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Indian Service Sector: Poised To Take Off

India’s services sector attracts 20 per cent of India’s total FDI and investors find it appealing because of its global stature supported by a strong IT structure

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India has the right ingredients to be the world’s services provider in the coming decades. On the back of its software prowess and English speaking diaspora, it can cater to the world with ease and contribute 65 per cent to the country’s GDP. At the moment, India’s services sector attracts 20 per cent of India’s total FDI and investors find it appealing because of its global stature supported by a strong IT structure. IT, no doubt, is the dominant sector in India contributing to 40 per cent of the country’s GDP and will continue to grow at a pace of 12 per cent per annum.

However, the industry seems to be going through a churn due to the recent turn of events including protectionism policies by other nations. The sector is changing itself and embracing disruptive technologies such as the SMAC stack (social, mobile, analytics, cloud), AI, IoT, machine learning, augmented reality, virtual reality, etc.

The IT services industry, which derives majority of its revenue from the US market is under dual pressure. First, they are under pressure to innovate as clients are demanding more of the “change the business” kind of work rather than the “run the business” type. Second, these companies are under severe cost pressure as US President Donald Trump’s protectionist measures have made it mandatory to hire locally, which means higher costs for them.

Let us look at the larger picture. India’s services sector,  contributed around 66.1 per cent of its Gross Value Added (GVA) growth in 2015-16, thereby becoming an important net foreign exchange earner and the most attractive sector for FDI inflows. GVA, simply put, is the value of goods and services produced in an industry.

Moreover, the Central Statistics Office’s provisional estimates of GVA in FY 2016-17 indicate that the services sector grew 7.74 per cent year-on-year to Rs 21.43 trillion.

According to the Department of Industrial Policy and Promotion, India’s tertiary sector or the services sector attracted FDI equity inflows in the period April 2000-March 2017, amounting to about $ 59.47 billion, which is about 17.92 per cent of the total foreign inflows. Despite encouraging numbers, India’s services industry needs to make the services sector more immersive and more global with better packaging.

Fuelling The Economic Growth

With its potential to generate income and employment, the growth of the Indian services sector has been fuelling the country’s economic expansion for decades now. With increased employment, consumption has been on the rise as well, further impacting the economy positively.

According to Ajit Isaac, CMD and CEO of business service provider Quess Corp, “Digitisation is another factor that has transformed the way businesses operate, promoting a corruption-free environment that provides the platform for businesses to compete on an equal playing field.”

The past 70 years have seen the financial services industry in India open up in terms of access to capital markets for a wider set of companies, regulatory environments getting setup, electronic trading / electronic banking to start clearing of transactions. “Enough for the world to start taking notice,” says Chirag Nanavati, MD of wealth management firm Asset Vantage.

The next 30 years, digital initiatives such as the ‘India Stack’ will give the country a clear game changing advantage in terms of access to peer-to-peer transactions and financial information. Components of this will open up information sharing, while keeping privacy and security as top priorities for applications that will revolutionise access to capital and financial information.

Part and Parcel

Industrial spare parts segment is one of the largest growing segments since Independence. Says Ankit Mittal, CEO,, “Spare parts segment is expected to grow at the rate of 8.7 per cent till 2047.” He sees the competition from China as a big challenge, since they captured a lot of market share because of their prices. He agrees, the ‘Make in India’ initiative has given a big boost to the industries, but not as much physically only morally. “GST is helping the sector by reducing the tax burdens and providing ease of doing business as well,” says Mittal.

Logistics is a sector that has witnessed tremendous changes and is set to evolve in India with improving infrastructure and automation in the sector.  “There is renewed focus from the government to improve India’s infrastructural capabilities with a slew of initiatives like dedicated freight corridors, etc., which has brought the sector to the limelight,” says V. Balaji, CEO, Contract Logistics, Avvashya CCI Logistics. GST will be instrumental in bringing ease of doing business and lowering logistics cost to GDP from 13- 14 per cent to an indicative 10 per cent in the next 3-4 years.

The Game Changers

Healthcare as a sector is one that can’t afford neglect, be it a developed economy or a developing one. However, ironically, it is also a sector that struggles with huge gaps in delivery and patient outcomes, irrespective of  investments thrown towards the challenges the industry faces. Says Varun Gera, CEO and Founder, HealthAssure, “While we have seen great strides being taken in the last few decades in tertiary care and in the future, I hope to see a greater public private participation to drive digitally powered primary healthcare solutions and delivery channels that are both easily accessible and affordable.”

Another sector which cannot afford to be ignored is the education services sector. Along with improvement in literacy rates for women, the education sector in India is set to witness major growth in the coming years as India will have world’s largest tertiary-age population much before 2047. The education market in India is currently valued at $100 billion and is expected to be way above $500 billion by 2047.

Online education is now a global phenomenon that’s breaking physical barriers and aiding in creating customised solutions to suit the evolving learning needs of students. “Education is fast-becoming personalised, meaningful and high-impact. Such rapid technological transformations will add new dimensions to the education sector in the future,” says Vamsi Krishna, CEO and co-founder of Vedantu, an edu-tech startup.

In the banking arena, new payment avenues by fintech startups marks the opening up of digital payments in industries, which were restricted to cash-only transactions earlier. On the insurance service sector, Tarun Chugh, MD & CEO, Bajaj Allianz Life Insurance, says, “Since the liberalisation, the insurance service industry has recorded a significant growth, led by innovation, distribution channels, increased customer centricity and penetration into tier-2-4 markets, supported by multiple bank tie-ups.”

So, needless to mention, India’s services sector is moving towards a bright future. Over the past couple of years, India has witnessed the onset of startups, which will further boost the services sector. India is poised to shift to a technology driven stance to solve its real needs, much before 2047.  

With inputs from Ayushman Baruah

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