Indian Service Sector Essay Example
Indian Service Sector Essay Example

Indian Service Sector Essay Example

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  • Pages: 8 (1929 words)
  • Published: April 30, 2018
  • Type: Case Study
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In spite of the macro factors such as demographics and potential for technological ‘catch-up’, India may surpass these dynamic economies in the next fifty years, according to studies by notable analytical organizations. If these projections are accurate, by 2050 India could become the third-largest economy globally, trailing only the United States and China by a wide margin. This outcome would seriously shift the world’s economic balance. However, this study does not aim to prove or disprove these positive projections, as too many factors cannot be predicted, such as the ongoing ability of Indian governments to sustain reform programs over extended periods. Instead, the study asks how this outcome may be achieved and its potential for generating opportunities for Australian service providers. Lastly, Australian businesses should consider various factors on the way as they decide whether to be part o


f India’s growth or not.According to Panagariya (2005), growth in India during the 1980s was erratic, with a strong period between 1988-89 to 1990-91 due to liberalization and expansionary policies under Prime Minister Rajiv Gandhi, followed by an economic crisis in June 1991. However, sustained economic growth occurred with the implementation of more comprehensive reforms starting in 1991. The services sector has been crucial to India's recent growth, with high-end, knowledge-intensive services exports leading the way. Since the reform effort in 1991, services have consistently grown at a faster pace than the overall economy, accounting for around 60% of India's GDP based on the WTO definition which includes construction. In contrast, manufacturing has maintained a static share of around 20%, while agriculture has decreased despite being the largest employer. This report focuses on the services sector due

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to its central importance to India's current economic expansion.According to the IMF in 2006, India has seen the strongest growth in productivity in the services sector compared to other regions worldwide. While India's economy is not static and other sectors are still important, the size of the services sector and its role in driving growth means it will continue to be critical. This differs from the typical growth path, since the services sector in India became dominant before the agriculture and manufacturing sectors. To ensure sustainable growth, Indian policy-makers must focus on improving conditions for the growing rural working class by creating appropriate jobs that benefit all levels of society and support the reformist approach that has led to recent growth.The economy has experienced growth since 1991, primarily in a knowledge-intensive sector that is not conducive to low-skilled employment. However, there is a potential solution to this issue according to fieldwork conducted during this study. Participants in the Indian economy believe that growth in dynamic services export sectors such as Information Technology–Information Technology Enabled Services (IT–ITES), and the resulting income, could stimulate domestic demand and lead to development and job creation in other sectors, including infrastructure development, construction, manufacturing, and retail. This growth in other sectors, especially manufacturing, could ultimately provide the necessary jobs over time. Chapter 1 elaborates on this idea, which offers a plausible road map for current developments to lead to long-term projections.The Executive Summary, found on Page iv, provides a framework to analyze India's services sector as a whole. This highlights the various roles that different sub-sectors may play as the economy grows. As such, Australian services providers can expect different

types and timeframes for opportunities to arise. Chapter 2 examines the different roles of each sub-sector. In general, IT-ITES has performed well due to a lack of regulation, while deregulated areas, such as telecommunications and domestic air travel, have also excelled. The faster growing services sectors have benefited from inward investment flows resulting from relaxed restrictions on foreign investment and Special Economic Zones (SEZs). Knowledge-based industries have also been successful due to the low-cost educated workforce, technological advancements, and widespread English language capabilities, enabling them to take advantage of modest capital requirements and the lack of regulation.

While the IT-ITES sector is praised for its rapid export-oriented expansion, several other significant services are experiencing strong growth in India. These include telecommunications, financial services, consulting services, private healthcare, and biotechnology services. Such high-end services play a crucial role in India's overall development on two levels. Their expansion is largely based on external demand, resulting in increased export earnings, foreign direct investment, and representation of most global major companies within India. This success is expected to promote further expansion in the IT sector, generating more domestic demand, employment opportunities, and requirements for new buildings and infrastructure. Along with an increasingly affluent consumer demographic, India's knowledge-based services are essential in improving productivity for sectors such as manufacturing, retail, and logistics. Other service sectors also have a vital role to play as growth persists.

A modern economy necessitates efficient telecommunications infrastructure to facilitate swift information exchange among economic units, along with a financial sector capable of sophisticated intermediation between capital providers and users to enable resource allocation efficiency. Additionally, there must be advancements in transport and power infrastructure to

