Unlike the other miracle economies of Asia – that witnessed sustained growth in manufacturing due to the infusion
of large amounts of labor and capital – the growth in India was largely sustained by skilled workers in the services sector. This was only possible as India already had an educated, English-speaking middle class before economic reforms were launched. Consequently, the services sector now dominates India’s economy.
The domestic savings rate in India has increased over the past few years, and many economists believe that it will rise further. What this means in practical terms is the availability of cheap capital that can be used to fund further investments. The experience of Asia’s other economies tends to bear this out.
The availability of both cheap capital and an educated workforce suggests that further growth is likely to come from low-tech sectors such as manufacturing and construction, rather than from the services sector alone. There is one major caveat, however: India’s infrastructure is poor and desperately needs to be upgraded. If this happens - and the author says there is no reason why it should not – it will have a beneficial impact upon other sectors of the economy as well.
And then, perhaps, India’s products may finally become competitive in the overseas markets…