Destination India: Why Services Sector Is The Next Big Opportunity To Achieve $5-Trillion Economy
India in 2047 can exceed a per capita income of $26,000 – almost 13 times the current level, a study by PWC showed
India has made tremendous progress over a period of time. Since its independence in 1947, the country has developed in leaps and bounds. From being a predominantly agrarian economy, India has transformed into a services sector-oriented economy that contributes over 50 per cent to the GDP. On the other hand, agriculture now contributes around 20 per cent.
India, which has overtaken the UK to become the world's fifth-largest economy, has created a strong economic base and is poised to achieve the status of a developed country over the next 25 years. A PWC study pointed out India in 2047 can exceed a per capita income of $26,000 – almost 13 times the current level. This is both possible and plausible in USD terms and not on purchasing power parity (PPP) terms, and India can achieve this if its services sector continues to flourish.
In its report PWC stated, for market seekers, the scale and emerging consumption patterns that India could offer over the next quarter of the century are immense. With a large domestic consumption base, seventh-highest final consumption expenditure in the world, 10 private consumption and government consumption making up over 70 per cent of the GDP, and per capita income poised to grow at rapid rates, there are potential opportunities for market seekers.
According to the World Economic Forum’s report on the Future of Consumption (2019), India will add around 14 crore middle-income and 2.1 crore high-income households by 2030. Upper middle-income and high-income households will drive 61 per cent of the consumption in 2030 compared to 37 per cent in 2018.11 While there may be some undershoot of these numbers owing to disruptions caused by the pandemic, the trajectory is likely to be similar.
The median age of the Indian population is projected to be 31 in 2030 compared to 42 in China and 40 in the US, thereby making India a country with the largest working-age population in the world.12 And by 2030, 9 crore new households will be headed by millennials. These digital natives will have a vastly different approach to consumption and expectations regarding service delivery by both the government and private sectors.
With growing per capita incomes, India@2047 will be comparable to current day economies such as Spain and Portugal that currently have a per capita income of around $25,000.13 However, the catch-up needed to meet the aspirations of young and upwardly mobile Indians is immense. For instance, life expectancy in Spain and Portugal is around 80 years, while maternal mortality is under 0.10.
Sunil H Talati, chairman of Services Export Promotion Council (SEPC), has said that the services industry has emerged as a proven strong pillar in balancing the trade deficit as well as a tool to attain sustained growth. Infact, it has shown strong resilience even during the pandemic and reached a remarkable figure of $254 billion in 2021-22 and expected to touch nearly $350 billion in 2022-23.
A look into India’s key services sectors
Telecommunications
India is the world’s second-largest telecommunications market with 116 crore subscribers.
Consultancy
FDI equity inflow for the consultancy services industry in India reached a new height of $1.05 billion in FY20. India’s trade with the world in consultancy services was $54.2 bn in 2019.
Education
India is known as a low-cost and high standard education destination. There are 935 universities in the country, including 409 state universities, 127 deemed-to-be universities (a status of autonomy granted to high performing institutes and universities by the Department of Higher Education), 50 central universities (established by the Department of Higher Education), 349 private universities 95 Institutes of National Importance.
India is the second-largest market for e-learning after the US. India’s exports of audio-visual services are to the extent of $600 million annually. India’s market share has increased from 0.8 per cent in 2015 to 1.6 per cent in 2019.
Hospital
Healthcare is one of India’s largest sectors, both in terms of revenue and employment. The healthcare industry in India has a lot of potential to grow due to strong human resources, inflow of foreign investments, innovations and advanced technology. India has 18 per cent share of the global medical tourism market. Around 697,453 foreign tourists came for medical treatment to India in 2019, making up 6.4 per cent of the total foreign tourist arrivals in India.
Travel & Tourism
India ranks 7th in foreign tourist arrivals and tourism receipts. The Hotel and Tourism sector received cumulative FDI inflow of $ 15.61 billion between April 2000 and December 2020. During 2010-2019, India doubled its tourism exports, along with an increase in market share from about 1.5 per cent to over 2.1 per cent.
IT Services
IT & IT enabled services is the largest service export sector of India. The scope of this sector has expanded significantly in the last 15 years with the increasing importance of the digital economy. India is the second largest exporter in the IT & IT enabled services sector with a market share of 11 per cent.
Advertising
India has one of the fastest-growing advertising industries, recording about Rs 80,000 crore in revenue in 2019. Revenue generated by digital advertising across India was around Rs 19,900 crore in FY20.
Finance
The accounting and finance services sector anticipates around 8 per cent growth over 2016-2021. India has the highest number of accounting professionals – 2nd largest in the world after the USA.
Engineering
India’s engineering R&D market will rise from $ 36 billion in FY19 to $ 42 billion by FY22.
(Data: SEPC)
The Competitiveness Roadmap For India@100 observed for economy-wide labour productivity growth, the biggest individual drivers have been labour productivity growth within services and agriculture and the shift of employment from agriculture into other sectors. Together, these factors accounted for close to 70 per cent of Indian labour productivity growth over the last four decades.
Job creation in the service sectors has been between 2 million and 4 million a year. This is significant, however, insufficient to provide enough opportunities for those looking for work. Job creation in manufacturing, the other main source of potential job creation, has never moved above 2 million annual new jobs, and job creation has come to a virtual stand-still since 2005. Between 2005 and 2012, rising job creation in construction picked up some of this slack. But since then, construction and manufacturing together have not created any new jobs.
According to Sana Afreen, CCO and assistant director (programme management), Rizzle, India has been dominant in the services industry, and growth has been extensive over the last decade. “Persistent high inflation, alongside concerns over the weakening rupee currency, has dampened optimism, but I believe the Indian IT service market will witness 6–8 per cent growth between 2023 and 2024. India's IT and business services market is projected to reach $ 19.93 billion by 2025. The positive outlook is that we are upscaling; India moved up to 40th in the Global Innovation Index (GII) 2022 due to successful advancements in services that are technologically dynamic and can be traded internationally.”
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