Hopes are high and everyone so excited in the new Modi-fied India. Modi-Fied is the term many using to shorten "The-Killer-Innovative-Passionate-Magnificent-Vision-for-India-and-the-Change-Actions-being-taken" by visionary Prime Minister Shri Narendra Modi.
Before reading further, I will recommend you take a side first. It makes sense in 21st Century fast changing world to take a side: Android or iOS, Democracy or Communist, I support or Oppose Gays, TV or YouTube. Taking sides will cheer you up if your side has a winning news any day; it will piss you off if side is losing and you will go all out in your capacity for making a turn around to bring the cheer back! It's a good thing, promotes healthy competition and keeps your brain sharper.
So in this article first I'm going to write something as if I'm giving a economic lecture (Without any reference to any data presented here, whatsoever), then write good things about Modi, Bad things about some corporates who are 'Opportunists', and going to encourage young folks to come to Small Scale Manufacturing Industry - India way! If you are on positive side, keep reading.
Why GDP has 3 components?
Agriculture, Industry & Service are the 3 components of GDP in any economy. Why these 3? The answer is fundamental and attached to history of mankind.
A Brief history of GDP
Human beings started its life in Jungle thousands of years ago. Those days the first fundamental need for survival used to be food. So in the pursuit of healthier and tastier food, we learnt how to grow food. Those days theoretically the GDP of mankind would be this GDP-AIS-100-0-0 (GDP-Agri-Industry-Service-100%-0%-0%), This terminology we are going to use throughout the blog for simplicity.
Then we invented wheel! That must be the first major industrial breakthrough for Homo Sapiens (Before Selfie Stick / Monpod). After invention of wheel lot of activity must have picked up - movement of goods and farm products, using wheel and crank to irrigate and even quickly and easily make weapons. then the mankind GDP would be like GDP-AIS-90-10-0.
Service industry (In a big way) must have started much later. It's basically anything that doesn't fit Farming & Manufacturing. It's also something where more brain is used than physical strength. Ancient days Service Industry must be like trading of goods across geographies, Restaurants, Barbers, etc. Then numbers I guess are like GDP-AIS-85-10-5.
The numbers and brief history of GDP I blogged here are not accurate, neither conveying their accuracy is the point. The idea is to convey: "Whenever there is a transformation in GDP component share, the booming component takes the pie from the largest component from other 2".
GDP-AIS-100-0-0
GDP-AIS-90-10-0
GDP-AIS-85-10-5, and not GDP-AIS-90-5-5
Why?
It's simple and intuitive: When a new new market open up, the sellers from the "most crowded" market vacate first to fill the new space. Think of boom of WhatsApp, the instant social networking: it only took out user-time from Facebook.
What's the common trend of GDP share across countries?
A Nation first start with agriculture dominated GDP. This is when the country's main focus is for survival. Then Industrial growth takes place - like post world war era for western countries. This is a 40-50 years boom for manufacturing, where the economy generates wealth, income levels & quality of life of people expand at a fast pace. Once all have enough money, the economy gets to service sector domination. Since most of the population is smart and can use the brain to generate most of its wealth. Industries like Banking, Financial Services, Education, R&D, Consultancy etc takes charge.
Few examples will give a clear picture:
- Developed USA-GDP-AIS-5-31-64
- Developed Germany-GDP-AIS-1-28-71
- Developing China-GDP-AIS-10-44-46
- Underdeveloped Lao PDR-GDP-AIS-37-20-43
The Graph gives a fair Idea how has been the historical trend of Agri-Industry-Service sector of USA. 
Fair Inference
Broad trend of any economy over a Historical-Scale of time is" Survival-WeathCreation-Nurturing, in line with the 3 components of economy, as described above.
India Economy
India economy has been unique. We started with farming, then entered into Industrialization post Independence era starting 1947. we were pretty good till 80's still coming out of poverty. Then we entered into IT. IT was the future and the trending thing for whole world. So India with its huge smart pool of English Speaking talent dominated and dominating world IT industry. Today IT export of India stands at whooping $100 Billion. And the GDP Sector composition trend is somewhat like an industrialized developed economy:
India's GDP Sector composition trend since Independence
2014 INDIA-GDP-AIS-14-16-70
What's the Issue?
Issue is we skipped "Industrial Revolution" and jumped to Service Sector, before we had enough money! As I wrote before, Industrial Era is the time during which the Nation Generates wealth, then enhances its physical and social infrastructure using the wealth, quality of life of people goes up in a wholesome way. Skipping Industrialization or say manufacturing hit hard the class of demography who are not as smart to work in Service Industry, at the same time not as dump to to work low-skill or general worker jobs. This over a period of time lead to unemployment, given falling growth of manufacturing.
Prime Minister Narendra Modi has picked this point and want India GDP to have a better structure for sustainable growth, job creation and wealth generation for the economy. With the recently launched "Make In India" campaign the target is to bring the Manufacturing back to track to have a 25% share in GDP in 2025, from present level of mere 16%.
Everyone Missed this point in Modi-Fied India
As we saw from history of economy of mankind in ancient world, this growth in sector Pie from 16% to 25%, is going to take the cake from the largest component of economy: Service
Given today India has a vibrant, matured & well developed agriculture industry, we assume it's share in GDP till 2015 is to continue at 14%.
2025 INDIA-GDP-AIS-14-25-61
The cut of service sector from 70 to 61 may not look like a big number at first, but you bet it is. Have a look at these charts below, based on the assumption Mr. Modi will achieve 25% manufacturing by 2025 (And he is capable of ambitious plans as well as breakthrough execution of the plan)
The key numbers are at bottom most right, the average growth of each industry. First looks says all well, every industry is growing. But if you account the estimated GDP growth rate of 7%, then it's the manufacturing that's going to make real money with its growth outpacing economy growth, with service sector losing, as it under-performs with respect to economic growth of the country.
Indeed from the overall manufacturing growth of 11.6%, the major chunk is expected to come from SMEs (Small and medium scale industries). With a little more Google digging you can calculate the small & medium scale industry need to grow at 45% to meet the target numbers in manufacturing in 2025! Big corporations in Service sectors going to lose most, with average growth of mere 3% on average. Not too encouraging for Service sector in Modi-Fied India, which observed an average growth of 10% from 2000 to 2014.
Where to put the money?
Now if you need to put your time / money / energy, put it in SMEs coming out with products with export potential.
On downside, be careful of the below Industries, (Especially big companies), who are in Service Sector:
- Energy & Power
- Infrastructure
- Retail
- Banking & Finance
- IT
Giants in these sector will compete more fiercely to capture whatever opportunities available: Since the sector growth is slow, talents will be lost to manufacturing, competition will be fierce, profit margins will narrow down, debts will grow as companies will try for aggressive expansion.
Next post we will discuss, What happens when Government (Like the one Mr. Modi has) is Smarter than a Private Organization?
