Dynamics Of Indias Service Sector

Updated: Jun 28 2004, 05:30am hrs
Although Indias growth is increasingly service-sector driven, detailed studies of this sector are relatively few and far between. The RBIs latest monthly bulletin has a report on growth, savings and investment which states that services contributed as much as 57% to real FGDP growth in 2003-04. During the 1990s as well, this sector made a similar order of contribution to overall growth.

Economists have taken note of this trend as being in line with modern economic development, which is associated with a rising share of industry and services at the expense of agriculture in GDP. Since the 1990s, for instance, the share of services has risen from 47.5% to 56.1%, while that of agriculture has decli-ned from 31.5% in 1992-93 to 22.2% of GDP in 2003-04.

Indias services-driven growth reflects the increasing synergies with the commodity-producing sectors, booming demand for consumer services and external demand for IT and business process outsourcing servic-es. According to the World Bank,* Indias position as one of the most dynamic suppliers of software services is reflected in a share of world exports as high as 17%, compared to 3.2% in textiles and apparel.

Indias services exports are also getting more specialised. Between 1995-2002, the share of software exports has risen from 19% to 34%. In 1997-98, 96% of all software exports were in the form of services like custom application development, IT training and education etc, with BPO services accounting for the rest. In a span of four years, BPOs share has burgeoned to 24% of total software exports.

There are also striking changes in the delivery mode of software exports, with offshoring now becoming the dominant mode. The Bank argues that the above-mentioned sub-sectors have boomed due to access to external markets and dom-estic reform while those less open have languished. IT business services (21.1% per annum) and communications (15.1% per annum) have grown faster during the 1990s, attracting more FDI than less liberalised ones.

For instance, construction has a number of regulatory impediments and has remained small, fragmented and characterised by low levels of productivity. Its growth during the 1990s was a low 5.2% per annum. Indias largest services sector distribution still remains one of the most protected sectors and is also fragmented. Its growth was 8.1%.

Others that have experienced little reform or remain closed include postal and rail transport, accountancy, legal profession. The benefits already realised in the liberalised service sectors in terms of faster growth and global presence constitute a persuasive argument for further liberalisation of Indias service economy.

*Sustaining Indias Services Revolution: Access to Foreign Markets, Domestic Reform and International Negotiations, 2004