Indian Service

7/28/2019 Indian Service

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Integrating Indias Service Sector with

the Global Economy

-An Overview of the Services Sector

National Consultation

Services Trade and Domestic Regulation in IndiaNew Delhi, Thursday, November 29, 2007

Dipankar Sengupta

University of Jammu

Debashis Chakraborty

Indian Institute of

Foreign Trade

Pritam Banerjee

George Mason University


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Overview and Recent Developments

India seen in last 10 odd years as the

emerging professional services hub of the

world

Indias competitive edge in professionalservices is compared with Chinas prowess as

a low cost global manufacturing hub

the services sector scenario in India is

complex

characterized by uneven development in

different types of services and across regions


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Overview and Recent Developments

Viewed from a global perspective- growing

importance of the services sector within the

Indian economy is not exceptional

India is a large emerging economy - extremelyheterogeneous - possesses an advanced

industrial and human capital base relative to

other developing countries


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A comparison of services/gdp shares


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A comparison of services/gdp shares..

The share of services for GDP in India is similar to Russia,Mexico and Brazil

economies with levels ofper capita income similar to Indiatend to have a lower share for services in their economies

Indias structural distribution between agriculture, services

and manufacturing is similar to middle-income economies(such as Brazil and Russia)-not surprisingper se.

India has a very large and diverse economy - technologicallyadvanced relative to other developing countries with similar percapita incomes- sheer size of the Indian economy and its

relative sophistication demands a greater amount oftransactions that require support services such as finance,transport and professional services


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Services as a share of GDP over time

19961997

19981999

20002001

20022003

20042005

India

30

35

40

45

50

55

60

65

70

75

80

Services as %of GD


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The Evolution of the Sectors

Compared..

Percent GDP

Agriculture Industry Services1960 58 15

1980 38 24

1990 33 27

2000 24 27


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Services: Before and after

Liberalization Before liberalization Services was the residual sector drawing

refugees from agriculture

Between 1996 and 2005- the triple impact of Indias externalliberalization, domestic economic reforms and the rise of aglobal market for skilled services facilitated by informationtechnology makes itself felt, share of services in Indias GDPgrew from just over 40% to about 54%.

Rapid growth of services in the economy, esp. in the externalsector- also facilitated by the fact services enterprises requiredlesser capital for start-up - less dependent on the Indiasrelatively poor infrastructure than manufacturing.

China, which has a far higher proportion of its economy in

manufacturing, and has emerged as the global hub for laborintensive manufacturing, has much better infrastructure thanIndia. Chinas better infrastructure facilitatedentrepreneurship in the manufacturing sector.


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Employment Share of Services

%Shareof National

Employmment inServices

1965 18.1

1980 18.9

1990 24.42000 23.5


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Growth of Services

An important feature of Indias growth -skewed towards services -described as joblessgrowth

Share of agriculture in the Indian economydeclined rapidly

Share of employment in agriculture hasremained the same- increasing share of

services in the GDP has not beenaccompanied by services claiming a largershare of employment in the decade of the1990s


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Growth in Services

growth in output in services in India in recent timeshas mostly come from the rapid development ofskill intensive services in the IT and professionalservices segments- oriented towards the external

market large proportion of services in India are a part of the informal

economy and the official employment figures might understate theactual size of the services workforce

there is a lot of cross-over between services and agriculture sector

laborers, i.e. many workers spend part of the year as agriculturalworkers and the rest of the year working in some service job such asinformal retail and construction work

There has been some debate on the repercussions of this skill biaseddevelopment of service sector jobs


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Regional Dimension

%Shareof National GDP%shareAgriculture%shareManufacturing%ShareServices%Professional Servic

Maharashtra 13.80% 7.53% 15.89% 15.65% 14.55%

AndhraPradesh 9.59% 11.04% 8.45% 9.35% 11.71%

Uttar Pradesh 9.63% 14.57% 7.44% 8.33% 8.67%

Tamil Nadu 7.85% 4.29% 8.27% 9.12% 8.60%

West Bengal 8.15% 9.48% 6.29% 8.17% 7.10%

Karnataka 5.55% 4.60% 6.09% 5.77% 6.91%Gujarat 6.69% 6.12% 11.83% 5.43% 5.66%

Rajasthan 4.47% 5.12% 4.27% 4.28% 5.39%

Kerala 4.20% 3.00% 2.58% 5.14% 4.38%

Delhi 3.62% 0.16% 1.92% 5.47% 4.29%

MadhyaPradesh 4.46% 5.85% 4.59% 3.88% 3.64%

Bihar 2.63% 4.17% 0.37% 2.69% 3.60%

Orissa 2.35% 3.64% 1.96% 1.95% 2.31%

Punjab 3.71% 5.99% 3.30% 2.93% 2.31%Assam 1.96% 2.72% 1.92% 1.68% 2.23%


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Trends and Composition

ServiceSector Output in2006(billionsof Rupee

Total National Output (GDP) 2604

Electricity,GasandWater Supply 57

Construction 177

Trade(WholesaleandRetail)* 369

HotelsandResturants* 35

Transport (other thanRailways) 139

Storage 17.

