Trends in Indian Services Sector Exports

1991 - Present

Aditi Chakravorty – 01

Aditi Puri – 02

Akshat Awasthi – 03

Alok Dhodapkar – 04

Section B

Introduction

0Globally, the largest and fastest growing sector

0Reason for Growth of the service sector: 0 Increase in Urbanization & Privatization0 More demand for intermediate and final consumer

services

0Vital for the well being of the economy.

Indian Services Sector

0Post Liberalization

0 The Indian economy moved from agriculture based to a knowledge based economy

0 Contribution of Services to GDP has risen from 41% in 1990s to 57.8% in FY2010

0The entire decline in the share of agriculture sector in GDP, has been picked up by the service sector .

0Manufacturing sector’s share has remained more or less the same

0Service Sector Growth has been consistent during slowdown and constant since then

Country Comparison

Drivers of Growth0Strong growth in Foreign Demand – especially IT & ITES

0Deregulation & Liberalization of Foreign Investments

Other Factors0 Increase in Private Consumption of Services

0 Increased Industrial Service Outsourcing: industries now prefer outsourcing services previously produced in house

SECTORAL COMPOSITION OF SERVICE EXPORTS

Sector-wise Break Up0Contribution to GDP:

0 Trade, Hotels, Transport and Communication: 21.1%

0 Finance, Insurance, Real Estate, Business Services: 18.4%

0 Community, Social and Personal Services: 13.9%

FY 2010

Information Technology Services0 India ranks first before industrialised countries like Ireland,

UK, US and Germany 0 India is attractive because of its low cost of operations, high

quality of products and services and availability of skilled manpower.

rbi.org.in

0 India’s share of export of computer and information services in the total service exports is high compared to other countries

0The IT sector has seen an enormous growth in the last decade.

0Growth slowed down during the US subprime crisis but exports saw a rise nonetheless.

Finance and Insurance0The Insurance and financial services was 5.47% of

commercial service exports in 2008, according to the World Bank.

0The opening of the life and non-life insurance sectors to foreign investment in 2000 spurred considerable activity by foreign investors

Travel and Tourism0  The most favoured Asian

destination, India posted a 24% increase in foreign tourist arrivals in 2010 as compared to 2009.

0The number of foreign tourist visits during 2010 was 17.9 million compared to 14.4 million in the previous year, registering a growth of 24.2%

Source: TNN

Contribution to Forex Reserves0 The Indian tourism industry is expected emerge as a second

largest employer by 2019

0 Capital investment in the tourism sector is expected to increase by 8.8% from 2010 to 2019.

0 The foreign tourist arrivals (FTAs) in India during the year 2008 were 5.37 million registering a growth of 5.6% over previous year.

0 The foreign exchange earnings (FEE) from tourism during 2008 were estimated at 11.75 billion USD as compared to 10.73 billion during 2007, registering a growth of 9.5%.

Issues with Tourism

0The Mumbai terror strike and global recession has affected tourist arrivals to India

0 India needs to improve tourism infrastructure and services to catch up with other Asian tourism favourites.

Legal Services0 India’s prominence in the legal process offshoring

(LPO) segment is being widely acknowledged in the global market.

0Off-shoring legal work to India saves about 80 per cent of the cost that may be incurred in a developed country like USA.

Features of Indian Legal Services

0The cost of employing a fresh law graduate in the USA would be US $ 150,000 per annum as compared to US $ 15,000 per annum in India.

0Establishment cost to set up a legal firm in India is also low as compared to the USA or Europe.

0According to estimates, India is 40 times more cost effective than in the USA in this regard.

Barriers to trade in Services

0 Services trade often requires (temporary) movement of the provider or the consumer

0 Restrictions on services mostly arises from regulations and discriminating requirements regarding this movement

0Types of Barriers to Trade

A. Prohibitions to trade: Foreign access to service markets is completely forbidden

e.g., in case of transportation of goods within a country and basic telecommunication service providers

B. Restrictions to trade :(a) Quantity -based barriers (to service providers)

(b) Price-based barriers ( tariffs )

(c) Barriers that impose physical or corporate presence in a domestic market

(d) Licensing, Standards and Procedures of government procurement

(e) Regulations regarding marketing and distribution

The Flipside

The Flipside

0 Income grows faster than employment

0Service-led growth can have serious implications for inflation, income distribution and balance of payments

0Dependence on foreign Economies US and Europe have proven to be unstable in the past

Future Outlook and ChallengesTo fully exploit India’s service sector growth potential, carefully differentiated strategies need to be formulated:

0Maintaining balanced growth across all segments in the sector

0Retain India’s competitiveness in those sectors where it has already made a mark such as IT & ITeS and Telecommunications

0Making forays into globally traded services such as financial services, health care, education

0Making inroads into some traditional areas such as tourism and shipping

Future Outlook and Challenges

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