Service Vs. Manufacturing

Here’s the list of young companies/ startups from India promising huge returns to its investors:

Delhivery

Flipkart

Policybazaar

Byju’s

CRED

Vernacular.ai

PharmaEasy

Digit Insurance

Meesho

Groww

Nykaa

Udaan

Dream11

Swiggy

Infra.Market

Urban Company

Moglix

Zeta

BrowserStack

Ola

Uber

Oyo

What’s so peculiar about this list of Unicorns is that barring one, all are operating in service sector. They don’t manufacture anything but provide service to the customers, thus creating data, which is valued by the investors. The same data will then get used by manufacturers to sell their products. We all know how companies such as Google, Facebook and Amazon, through their tracking of our behaviour, know more about us than what we know about ourselves. These companies listed above are no different. They collect the data, which can be commercialised. Zomato is valued more than Mahindra & Mahindra. But the question we need to address here is what is happening to the Indian Manufacturing sector in the process? Why is it that the Indian manufacturing sector is fast losing out to the service sector at such a high pace? Is losing manufacturing to China a cause or the effect?

Globally, close to 50% of the GDP is created by the MSMEs, whereas in India, it stands at just under 30%. The Government has taken initiatives to get this increased to 50% by 2024, but somewhere, I guess, we have lost the track. Is it a good strategy to broaden the definition of MSMEs by including Hospitality Sector just to achieve the goal we have set for ourselves? The government could have separately offered special package to hospitality industry rather than clubbing it with MSMEs, for instance.

This takes us to a more serious question: what’s the difference between a product and a service? The products, according to me, have become services and the services, products. Take for instance the new service launched by Maruti Suzuki: You rent a car directly from the manufacturer, with no direct liability of taxes and maintenance of the car; a manufacturer has moved into service to compete with the Olas and Ubers of the world; or for that matter, consider how DHL packages its services as a product: Standard delivery and expedited delivery: two products and two price tags. So, how should the GDP be calculated? When I buy Kent RO for INR 16,000, that’s a part of manufacturing, but when I sign up an AMC and end up paying close to INR 20,000 in the next 6 years, a major part of that is service (barring consumables, which get manufactured). Of course, I am assuming the consumables are manufactured in India. So, does Kent operate in Manufacturing or Service sector? Or both? Does it contribute more to Service than Manufacturing?

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Ph.D. in Economics, Passionate about Game Theory, a biker, a Father, Son, a brother, a husband, a friend, and unfriend … just like you!

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Sandeep Bhasin

Sandeep Bhasin

Ph.D. in Economics, Passionate about Game Theory, a biker, a Father, Son, a brother, a husband, a friend, and unfriend … just like you!

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