Service Sector in India’s Economy: Performance, Problems and Prospects

1. Service Sector in India’s Economy: Performance, Problems and Prospects Country Paper Presentation In The Study Meeting on Expansion and Development of the Service Industry in Asia 17-20 June, 2008 At Seoul, Republic of Korea By : Dr Seema Joshi Sir RatanTata Senior Fellow Institute of Economic Growth Delhi

2. Firstly, what are the constituents of service sector in India? Secondly, how this sector performed on growth and employment fronts? Thirdly, what happened to service sector productivity in post 1980 period? Fourthly, what are the policies adopted by the government of India to promote the services sector? Fifthly, what are the problems or challenges ahead in this sector? Lastly, what are the prospects /potential for growth in this sector? Questions Raising

3. Composition of Service Sector in India Performance of Services Sector in India a. Sectoral Composition of GDP Growth b. Employment Scenario c .Productivity Growth in Service Sector --Post-1980 Scenario Policy Measures for the Development of the Services Sector Problems/Challenges Ahead Prospects for Growth in the Services Sector Conclusion Organization of the Presentation

4. Trade, hotels and restaurants Trade Hotels and restaurants Transport, storage and communication Railways Transport by other means Storage Communication Financing, Insurance, Real Estate and Business Services Banking and Insurance Real Estate, Ownership of Dwellings and Business Services Community, Social and Personal services Public Administration and defence Other services Composition of Service Sector in India

5. A Snapshot of Changes in Structure of Production in Indian Economy ‘Tertiarization’ of the Indian Economy

6. Structure of Employment Slow Changes in the Structure of Employment

7. Changes in the Structure of Employment Servicization of the Structure of Employment

8. Shares of Different Sectors in Increase of Employment Emergence of two patterns of employment generation Pre reform period : Primary Sector the main source of additional employment Post reform Period :Tertiary Sector main driver of additional employment generated

9. Sectoral Employment Elasticities A sharp drop in the labour absorptive capacity of growth in the economy during the post -reform period.

10. Rate of Growth of GDP and Employment, and Employment Elasticity

11. Output Growth (per cent per annum) Acceleration in the Growth Rate of Output

12. Growth Rate in Output per Worker (per cent per annum) Marked increase in Output per Worker in the Services Sector

13. Growth Rates in Total Factor Productivity (per cent per annum) Surge in TFP Growth Rates in the Services Sector

14. Extent of Permissible Foreign Equity in Sub Sectors of Services Sector in India 100% FDI in BPOs 100% in E-commerce activities 100% FDI in trading companies 100% FE in hotels, tourist related areas 100% FE in Infrastructure 100% in Hospitals, drugs & pharmaceuticals 100% in Advertising 100% in Film sector 100% in Air transport services by NRIs 100% FDI in printing technical and scientific magazines, periodicals & journals 74% in TELECOM 74% in Private sector banks 51% in Organized retail 49% in Insurance 26 per cent in Print media Policy Measures for the Development of the Services Sector

15. Lack of social infrastructure Lack of physical infrastructure Lack of IT infrastructure Lack of Agricultural and Industrial sector reforms Rupee appreciation and US sub-prime crisis Challenges in the field of IT and ITES like -- rising labour costs, -- rapid growth in demand for talented manpower/quality staff -- high attrition rate, -- outsourcing backlash -- social, economic, health, ethical and environmental implications Lack of conducive business environment Need for Good governance Problems/Challenges Ahead

16. Problems in the measurement of output , productivity Non-availability of data Availability of data after a time lag Entry of new species of services (like IT, ITES etc ) and lack of development of concepts Non-inclusion of unpaid households on the other Variation in the quality of each unit of the same service from the other Difficulty in achieving the same level of output in terms of quality Problems in measuring quality improvements Problems/Challenges Ahead

17. Growth Potential of IT and BPO industries Employment Generation Potential Revenue Generation Potential from total software and services segment Realization of 10 % of the potentially addressable global IT/ ITES market Increase in disposable income Increasing urbanization Growing middle class A population “bulge” in the working age groups Emergence of a wide array of unconventional /new services Prospects for Growth in the Services Sector

18. “…. The question for CEOs the world over is no longer “should my company go to India?”, but rather “can my company afford not to be in India?”. On the tourism front, it is Incredible India, but on the economic front, it is clearly Opportunity India….”. (Kamal Nath, Minister of Commerce and Industry) Conclusion

19. THANK YOU

20. About Dr. Seema Joshi • Merit-cum Brilliance Scholarship in B.A. • Gold Medal in M.A. • Qualified UGC Test for eligibility for Lecturership in January • 1991. • Fellowships in M.A., M.Phil. & PhD • Beginning of teaching Career from S.R.C.C., University of • Delhi, Delhi. • Worked as Reader of Economics, Kirori Mal College , • University of Delhi, Delhi. • Associate Professor-Urban Management (on deputation), • Indian Institute of Public Administration, New Delhi • from September 1, 2005 to May 8,2007 • First Recipient of Sir Ratan Tata Senior Fellowship • Areas of Research Interest : • Tertiary Sector , Social Sector and Gender Issues