Editorial     

Published: Apr 15, 2023
Updated: Apr 15, 2023

Unleash potential of service sector

In recent years, the service sector has emerged as the key driver of India’s export growth, driving this growth with a diverse portfolio of services ranging from travel-tourism, transport and insurance to information technology. In fact, this sector is now a powerhouse behind India’s economic growth and contributes nearly 54 per cent of India’s GVA (Gross Value Added) of Rs 179.15 lakh crore.

Usually, the natural economic development of any country begins with a farming/agrarian economy, moves on to an industrial economy and then to a service economy. However, in the case of India, the country has leap-frogged from an agrarian economy directly to a service economy.

The growth of the service sector is India is fuelled by factors like:

• Opening of the Indian economy to global markets, thanks to an epoch-making initiative by Narasimha Rao, the then Prime Minister, and Dr Manmohan Singh, the then Finance Minister, in 1991.
• Increase in the purchasing power of the middle class with rising income, growing aspirations and improving standards of living.
• Improvement in the status of women with the encouragement of education for girls and empowerment of women.
• Growth of the Information Technology (IT) sector with growing use of PCs, spreading the message of technical education and promoting software exports as well as penetration of the Internet.
• Demand for healthcare with spreading of the message of the importance of good health, enhancing the lifespan of Indians and improving standards of living.

The service sector not only contributes significantly to India’s GDP but has also played a very significant role in attracting foreign direct investment (FDI) into the country, thus strengthening the Indian economy.

Today, the service sector is crucial to the dynamics of India’s exports. Interestingly, midway through the 1980s, the service sector had already begun to expand, while its pace of growth started improving in the new millennium. In 2010, service exports crossed $100 billion and reached $140 billion in 2012. Thereafter, rising at an annual average growth rate of 6.9 per cent, the number has nearly doubled during the last 10 years to $273.57 billion – an all-time high in the history of the country.

“Trade theory suggests that a country exports a commodity or service which intensively uses resources that are in plenty in the country. India’s endowment of human capital, including analytical skills and better spoken English as compared to the Chinese, helped the country to become competitive in IT and BPO services in the emerging economies since the start of India’s globalisation process.”

The government of India has set an ambitious target of $ 1 trillion in service sector exports by 2030.

The IT and ITeS sector is the major contributor to India’s service sector exports, accounting for the highest share in total service exports. In fact, during fiscal 2021-22, IT services alone accounted for almost half of the total services from India. If the 2030 target of one trillion dollars is to be achieved, the IT sector will have to perform a pivotal role.

No doubt, the government has taken various policy decisions and several steps to boost exports of the service sector. However, there are some tax-related issues which still need to be addressed to support export growth and achieve the ambitious target of one trillion dollars.