Service sector

Service sector needs equal recognition as agriculture and manufacturing Abhay Sinha

Considering the resilience of the service sector during the pandemic, we must provide it with a playing field with manufacturing, incentives and support to overcome the post-pandemic scenario and the damage caused to the tourism sector due to war. Russian-Ukrainian company, said Abhay Sinha, managing director, Service Export Promotion Council, in an interview with BW Businessworld. Edited excerpts:

What is the current state of the service industry in India?

Services remain the fastest growing sector of the Indian economy with immense potential. Despite the pandemic, it is the only sector that has shown resilience and experienced negative growth of only 3%, from USD 213 billion in 2019-20 to USD 206 billion in 2020-21.

The services sector continues to perform well and was also able to maintain its share in total exports and trade surplus in the fiscal year 2021-22. India’s services exports set a new record of $254.4 billion in the last financial year. This new record reached in 2021-22 beats the previous record of USD 213.2 billion in 2019-20. In FY 2022-23, services exports are expected to exceed $300 billion again and are on track to reach the target of $1 trillion by 2027.

The value of import-export goods from India has seen an increase of almost 40% in the financial year 2021-22, reaching a record of $417.8 billion and exceeding the target set by the government from 5% last year. It should increase much more this year.

Service sectors that are directly related to international travel such as travel and tourism, travel with medical value, education, aviation, etc. are having a bit of a hard time recovering as foreign tourists, patients, students and trade commissioners etc. still avoid overseas travel due to travel restrictions on many major routes and strict protocols.

However, the travel, tourism and hospitality sector is on the way to recovery. In fact, it has been observed based on the latest available data that global international tourist arrivals more than doubled in January 2022 compared to 2021, growing at the rate of 130%.

Sectors that have more trade under mode 1 (cross-border supply) such as IT and ITES, consultancy services, accounting and financial services, etc. weren’t affected much.

Apart from IT&ITES, there are several other sectors that are performing well and growing at a rapid pace. These include consulting services, AVCG (audiovisual and gaming), travel and tourism, logistics services and other fintech-led business services.

What are the major changes you have witnessed in the export of services before and after Covid-19?

Sectors such as tourism and transport services and education-related travel are among the activities most affected by the pandemic. This not only affects students, but also the income-based economy. While services supported by digital technologies like telemedicine, online education, e-commerce, and social and video streaming platforms are growing exponentially.

Digital transformation and technology applications across industries are helping to create flexible, high-end, and sustainable business solutions.

The challenges we are currently facing are very different from those of the pre-pandemic stature, hence the need for more refined and acute policies for the sector at this time. As international travel has picked up, we expect the sector to fully recover with better results in the year with easy trade flow in the near future. We are surely anticipating further government support measures to strengthen the weak segments of the sector this year.

What steps are needed to develop and promote services exports to create a business environment?

Considering the performance and resilience of the service sector during the pandemic, the need of the hour is to provide the sector with a level playing field with manufacturing and incentives and support to overcome the post-pandemic scenario and the damage caused to the tourism sector due to the Russian-Ukrainian war.

However, India’s travel and tourism sector is on the road to recovery. India’s tourism exports had grown rapidly in the pre-covid period, but India’s market share in the global market was close to 2%. There is great potential for growth in India’s tourism exports by attracting tourists currently visiting competing countries such as ASEAN and China.

It is high time that a shift in perception towards services was just as important as the industry gains momentum. Services are a major source of employment along with the agriculture and manufacturing sectors. Capital-intensive sectors like education, aviation, healthcare, research and development will gain hugely.

Similar models for other sectors such as professional services, tourism and hospitality can be developed. Interacting with industry on alternative models, including something similar to the LIP, can benefit the entire ecosystem.

Do you think there is a need to redefine the service sector globally? If so, how can we do this?

Currently, digitalization has transformed the growth of the service industry enabling unlimited scaling of businesses. Globally, there needs to be industry standardization with interoperability, information transparency and digital transformation at the forefront. Since services are a major source of employment, they must adopt and adapt to technological progress.

As one of the leading industries that has shown resilience and grown tremendously with minimal support, there needs to be a recognition, appreciation and incentive approach for the service sector. Contributing to the country’s GDP, employment, FDI inflows and exports requires unique and specific policies that are subjective to the sector.

The service sector needs to be recognized like other important sectors like agriculture and manufacturing. Further streamlining data issues and creating a structure for consistent and sustainable data availability of data services universally, both at aggregated and disaggregated level, will go a long way in understanding and analyzing the industry for better growth.