Significance of India’s Services Sector

Context

Talks regarding India’s economic future and potential paths to achieving its development objectives are commonplace. There have been debates on whether India should prioritize the expansion of its service sector over that of its industrial (manufacturing) sector in order to grow and prosper. The services sector, which includes the financial, healthcare, information technology, and tourist industries, has been a vibrant hub for innovation and growth in recent years. As the industrialized economies of today evolved, they progressively shifted their focus from agriculture to manufacturing to services; this is especially evident in the Asian economies of China, South Korea, and Taiwan.

Contribution of Services Sector to Indian Economy

• The Union Minister of Finance and Corporate Affairs recently unveiled the Economic Survey 2023–24, which emphasizes the critical role the services sector has played in India’s economic progress over the previous three decades. 
• The sector, which made up over 55% of India’s GDP in FY24, has prospered as a result of regulatory changes, better infrastructure, and enhanced logistics. 
• The quick transition to digital services, such as online payments, e-commerce, and entertainment platforms, has brought about a tremendous change.   
• Growth has always been spearheaded by the services sector, whose Gross Value Added (GVA) contribution has been rising sharply. The industry expanded by 7.6% in FY24, and gross GST collections increased by 11.7% from FY23 to USD 241.27 billion (Rs. 20.18 lakh crore). 
• According to the report, services exports have continued to grow steadily after the epidemic and made up 44% of all exports from India in FY24. In terms of services exported, India came in fifth place. The top four countries were China, the US, the UK, and the European Union (not including trade inside the EU). 

Concerns regarding Growth of Services Sector

• Lack of Skilled Workforce – The services sector is rapidly digitizing, making it necessary for a trained staff to stay up with technological improvements. The availability of workers with the necessary high-tech and digital capabilities is lacking, though. Currently, India generates over 2.2 million PhDs, postgraduates, and graduates in STEM fields. Unfortunately, with the training they receive, most of them are not employable.  
• Segmented Service Sector – India’s service industry is now highly fragmented. While low value-added, low skill services account for the majority of its job creation, high-tech services account for the majority of its output growth.  
• Access to Financial Resources – Obtaining financing can be challenging, especially for small and medium-sized businesses in the services industry. There are a number of programs in place to make credit more accessible, including Mudra Yojana, Start-up India, and Stand-up India.   
• Complex Regulatory Framework – Despite encouraging changes, the regulatory environment in the services industry is nonetheless infamously complicated. Even if programs like the Real Estate (Regulation and Development) Act, Start-up India, and the simplification of the GST have contributed to the creation of a more hospitable business environment, more work remains.    
• Data Protection – Concerns about cybersecurity and data privacy have grown in importance as services become more digitally connected. In light of this, the government is leading the charge to tighten cybersecurity measures in the services industry and protect customer data through data protection legislation and cybersecurity regulations.  
• Economic Uncertainties –  A major obstacle to input costs and service demand in the near term is the uncertain commodity prices and uncertain global economic outlook. Therefore, maintaining strong demand trends and skillfully handling pressure from rising costs and competition will be essential to the services sector’s resilience and ongoing expansion in the coming year. 

Way Forward for India’s Services Sector

• Value Addition, High productivity & Upskilling for Youth – It is necessary to prioritize upskilling more and allocate resources more wisely. The cornerstone of individual and societal production is a healthy, educated populace. It will increase output and make it possible to add value in more significant ways. 
• Upgrading Sector-wise Infrastructure – Upgrading the infrastructure according to sectors is crucial to guarantee that having the right skills for a certain industry results in viable job prospects and industry expansion.   
• Guidance for Boosting E-Commerce – Retailers that operate online have challenges related to data protection, cataloging, and online selling, which forces them to remain outside of the digital economy. Support networks like “Vyapaar Gyan Kendras,” which are comparable to Krishi Vigyan Kendras for agriculture, could help with this by offering advice, streamlining the onboarding process, and continuing support.   
• Addressing Logistics Concerns – Medium-skilled workers might find good jobs in the logistics industry. Logistics infrastructure can be revolutionized by embracing cutting-edge transportation tactics including utilizing inland waterways and digital platforms for dynamic freight bookings, automated cargo management, and simplified passenger scheduling in addition to route optimization.    
• PLI Scheme for Services Sector – Institutionalizing a productivity-linked income plan is imperative from the perspective of industrial strategy, particularly for the services sector. As a result, businesses in the services sector that demonstrate a discernible rise in labor productivity—either via deliberate skill- and training-building efforts, innovative R&D, or attrition—are eligible to get tax incentives on sales and revenues.   
• Maintaining Pace with Latest Technologies – Greater and more specialized abilities are required for the new jobs that the services sector is seeing emerge. According to a World Economic Forum research, there is a growing emphasis on digital literacy, AI and big data expertise, and cognitive skills like creative problem-solving and complicated problem-solving.   
  
  

SOURCE: The Hindu

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