Page 62 - DMGT522_SERVICES MANAGEMENT

Unit 2: Emergence of the Services Economy

arrears under the new revised scale for government employees resulting in very high growth Notes
rates of 12.5 per cent and 12.0 per cent in community, social, and personal services in 2008-09 and
2009-10. Public administration and defence grew at a spectacular 19.8 per cent and 18.2 per cent
in these two years compared to 1.9 per cent and 7.6 per cent in 2006-07 and 2007-08 respectively.
The impact of the global crisis was, however, evident in the trade, hotels, and restaurants and
construction categories and with lagged effect in real estate/ownership of dwellings and business
services in 2008-09 and 2009-10; and to some extent in banking and insurance in 2009-10. Moving
forward in 2011-12, though there is slight moderation in services growth to 9.4 per cent (as also
in 2010-11), there is no cause for worry, as it is due to the steep fall in growth of public
administration and defence services reflecting fiscal consolidation of the government. In fact
growth in ‘trade, hotels and restaurants, transport, storage and communication’ is more robust
at 11.2 per cent and retail-sector growth is expected to be more robust in 2012-13. With hardening
of interest rates, the real worry would be with the real estate/ownership of dwellings and
business services segment, the growth of which has started decelerating and construction services
with growth falling by nearly half.

The outlook of the services sector in the domestic economy is linked to the prospects of the
sector externally. While software service exports have continued to be steady, the unfolding
events in the euro area could lead to some sluggishness in this sector. The fair-weather business
services exports which have already shown signs of deceleration may not get better. Among the
other two major services, transportation has already been affected with the Baltic Dry Index at
an all-time low, although this may be a passing phenomenon. While travel and tourism could
also be affected when the pockets of euro zone tourists are affected, it could also lead to a shift in
tourist inflow pattern with increased inflow of holiday backpackers searching for cheaper
destinations like India. Rise in tourists from South Asia, East Asia, and South East Asia could
further help this sector. While the net effect of the trade sector on GDP has always been negative
for India, it could go down further if less cushion is provided by net services trade to GDP.
However, the domestic economy is more dominant in the case of services and any changes in
government spending in community, social, and personal services within the fiscal space available
or newly created fiscal space could strengthen the growth prospects of the services sector with
ripple effects in related sectors.

Task Discuss the importance of services in Indian Economy.

2.6.2 Challenges

This dominant sector in terms of both shares and growth is a growth engine not only for the
national economy but also for many states. It is second only to agriculture in terms of employment
both in the national economy and in the majority of states. Unlike the unskilled or semi-skilled
nature of jobs in the agriculture sector, this sector provides myriad job opportunities ranging
from highly skilled to unskilled in a variety of activities, Hence, services along with a revival in
manufacturing activity, can be major drivers of overall employment. Unlike the merchandise
sector, the services sector is a net foreign exchange earner with exports of some services growing
exponentially. It is also the major FDI-attracting sector with the five services topping the list of
sectors attracting FDI to the country. Thus India’s services sector is like an uncharted sea with
plenty of opportunities and also new challenges. The first challenge is to not only maintain the
present growth tempo in the service sector but also to accelerate it. This task, though difficult, is
not impossible as we have tapped only some service sectors like software and telecom that too
only partially. In fact, every important service sector is a storehouse of opportunity. Even in
software and telecom, there is a lot of untapped potential in the domestic economy. The software-
telecom combination can be a high growth propelling force for many more years to come with

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