prevent production disruptions and ensure efficient movement of goods, along with education and training to furnish skilled labor required for economy modernization. The enabling sub-sectors' reform measures differ broadly, but most services have been less regulated than manufacturing. Although significant changes have transpired in the finance sector, foreign investment in banking and insurance is still heavily restricted. While ports have opened to competition, the transport infrastructure sector's state is mixed with railways and roads requiring considerable investment to attain acceptable standards.The modernisation of airports in India is facing delays and struggling to keep up with the rapid expansion of air travel. There are also power shortages that hinder growth. However, the government is taking measures to tackle this issue, including promoting private and international investment. Legal, accountancy and retail sectors are still protected from foreign competition, but as reform and growth continue in other areas, these sectors may also face pressure to deregulate and modernise. Despite challenges, shopping malls, hypermarkets and department stores are emerging, requiring new skills and modern distribution systems. Although complete liberalisation of foreign investment rules is politically difficult, pressure for change will likely increase as Indians travel abroad and experience international service standards.The Indian economy's foreseeable changes offer Australian services providers various opportunities to participate in the country's ongoing growth, extending beyond the IT-ITES sectors. Chapter 3 digs deeper into these potential sectors. The tradability revolution in services propelled by India highlights the country's role in leading the phenomenon. While the trend towards offshoring to India is well-known, it also imports services on an increasing scale, reflecting a global transformation in service production and delivery methods. Major Indian IT companies like

Wipro, Infosys, Tata Consulting Services, and Satyam have been expanding their reach, creating employment in overseas markets, including Australia, mirroring developments in the manufacturing sector. Services trade has quickly increased due to fragmented production and specialized activities occurring in different locations.Australia has strengths in high-end services such as ICT-enabled research and analysis, making it well-positioned to participate in emerging services production networks. Indian IT companies in Australia focus on providing solutions to local companies but some of them are also using their Australian subsidiaries to take advantage of global market opportunities, leading to high-quality employment opportunities for Australians. As international services networks continue to develop, cooperation and collaboration between Australian and Indian firms could expand, benefiting both countries. Australian companies should recognize the export opportunities created by complementarities between Indian and Australian service providers. India has world-class expertise in IT-ITES, but Australian companies also have significant expertise that could augment India's capabilities or meet their needs. Relevant areas for cooperation include infrastructure development and related consultancy services, information technology, telecommunications, financial services, tourism, and travel-related services, film and television.Various industries hold potential for economic growth and development between India and Australia, such as sports infrastructure for the 2010 Commonwealth Games in New Delhi, healthcare and biotechnology services, mining, retail and logistics, as well as legal and accountancy services. Education and training also demonstrate significant potential, with over 38,700 Indian students enrolling in Australian institutions in the 11 months leading up to November 2006. This number continues to increase, presenting opportunities for further growth in the future. Additionally, Australia's focus on building bilateral commercial activity has resulted in a strong trading relationship between the two nations,

supported by various visits from senior Australian officials including Prime Minister Howard in March 2006.The Trade and Economic Framework (TEF) between Australia and India was established in March 2006, providing a structured approach to advancing commercial relations. Australia considers India to be their twelfth most significant trade partner, with total trade reaching over A$10 billion in 2005-06. India's rapid growth has resulted in a rise of related industries, particularly education exports, causing them to become Australia's second fastest-growing services export market in the past five years. Despite widespread corporate relocation to India, bilateral services trade favors Australia. Although Australian direct investment in India's services sector is currently low, new investment decisions and contract conclusions indicate an upcoming increase. Indian companies have already contributed significantly to Australia's IT services sector through investments. The knowledge-intensive service-driven development India has pursued only strengthens their prospects for future growth alongside Goldman Sachs' robust growth trajectory projection.The Indian economy's continued growth, improved employment, and welfare are still uncertain, with various pessimistic scenarios possible. The World Economic Forum worked with the Confederation of Indian Industry and identified three possible outcomes for the Indian economy's future. Only one scenario guarantees strong growth and development, while the others lead in a different direction. Chapter 5 of this report will discuss the relevant considerations for Australian companies looking to involve themselves more in India as a service market. It is crucial to question if succeeding governments can maintain reform's momentum, although there is support for ongoing reform. However, significant reforms in labor policy, privatization, and foreign participation are challenging to achieve. While low-profile administrative measures can make a difference, major reforms need attention.

To achieve necessary political support, it is essential to ensure widespread distribution of economic growth benefits. Despite facing competition from larger players such as the United States, Europe, and China, Australian companies benefit from favorable Indian perceptions of their country. India views Australia as a safe, reasonably priced, and friendly destination for education, where English is widely spoken. The capacity of cricket to foster goodwill should not be underestimated. Although there are some similarities in the legal systems of both countries, these should not be exaggerated. Moreover, people-to-people links through migration and education present a potential asset for exploiting trade and investment opportunities. Recent government-led business missions aimed at broadening the base of business relationships in India have raised Australia's profile and enhanced Indian awareness of Australian capabilities and expertise in several areas. However, smaller Australian companies face significant challenges while exploring the potentially attractive Indian market.

To achieve success in the business environment, significant investment of time and effort is required along with the persistence and fortitude to overcome setbacks and delays. One of the main challenges faced is the inadequate power and transport infrastructure, as well as formal and informal barriers and burdens within the regulatory framework. Although there has been increasing automation of transactions and reduced bureaucratic discretion over licenses and permits, and the presence of a free and critical media has improved transparency for businesses, issues still persist according to feedback from those active in the Indian market. Building a successful business in India requires thorough research and preparation, careful selection of partners or customers, and a long-term market perspective.

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