Service Sector in India
Current Situation:
- According to the Economic Survey 2021–2022, India’s service sector is expanding at the quickest rate and accounts for over 50% of the nation’s GDP. It also receives the most foreign direct investment inflows.
- India’s services sector is currently undergoing two significant advancements that could determine the course of the nation’s prosperity.
- rapidly changing services exported to other countries.
- and the swift change in home services.
- As they modernise, they are both undergoing form and shape changes. Additionally, there are indications that new services are entering the industrial sector and moving up the value chain.
The service sector’s contribution to global exports:
- The service industries now generate $60 billion more in income annually than they did three years ago, net.
- The epidemic has created opportunities for IT services. Work from home opportunities raised the need for tech expertise among businesses. And the joy doesn’t stop, expanding in both the services offered and the service suppliers.
Principal funder of the IT industries:
- There are four or more dominant service providers in the market. Big IT companies are not the only growth generators, even if they are still expanding.
- Consulting organisations are expanding their services export books, while mid-sized IT businesses have been gaining market share.
- Lastly, India can now claim the most percentage of Global Capability Centres (GCCs) globally.
What are the GCCs and the issues surrounding the deceleration of global growth?
- Historically, GCCs have helped their parent MNC firms with technology and IT issues, but with time, they have advanced to provide higher-value services including legal, audit, design, and research and development.
- Approximately 1,600 GCCs employed 1.7 million people and constituted a $46 billion market in 2022–2023.
- It is not surprising, looking at India’s services export data, that exports of professional and consulting services have grown at the fastest rate over the last four years—31% CAGR (compounded annual growth rate), followed by R&D (13%) and computer services (16%). Professional and consulting services exports still make up only 25% of exports of IT services.
- First, there appears to be a long-lasting shift in mindset regarding working more from “home.”
- Two, India has a skills portfolio that can generate a wide range of services, from design to engineering. This has been made feasible by impressive internet penetration rates, young, tech-savvy demographics, and rising educational attainment.
- Three, cost competitiveness is available in India. For example, exports of Indian IT services account for 18% of world trade in value terms, but this figure doubles to 36% in volume terms.
Swift change in the provision of household services:
- India boasts a remarkable public digital infrastructure. Numerous tech startups have connected to it through a range of commercial strategies.
- The majority are concentrated on the services industry, but as time goes on, they can get more aspirational and venture into manufacturing and agricultural.
- In a way, they may rise to the task of uplifting “old India” instead of being limited to developing “new India”.
- First, let’s discuss the manufacturing industry. Several of the everyday issues that small manufacturers deal with can be resolved with digital infrastructure.
- Small businesses may benefit from startups by having access to formal funding, less expensive raw materials, larger ultimate markets, better warehousing and logistics, and more thorough quality control.
- Small manufacturers are encouraged to grow by giving them access to the benefits that larger ones enjoy (i.e., by simulating scale).
- In fact, there is already evidence that the “new” domestic services sector firms are entering the industrial space. Examples of these industries include procurement support, e-commerce, and transport services.
Why does this matter?
- A stagnant low- and medium-tech manufacturing sector lies at the core of India’s employment crisis. Too many manufacturing companies never benefit from economies of scale or generate enough jobs because they stay too small for too long.
- India has to implement changes that eliminate a lot of the barriers facing the manufacturing industry.
In summary:
- Much as the growth of contemporary services can stimulate manufacturing. Thus, it is encouraging to witness instances of international corporations shifting their focus from providing services to manufacturing things in India.
- The fact that service startups are branching out into manufacturing on a national level is positive. As a result, this may mark the beginning of a trend that propels economic expansion and employment creation.
