Editorial     

Published: August 15, 2024
Updated: August 15, 2024

Unleashing 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.

The growth of India's service sector has drawn global attention because, unlike other countries where economic growth has led to a shift from agriculture to industries, India has registered a shift from agriculture to the service sector. The growth of the service sector has led to the development of various industries such as IT, healthcare, tourism, transport, and finance, among all others.

India's booming service industry is a remarkable illustration of how modern economic growth models can outperform traditionally established ones. India has the fastest-growing service sector which is contributing over 50% to the country's GDP. This sector has witnessed 10.8% growth in the first half of 2021-22 and as per first advance estimates, the gross value added (GVA) in the service sector is estimated to grow at 9.1% in FY23. The growth of India's service sector has drawn global attention because, unlike other countries where economic growth has led to a shift from agriculture to industries, India has registered a shift from agriculture to the service sector. The growth of the service sector has led to the development of various industries such as IT, healthcare, tourism, transport, and finance, among all others.

The remarkable growth of the service sector has been supported by several factors such as the increasing number of educated and skilled workers, the growth of the middle-class population, and the emergence of the digital economy. The IT and IT-enabled services (ITeS) industry is one of the most significant contributors to the service sector in India. The revenue of the ITeS sector reached 3.1 trillion with a growth of 13-15% across all three key segments- customer relationship management (CRM), knowledge, and transactions.

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. The service sector has tremendous growth potential. The Government should make all possible efforts to unleash this potential.