World Energy Outlook 2007

in manufacturing productivity was the main reason for higher output
growth since 2003, contrary to the conventional wisdom that India’s
economic growth is largely services-led (Poddar and Yi, 2007).
In fact, growth in the two sectors is linked. A quarter of service activity
is directly linked to industrial activity, in sectors such as trade, transport,
electricity and construction. The underlying factors behind the increase
in productivity were an acceleration in international trade, an increased
availability of financial services and investments in information and
communication technology. The rise in India’s annual average growth rate
from 6% in the 1990s to nearly 8% since 2003 can be attributed to a rise
in the contribution to GDP of manufacturing, trade and banking services.
Figure 14.4: Sources of Output Growth in India
7%
6%
5%
4%
3%
2%
1%
0%
–1%
Land
1978-1993 1993-2004
Labour Physical capital Education Total factor productivity
Source: Bosworth and Collins (2007).
Services and manufacturing are expected to remain the main drivers of India’s
economic development. The pace of GDP growth hinges particularly
on structural and business reforms, fiscal discipline and efforts to remove
the remaining barriers to trade and foreign investment (see below).
The continuing success of the information and technology industry should
boost growth, by expanding the pool of technology-skilled labour and
by encouraging other domestic firms to increase technology spending.
However, the lack of sufficient skilled labour to meet rising demand
in this sector has recently begun to constrain expansion in many firms.
432 World Energy Outlook 2007 - INDIA’S ENERGY PROSPECTS