Communication 103

BankingandInsurance 159


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Growth in Services Uneven

Star performer has been professional services thatinclude IT and IT enabled services (ITES)

Services that serve as crucial inputs to workings of thenational economy (as support for agriculture andindustry) have not developed as fast as hoped


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Communication, construction and trade (wholesaleand retail) showed some of the fastest growthrates in this period- average growth of IT and ITESsector in the same period was around 25%,

comparable to the high rates logged bycommunication services.

Banking and insurance, electricity, gas and watersupply and storage have shown relatively slower

growth trajectories Deregulation and domestic reforms in certain

sectors have been more dynamic than others-communication and transport have seen greater

degree of positive reforms than banking andinsurance, electricity supply etc.


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Sectoral Growth in Services in India

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2001 2002 2003 2004 2005 2006

Electricity,Gas and Water Supply Construction Trade (Wholesale and Retail)*

Hotels and Resturants* Transport (other than Railways) Storage

Communication Banking and Insurance


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Sector-shares -2000-2006

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

Electricity,GasandWaterSupply

Construction

Trade(WholesaleandRetail)*

HotelsandResturants*

Transport(otherthanRailways)

StorageCommunication

BankingandInsurance

Service Sector share in GDP: 2000 and 2006

2000 2006


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IT and ITES Sector

0

5

10

15

20

25

30

35

40

2000 2001 2002 2003 2004 2005 2006

Total ITandITESOutput ITandITESExports


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Importance of this Sector

Indias boom in services export-almost entirelyattributable to the IT and ITES sectors

India has emerged as a prolific exporter of ITand ITES services in recent years

IT and ITES exports grew by 485% between2000 and 2006-output of IT and ITES grew by339% in the same period

Destination is US folLowed by EU


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Direction of IT & ITES Exports

%of Export

22.

7.

USA(andtheAmericas) EuropeanUnion AsiaandPacific Gulf States


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IT and ITES Export Trends

0

10

20

30

40

50

60

70

80

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

RBI (BoP) WTO/WorldBank


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Service Export Cross-Country

Comparions

AverageAnnual GrowthinServicesExports: 1991-200

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

World China India UnitedState


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India's IT and ITES

Exports Indias services export boom took off around 1997

has continued to grow despite the Asian currencycrisis that affected the other major serviceexporters. Indias services destination was primarily

the US and it was geared towards the Y2K relatedIT work, the demand for which remainedindependent of the Asian crisis.

Indias growth dipped after 2000 as the demand for ITwork post Y2K slowed down and the internet based ITbubble burst in the US-took off again around 2002 asthe ITES sector matured

Indian companies stated becoming trusted partnersof major US and EU based IT sector companies


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By 2004 India was displaying far higher growth ratesin terms of services exports compared to the worldaverage and that of China.

Indias share of the worlds export market forservices has also increased rapidly in the recentyears


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Cross-country Comparisons

Share of Global Services Exports

0.000%

0.500%

1.000%

1.500%

2.000%

2.500%

3.000%

3.500%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Brazil China India Mexico RussianFederation


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Share of World Services Exports Net of Travel and Transportatio

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Brazil China India Mexico Russia


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Service Imports

ServicesImport

0

10

20

30

40

50

60

70

80

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006


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Service Imports

Over the last 15 odd years India has become anincreasingly important importer of services, aboveand beyond the import of services related totransport and travel that every economy has to

import India now imports a large variety of services such

as banking, education, technical consulting etc.

India accounted for less than 0.3% of the world

share of services imports in 1990 In 2006 India accounts for more than 3% of the

worlds imports of services net of travel andtransportation, more than any other emerging

economy.


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Share of Imports nte of Transport

and TravelShare of World Imports Net of Transport and Travel: 1990-2006

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006



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Revealed Comparative Advantage

RevealedComparativeAdvantageof Commercial ServicesExports*: 2006

India 1.59

UnitedKingdom 1.42

Brazil 1.14

UnitedStates 1.09

Russia 0.78

China 0.74

Mexico 0.27

*Net of Government Services, Transport andTravel


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Position and Trajectory of India's

Service ExportsIf one traces Indias increasing RCA over thelast 17 years studies reveal that India overtookall the major emerging market economies interms of RCA in services right from the mid to

late 90s.


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Trajectory of Competitiveness

Revealed Comparative Advantage in Commercial Services (Net Transport an

Travel): 1990-2006

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006



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Has the Services Sector Started to

Influence the Rest of the Economy? Should it?

Glasmeier and Howlands (1994)- services as inputs to industryenhance their productivity and leads to competitiveness

Conjectures (subsequently corroborated) about services havebeen prescient and comprehensive and have pointed out the

organizational and institutional dimensions of certain services thatenhance the ability of firms to adjust to fluid conditions (Marshallet al1987).

Banga and Goldar-importance of services as an inputtomanufacturing has increased rapidly in the 1990s as compared to

the 1980s- partly due to trade liberalization policies that wereundertaken in the early 1990s onwards which in turn led toincreased competition- the exciting possibility that instead of theservices boom being undermined by demand not keeping pace,the industrial sector becomes increasingly service-intensive whichin turns ensures that the upswing in the services sector continues


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Summing Up..

The Transition in Services..

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