‘Services sector needs manufacturing to expand’: EAC-PM Chairman

Experts including Raghuram Rajan, the former Chief Economic Advisor in the finance ministry and the Governor of the Reserve Bank of India (RBI), have over the years criticised the government for the money it has allocated to its flagship Production-Linked Incentive (PLI) scheme, saying it can be better spent in other areas such as promotion of the services sector and education, among others.

In his speech on Wednesday, Dev defended the Indian manufacturing sector, saying it was not stagnating and growing in absolute terms.

“Some people say the share of manufacturing, at 17 per cent of GDP and 11 per cent in employment, is stagnant. But it is not stagnant. People think the share is stagnant means manufacturing sector is stagnant; (but) it is increasing. In absolute terms, for example, it increased from Rs 17 trillion to Rs 30 trillion. That’s an increase of 75 per cent in 10 years. Manufacturing employment has also increased; it’s about 72 million. So, one should look at absolute numbers also,” Dev said.

Rajan, in a 2023 co-authored article had said: “For instance, the $10 billion seemingly set aside for subsidising a $20 billion chip factory, dubious prospects of success, could finance hundreds of top universities (including upgrading
existing ones) and thousands of top schools. Simply educating our people well, engaging in research and development, and aspiring even to train students from other developing countries would be a large industry in itself, in addition to the large externalities it would generate for the economy and society”.

The services sector has led India’s growth story over the years. In the first quarter of 2025-26, which saw the GDP growth rate unexpectedly jump to a five-quarter high of 7.8 per cent, even though the manufacturing sector picked up pace and expanded by 7.7 per cent on a year-on-year basis, services grew at a faster rate of 9 per cent.

India is looking to raise the share of manufacturing to 25 per cent of GDP by 2035. In 2024-25, manufacturing made up 16 per cent of real GDP while the services sector accounted for 50 per cent.

Commenting on services, Dev took note of the duality of the sector which comprised of high-skilled IT jobs as well as low-skill ones such as road-side vendors. This meant, he said, that formalisation is important.

On the government’s target of becoming a developed economy by 2047, Dev said Viksit Bharat wasn’t just about achieving a certain growth rate but also about the growth being inclusive, sustainable, and climate resilient.

“According to me, inclusive growth is the quality of employment. That is important. It is not taxing the rich or that kind of thing. If you can provide quality employment to everyone, that is inclusive growth. But in employment there are several issues: gig workers, participation rates of women, AI and impact on employment.” In response to a question about rising share of contract employment, Dev said that even given constraints such as AI, there is scope to increase labour-intensive manufacturing in sectors such as garments.

“There are still possibilities to increase employment. I know manufacturing is becoming capital and skill intensive. But AI can be a net-net positive if you increase the skills because it may replace the low-skilled people but it can increase the high-skilled employment. I am positive about that. Some of the policies hopefully will increase employment. But it’s a tough one,” he said.