting; software development; data processing services; business and management consultancy; architectural, engineering and other technical consultancy; advertisement and other business services.
9	Public administration and defense
10	Other services including education, medical and health, religious and other community services, legal services, recreation and entertainment services
11	Personal services and activities of extra-territorial organizations and bodies

Note We have considered 'Construction' as part of the service sector in our discussion even though sometimes, it is considered as part of the 'Secondary sector'. See Report of the National Statistical Commission, [NSC] PP 186, Vol II August 2001. Ministry of Statistics and Programme Implementation, New Delhi.

Table- 2

GDP shares and Growth Rates—2004-05 to 2011-12

Sector	Sector Share	Sector Share	Growth Rate[CAGR]
	2004-05	2011-12	2004-05 to 2011-12
Agriculture	19	17.5	14.6
Industry	20.3	18.2	14.5
Services	60.7	64.3	16.8
Total	100	100	15.9

Source: Statement 10- NAS- CSO 2013

Among the service sector, we find that 1)construction 2) trade 3)hotels and restaurant 4) Non-Railway transport 5)business services and 6)other services are major components and in each of them non-corporate sectors namely Partnership / Proprietorship and household enterprises dominate. The share of what is called as 'unorganised' sectors in these activities is nearly 80 per cent in non-railway transport in 2010-11 and 77 per cent in trade hotels and restaurant. Real estate and business services also have share of more than 65 per cent and it has declined from around 74 per cent in 2004-05. (See table-3)

Table-3

Share of Unorganised Sector in Service activities

Note: Share in respective GDP in current prices

Category	2004-05	2010-11
Construction	63.4	58.6
Trade hotels and restaurants	77.2	76.5
Non-railway transport	76.7	78.8
Real estate, business services	73.6	66.0
Other services	42.9	41.4

Source: Statement 76.1 NAS ;CSO New Delhi

Unorganised sector is essentially part of Small- and Medium-enterprises in manufacturing and services. We find that there is a significant decline in the growth rate [CAGR] of unorganised manufacturing from 10 per cent during 04/05 to 07/08 to 4 per cent in 07/08 to 11/12.

Similar is the case of construction from 11 per cent to 7 per cent trade from 10 per cent to 8 per cent and restaurants from 15 per cent to two per cent. Non-Railway transport fell from 9 to 7 per cent and therefore, the total NDP growth rate fell from 9.4 per cent to 7.4 pre cent respectively. (See table-4)

Actually, the UPA-II has shown substantial deceleration compared to first part which benefitted due to earlier strong growth.

 The UPA-II is a decline and deceleration part as far as economic activities go

Table-4

Growth Rate Different service activities

	Category	CAGR	CAGR
		2004-05 to 2007-08	2007-08 to 2011-12
1	Manufacturing	11.6%	6.0%
	Manufacturing – unorganized – non corporate	10.00%	4.00%
2	Construction	10.9%	6.5%
3	Trade Hotels and Restaurant	11.00%	7.60%
	Of which trade	10.70%	8.10%
	Of which hotels and restaurants	15.00%	2.00%
4	Transport by other means	9.0%	6.8%
5	Real Estate, Ownership of dwellings and Business Services	9.6%	8.5%
6	Other Services	5.6%	6.8%
7	Total NDP [including other Activities]	9.4%	7.4%

Note: computed from NAS; CSO 2012

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