EVOLUTION GROWTH OF SERVICES SECTOR IN INDIA

Presented by

NARESH

Growth in services

– Growth in output in service in India in recent times has mostly come from the rapid development of skill intensive services in the IT and professional services segments-oriented towards the external market

– Large proportion of services in India are a part of the informal economy and the official employment figures mighty understate the actual size of the services workforce is a lot cross-over between services and agriculture sector laborers

– There has been some debate on the repercussions of the skill biased development of service sector jobs

Small brief about service sector

– Services sector is the lifeline for the socio-economic growth of a country. It is today the largest and fastest growing sector globally contributing more to the global output and employing more people than any other sector. In alignment with global trend, the Indian Services sector has witnessed a major boom and is one of the major contributors to both employment and national income in recent time. Services sector in India today accounts for more than half of India’s GDP. Since independence, there has been a marked acceleration in Services sector growth in India. This paper provides an overview of the Indian Services sector. It shows that this sector is the fastest growing sector in India, contributing significantly to GDP and GDP growth rate. However, there are some concerns.

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Service Sector in India

– The services sector with an around 57 per cent contribution to the gross domestic product (GDP), has made rapid strides in the last few years and emerged as the largest and fastest-growing sector of the economy. Besides being the dominant sector in India’s GDP, it has also contributed substantially to foreign investment flows, exports, and employment. India’s services sector covers a wide variety of activities that have different features and dimensions. They include trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, & business services, community, social and personal services and services associated with construction. Services in India are emerging as a prominent sector in terms of contribution to national and states’ incomes, trade flows, foreign direct investment (FDI) inflows, and employment.

– The compound annual growth rate (CAGR) of services sector GDP was 8.5 per cent for the period 2000-01 to 2013-14.

– As per the survey, in India, the growth of services-sector gross domestic product (GDP) has been higher than that of overall GDP between the FY01- FY14. Services constitute a major portion of India’s GDP with a 57 per cent share in GDP at factor cost (at current prices) in 2013-14, an increase of 6 per cent points over 2000-01.

– The shift from primary and secondary activities to tertiary activities by the citizens of a country indicates that it is on the path of progress. The growth in the services sector can be attributed mostly to the emergence of the Indian Information Technology (IT) and IT enabled Services (ITeS) sectors as well as e-commerce.

Key drivers of growth in the Service sector

– Low cost of operation and tax advantages

– Rapid industrialization and growth of IT parks in the country

– Supportive government policies

– Availability of technically skilled manpower and readily available resources in the country.

– Rapid introduction of IT technologies in major sectors such as telecom, BFSI.

– Strong growth in export demand

– Use of new technologies like cloud computing

– Government established SEZs

Contribution of IT sector

– IT and ITeS: Leading services segment

– India’s technology and BPM sector (including hardware) is estimated to have generated US$ 146 billion in revenue during FY15 compared to US$ 118 billion in FY14, implying a growth rate of 23.72 per cent

– The contribution of the IT sector to India’s GDP rose to approximately 9.5 per cent in FY15 from 1.2 per cent in FY98

– TCS is the market leader, accounting for about 10.1 per cent of India’s total IT & ITeS sector revenue

– The top six firms contribute around 36 per cent to the total industry revenue, indicating the market is fairly competitive

Growth in service sector

Segments of Service Industry in India

– Information Technology

– Trade

– Education

– Media

– Hospitality, accommodation and food services

– Entertainment, culture and recreation

– Transportation and warehousing

– Storage

– Communication

– Healthcare & social assistance

– Tourism

– Public utilities

– Real estate and leasing

– Business support services

– Professional, scientific and technical services

SWOT analysis on Indian Service sector

Strengths

– Highly skilled, English-speaking workforce.

– Abundant manpower

– Cheaper workforce than their Western counterparts. According to Nasscom, The wage difference is as high as 70-80 percent when compared to their Western counterparts.

– Lower attrition rates than in the West.

– Dedicated workforce aiming at making a long-term career in the field.

– Round-the-clock advantage for Western companies due to the huge time difference.

– Lower response time with efficient and effective service.

– Operational excellence

– Conducive business environment

– High technology for database.

Weaknesses

– Recent months have seen a rise in the level of attrition rates among ITES workers who are quitting their jobs to pursue higher studies. Of late workers have shown a tendency not to pursue ITES as a full-time career.

– The cost of telecom and network infrastructure is much higher in India than in the US.

– Lack of financial suppliers

– Local infrastructure

– Political opposition from developed countries

Opportunities

– To work closely with associations like Nasscom to portray India as the most favoured ITES destination in the world.

– Indian ITES companies should work closely with Western governments and assuage their concerns and issues.

– India can be branded as a quality ITES destination rather than a low-cost destination.

– Development market

– Provide more security and effective database environment

Threats

– The anti-outsourcing legislation in the US state of New Jersey. Three more states in the United States are planning legislation against outsourcing Connecticut, Missouri and Wisconsin.

– Workers in British Telecom have protested against outsourcing of work to Indian BPO companies.

– Competition: Other ITES destinations such as China, Philippines and South Africa could have an edge on the cost factor.

– Slowdown of demand

– Customer indecisiveness: the requirement change and change often