Structural imbalance in Indian economy

         As per a newspaper report, India is poised to become a $2 trillion economy by FY15 even if it grows at 5%. The growth rate for Q1 FY15 has been 5.7% and the RBI estimated growth rate for FY15 is 5.5%. So we can be sure of crossing this milestone by March 2015. Psychologically, it is an important milestone to cross. However, if your dive into the numbers then you will find that the per capita income has not increased drastically. If you look at the chart below, several imbalances can be found in our economy. 

Although 50% of our population depends on agriculture, the share of agriculture is a meagre 18%. Services contribute a lot to our GDP, a whopping 50%. When Modi was the CM of Gujarat, he had trifurcated the economic structure on 3 pillars namely, Agriculture(33%), Services(33%) and Manufacturing(33%). The same model needs to be replicated at national level. Given the kind of human capital we have, liberalising the labour reforms, land acquisition and environment laws together can help the government raise the GDP by 2% in 3 years. All of these coupled with financial sector reforms, GST, augmented infrastructure capacity in terms in roads,freight corridors and ports can further help the government raise the GDP by 2%. The point I am trying to make is, focusing on the sectors which involve heavy manufacturing activities can help the government spread the base of the economy. For eg. there are about 15 cities where Metro rail projects are in several phases of execution. Currently, the tracts, via ducts, pre cast cement blocks, signalling system equipments and finally the trains, all are imported. Why can't we set a standard for all the trains, signalling system, pre cast ducts and indigenously produce them in our country? This will help in saving our import bill and simultaneously increase the manufacturing activity. Every job created in manufacturing sector creates 5 more direct and indirect jobs.Service sector is such a sector which can be sandwiched between Agriculture and Manufacturing, for both these sectors required IT support, marketing,advertisement and other allied activities. In next 3 years, the government needs to focus on labour liberalization and execution of those liberalized reforms coupled with financial sector reforms. This process will be excruciatingly painful and give a lot of labour pains, but in the end it will deliver a beautiful baby... 

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