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Service sector to drive India's GDP growth

Fakir Chand in Bangalore

For a change, the traditional agriculture and manufacturing sectors of the Indian economy have taken a back seat, paving way for the dominance of the growing service sector, riding on the convergence of the new technologies for faster and efficient delivery.

Coincidentally, at a time when the manufacturing sector has been reeling under stagnant growth during the last couple of years, it is the record contribution of the service sector that has been saving India the blushes whenever its GDP growth figures are totted up by the government.

The two-day National Service Sector Conclave 2002, organised by the (Confederation of Indian Industry) CII Institute of Quality in Bangalore on Friday has reinforced the belief that the service sector will be playing a major role in driving India's GDP growth rate during this decade.

Even as the other two sectors of the economy, viz., manufacturing and agriculture grapple with the cyclical demand-supply syndrome, the service sector appears to defy the recession and surge ahead to contribute a whopping 49 per cent of the GDP, growing at a healthy rate of 8-10 per cent over the last five years.

Setting the agenda for the next phase of growth in the sector, newly appointed deputy governor of Reserve Bank of India Rakesh Mohan said India had to catch up with other developed countries in setting benchmarks for standardising the quality and competitiveness of the services being offered, be they financial, healthcare, education, etc.

"The world over, about 40 per cent of the foreign direct investment flows go into the service sector, but in India the concentration is still in the industrial sector. We need to move up the value chain to attract huge FDIs in the service sector to leverage our inherent strengths in human and natural resources," Mohan declared addressing about 500 delegates participating in the conclave.

"In 2,000, the export of services globally was a staggering $1.4 trillion as against a few billion dollars earned by the Indian service sector. The sector has to mature strong enough to begin attracting FDI as in the case of other sectors of the economy, especially infrastructure and production.

"Though India is emerging gradually as a center of excellence in some specified service industries such as software, biotech, healthcare, and higher or technical education, there is a need to evolve robust quality systems and effective delivery mechanisms to be on par with the best in the world," Mohan asserted.

If the service sector has to drive the GDP growth rate and increase its share to the world average of 60-65 per cent, its vertical segments have to tap the global market aggressively, taking advantage of the low-cost operations, wealth of talent pool, and the domain knowledge of the emerging technologies.

"The Indian IT industry, especially its software services sector has shown the way by its path-breaking dominance of the global technology market. Other key service sectors like healthcare, higher education, tourism, retailing, and logistics have to ramp up their delivery models to enter the export market," Mohan exhorted the delegates.

Apart from driving employment generation, the service sector will be able to play a dominant role in activating the infrastructure and industrial sectors, as they are inter-dependant for the uniform growth of the economy.

"In a liberalised economy, it is now the turn of the private enterprises to enter the service sector in a big way, taking advantage of the deregulation and pro-active policies of the Center and various state governments.

Though sectors like financial, healthcare and education have been in the public sector domain over the decades, driven by institutional or budgetary support, the huge fiscal deficit, interest burden, and international commitments have dried up government resources to expand the sector to meet the growing needs of a billion population.

Citing the illustrative example of the Indian software services sector, which grew phenomenally due to virtual absence of government role in its operations, Mohan said the increasing privatisation of healthcare and higher education would accelerate their growth and development, attracting huge investments from domestic and foreign investors.

Earlier, inaugurating the conclave on behalf of Karnataka chief minister S M Krishna, minister of state for IT and Tourism D B Inamdar said the service sector was clearly emerging as the new engine of economic growth. The sector needs to be geared up for improving the quality of life and play a greater role in the economic development.

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