Collect comprehensive data on the services sector

When read with other indicators, such as the June quarter GDP data, there is reason to check such unqualified euphoria

The Purchasing Managers’ Index (PMI) for services clocked 57.2 in the month of August, significantly higher than the 55.5 value for July. In an ideal world, this is unambiguous good news for the Indian economy. Not only are services the biggest contributor to India’s GDP, they also have a large share in employment.

PMI services were higher than the August numbers in every month of the quarter ending June. Yet, the sub-sector of services with the highest employment intensity -- trade, hotel, transport, communication and broadcasting services have a share of more than 17% in total employment – did not cross pre-pandemic levels in it. (HTPHOTO)

However, when read with other indicators, such as the June quarter GDP data, there is reason to check such unqualified euphoria. PMI services were higher than the August numbers in every month of the quarter ending June. Yet, the sub-sector of services with the highest employment intensity -- trade, hotel, transport, communication and broadcasting services have a share of more than 17% in total employment – did not cross pre-pandemic levels in it.

None of this is to argue that PMI numbers are fudged or parts of India’s services economy are not showing extraordinary dynamism. There is enough anecdotal and statistical evidence to prove this. The problem is that the dynamism being captured in the numbers is skewed in nature and a significant number of workers and entrepreneurs in the service sector are not benefitting from it. This is bound to have a bearing on not just the immediate but also long-term growth prospects of the Indian economy.

What should be the ideal policy response to this conundrum? This is not an easy question to answer. A lot of the squeeze on the informal service economy is perhaps driven by formalisation aided (or, at the least, complemented) by technological disruption. Policy cannot take a blanket anti-technology stance, but it cannot be oblivious to growing inequalities as well. Collecting comprehensive data on India’s service sector firms will be a good beginning to addressing this problem.