Service sector needs sustainable base for further expansion

May 04, 2017

The Himalayan Times, 4th May 2017, Himalayan News Service, Kathmandu

The service sector has been emerging as a vibrant sector in the economy with 51 per cent contribution to the gross domestic product (GDP). However, economists have said that service sector growth cannot be sustained for long unless it is linked with the manufacturing and agriculture sectors.

Contribution of the service sector in the economy has been expanding every passing year as compared to the manufacturing and agriculture sectors. Service sector growth is largely backed by imports, which is not sustainable, according to Bishwambher Pyakuryal, a senior economist.

The data of Central Bureau of Statistics states that the contribution of the agriculture sector in the GDP was 35 per cent in fiscal 2001-02, which has come down to around 28 per cent in this fiscal. Contribution of the manufacturing sector has also plummeted to around five per cent in this fiscal from nine per cent of 2001-02.

“Contribution of agriculture and manufacturing sectors has been gradually coming down as we have failed to exploit the potential of these sectors,” said another economist, Keshav Acharya. “As compared to neighbouring India and China, the country’s agriculture productivity is very low. If we are able to increase productivity in agriculture, it will automatically help boost agro processing industries (manufacturing) and service sector.”

Since the country has not been able to realise the actual potential of the agriculture and industrial sectors, the service sector has emerged as major contributor in the economy because of rising imports. “Until and unless we are able to develop the country’s agriculture and manufacturing sectors, growth of service sector will be short-lived as they are the base for the service sector,” said Acharya.

Citing an example of the developed countries that now have sustainable base for service sector after agriculture and industrial revolutions, Acharya further said that Nepal has not witnessed any agriculture or industrial revolution in the past and it has enough opportunities to exploit the growth potential in both sectors.

Acharya gave examples of how China and India produce 11 tonnes and four tonnes of rice per hectare, respectively, but Nepal produces only 2.5 tonnes per hectare. “If Nepal is able to exploit the growth potential in such sectors, it will create a ground for suppliers of agriculture inputs — which is considered as service — to supply more to the agriculture sector and service sector’s growth largely depends on its linkages with agriculture and manufacturing sector growth.”