In India, as in the rest of the world, the share of the services sector in the GDP of the country has risen quite sharply. A rise in the share of services in the GDP generated by the private sector, from 29 per cent in the early 1980s to 35 per cent by the mid 1990s, ensured that services came to account for as much as 43 per cent of GDP in 1996-97. With the rise of public sector incomes since then, it is to be expected that the share of services in GDP generated by the public sector would have also risen significantly, taking India closer to the "50 per cent of services from GDP" mark. This closes the "structural gap" between India and the developed OECD economies where services account for 60 to 70 per cent of overall economic activity.
 
Till some time back, this would have been considered an infirmity, since barring a few productive services, the strength of an economy was seen to be reflected by the expansion of and productivity increases in the commodity producing sectors. But increasingly we observe a tendency to treat service sector growth to be as good as growth in the commodity producing sectors. Some even privilege service sector growth, interpreting it as the sign of a new dynamism. The OECD has for example argued that services have become a major driving force in economic growth.
 
Like much else, this view is a conceptual import from the West - a product of the ideology of globalisation that believes that all economies, independent of their size and level of development should behave like and resemble the developed economies, especially the US. Two questions are ignored in that perspective. First, is the growing service orientation of some of the developed economies necessarily positive? Second, is the growth of services in developed and developing countries similar in nature?
 
An affirmative answer to the first of these questions comes from a reinterpretation of the nature and role of services in modern economies. According to a study conducted by economists at the US Department of Commerce, over the 1972 to 1996 period, the overall growth of the U.S. economy has been accompanied by a decline in the share of manufacturing gross output, an increase in the share of services gross output, and a growing U.S. trade deficit. From 1972 to 1996, U.S. nominal GDP grew at an average annual growth rate of 8 percent from $1.2 billion to $7.8 billion. However, the growth of manufacturing industries' GDP lagged behind at 6.5 percent annually. Because of its slower growth, manufacturing's share of GDP declined from 24 percent to 18 percent.
 
But this was not all. Within manufacturing, while the share of intermediate transactions or costs paid out by individual activities remained constant at 43 per cent of industry gross output, the share of manufacturing intermediates declined from 22 per cent to 17 per cent and that of services rose from 21 per cent to 27 per cent. This growing services-intensity of manufacturing can be interpreted in two ways. On the one hand, it can be taken to reflect the growing productive role of services activity in the US economy. On the other, it can be seen to be a reflection of a growing trend towards outsourcing of services by US corporations. This would imply that the rise is the share of services and decline in that of manufacturing is in part a statistical rather than a real phenomenon, reflecting the splicing out of services that were earlier part of the value of manufacturing output. In France, for example, the combined contribution of manufacturing and industry-related services has increased only marginally from 27 to 29 per cent between the 1980s and 1990s, indicating that restructuring rather than expansion accounts for the growing share of services.
 
The role of outsourcing in explaining the rise in services sector GDP is also partly corroborated by the structure of growth in the services sector. Conventional services such as transport and communications have seen a constancy or decline in their share, while "finance, insurance, real estate and business services" have registered noticeable increases in all major OECD economies. Value added as a share of GDP in this group of services has risen between 1987 and 1997 from 20.4 to 22.9 per cent in France, 11.3 to 14 per cent in Germany, 18.8 to 22.3 per cent in the UK and 25.5 to 28.6 per cent in the US.
 
There are clearly two process underlying these changes. To start with, the burgeoning of the financial services sector, ensured by financial liberalisation and stock market buoyancy. The rise to dominance of finance and the financial liberalisation that ensued not only opened up new market segments in the financial services area, but saw a rapid rise in the number of firms and the volume of their operations. Few can deny that the financial buoyancy of the 1990s has embedded in it a major role for speculation, rendering the productive implications of such growth suspect. However, even this development, where financial buoyancy results from creating new "products", in the form of derivatives for example, is being provided as the conversion of the financial sector into a productive sector like manufacturing. To quote and OECD study: "There was a time when a bank would lend to a business or provide a mortgage, would take the asset and put it on their books much the way a museum would place a piece of art on the wall or under glass – to be admired and valued for its security and constant return. Times have changed. Banks now take those assets, structure them into pools, and sell securities based on those pools to institutional investors and portfolio managers. In effect, they use their balance sheets not as a museums, but as parking lots – temporary holding spaces to bundle up assets and sell them to those investors who have a far greater interest in holding those assets for the long term. The bank has thus gone from being a museum where it acquired only the finest assets and held and exhibited them in perpetuity into a manufacturing plant which provides a product for the secondary market. Just as Henry Ford did 80 years ago, banks today are focusing on producing a standardised product at a predictable rate, under standard norms of quality, and are teaching their workforces to produce that product as quickly and as efficiently as possible." The fact that there is no production process here, making a difference to the productive nature of the operation, is completely glossed over, rendering the distinction between the generation of surplus and redistributing it immaterial by definition.