Question

List 5 service activities and give your reason for why they can not be considered as either agricultural or industrial activities .

Answer 1

"Normally countries shift from agriculture to industries and then to services, but India shifted directly to services" -- This statement implies that India was unique in that it skipped the industrial phase and shift directly to services and that this transition is an economic achievement. Both of these implications are wrong.

Countries successfully shifting to an industrial base and then developing services are the exception rather than the norm. In recent years, a few countries in East Asia (most recently China) have been able to do this. India has taken the theoretically less desirable but observably common path of development where developing an industrial base is 'skipped' and the labor force leaving agriculture is absorbed by the tertiary sector of the economy. This isn't an achievement but a cause of worry, something calls "the classic structural feature of underdevelopment". He writes,

sector,

That is, the enormous services sector in developing countries is symptomatic of the development of the unorganized or informal sector...This sector is the home of last resort— the shelter for the millions of migrants who have made their way to the cities from the rural sector. People who shine shoes, petty retailers, and middlemen: they all get lumped under the broad rubric of services because there is no other appropriate category.

Try to visualize a basic transition in developmental economics. When our incomes rise, the first things we consume are food and clothing (and if possible shelter). When incomes rise further and we have some disposable income, we switch to industrial products - television, cars, motorbikes along with some basic services like banking etc. When incomes rise further, services take the lead. The demand for private and expensive healthcare, tourism, restaurants, financial services and wealth management, child and elderly care businesses increases. That is why it is normal for developed countries like the United States, Japan, Australia, Canada have over 60 percent of their labor force in services. This isn't surprising at all. What is surprising is, many developing countries have a similar fraction of non-agricultural labor force in services as well.

Take India for example. Tourism is underdeveloped. Singapore and Shanghai have more hotel rooms than India. Child and elderly care centers aren't nearly as popular and lower middle income countries. Organized retail hasn't taken off yet. E-Commerce industry is 1/80th of China's. The industries that economists consider to be 'tertiary sector' are a fraction in size of their developed countries' counterparts. with 2 percent Indian's being classified as 'middle class'. Still 61 percent of India's non agricultural labor force is employed in services. It is 69 percent for Tanzania, 88 percent for Nigeria, 70 percent for Brazil and 72 percent for Ghana.

What this implies is than in developing countries, a most non agricultural labor force is classified in services because these services are waiting positions or 'fallback options' for people lacking an industrial job. A large services sector in a developing economy or a country with low GDP per capita shows the inability of the government and in India's case, the private sector industries as well to keep up with an accelerated rural-urban migration.

So to answer your question, India's non-agricultural labor force is mostly employed in informal services industry because there is nowhere else to go. The pace of industrial development (or manufacturing growth) has just not kept up with rural-urban migration for reasons too well known to reiterate here.

Can India become a developed country without a strong industrial base?

No. The process would be painfully slow if it tries. and a necessary pre-condition for sustained economic development. China has brought 680 million people out of poverty between 1992 and 2011 by a single minded focus on manufacturing growth. Most of these moved up the income ladder to 'middle income' which now comprises 18 percent of the population. India on the other hand has had some success in reducing poverty but most of those people are lingering at the margin in small service jobs with non-existent vertical progression.

At the heart of economic development lie the gains from the interaction between productivity growth and technological improvement. Both of these are the result of manufacturing growth. Jostien Hague writes in

For the past 40 years, the output and employment shares of manufacturing in the world’s economies have declined, and those of services have increased.