Scope for economies of scale

Economies of scale refer to the proportionate saving in costs gained by an increased

level of production. Though the economies of scale can be analyzed by various measures
like employed capital, turnover, etc., this paper considered the number of workers
employed by units of firms to analyze. This paper segregated the enterprises sector by
considering only the firms which employs more than 20 workers.
Railways, business services, public administration and defence sectors have the high
proportion of enterprises will more than 20 workers (all in the range of 45 - 50 with railways
being 100). Medium proportion is occupied by the sectors like banking, communications,
community services and transport (range in between 12 - 35). Wholesale and retail, hotels
and restaurants, real estate, entertainment services sector occupied the least proportion
(range in between 2 - 6).

Trade in International markets

International trade in services is divided into four categories such as : producer
moves to the consumer(commercial presence abroad), consumer moves to the
producer(consumption abroad), producer or consumer moves to the other(cross-border
movement), neither the consumer nor the producer moves anywhere (cross-border supply).
Due to rapid technological changes, services are considered as tradable through cross-
border supply mode.
In India, RBI compiles data on exports and imports as services as a percentage of
GDP for different sectors. Based on this percentage the following classification is made,
I. If it is more than 50%, the sector is classified as ‘high’ trade in international
markets
II. If it is less than 5%, the sector is classified as ‘low’ trade in international
markets
III. If it is between 5%-50%, the sector is classified as ‘medium’ trade in
international markets
On the basis of the above classification, different sectors are categorized as high, low
and medium. Wholesale and retail, railways, public administration and defence, real estate
and renting, storage, recreational and entertainment services are classified as low trade.
Under medium trade, hotels and restaurants, transport (22.8%), communications(15%),
banking and insurance and community services(19.4%) sectors are placed. Business services
sector is classified as high trade(85.8%).

Contribution to technological progress

The sector’s contribution to technological progress is calculated by finding out the
research and development (R&D) expenditure as a percentage of gross value added by a
sample from that particular sector which consists of 4000 companies. As R&D activity is
highly intensive and requires sophisticated technology, mostly it is done in large corporate
firms.
Based on the R&D expenditure as a percentage of gross value added of 4000
companies, the following classification is made,
I. If it is more than 10%, the sector is classified as ‘high’ contribution to
technological progress
II. If it is less than 1%, the sector is classified as ‘low’ contribution to
technological progress
III. If it is between 1%-10%, the sector is classified as ‘medium’ contribution to
technological progress
On the basis of the above classification, different sectors are categorized as high, low
and medium. Wholesale and retail (0.1%), public administration and defence, hotels and
restaurants (0.1%), transport (0%), real estate and renting (0%), storage (0%), recreational
and entertainment services are classified as low contribution to technological progress.
Under medium contribution to technological progress, banking and insurance (2.6%) and
community services sectors are placed. Business services (18.7%) sector is classified as high
contribution to technological progress.

Incorporation of technological advance

The incorporation of technological advance is identified by analyzing the trend rate
of growth of output per worker over a given period of time. The increasing adaptability of
technology is likely to yield an increase in the productivity in several sectors. Though the
trend rate growth of output per worker is not ideal to measure the incorporation of
technological advance as other factors like structural change within the sector will come
into picture.
On the basis of the above classification, different sectors are categorized as
high, low and medium.
I. Low : real estate and renting services, storage, recreational and
entertainment services.
II. Medium : administration and defence, wholesale and retail trade, hotels and
restaurants, railways, transport, community services.
III. High : communications , banking and insurance, business services.