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THE
NEW ECONOMY: SERVICES SECTOR
Growth
Engine
Best jobs,
best incomes and best talents, the services sector is now the showcase
of the Indian economy.
By Rohit
Saran
Indians
eat out more than ever. At fabled dhabas or plush McDonald's outlets in
big cities. They take their clothes to drycleaners, their cars to mechanics,
their dogs to veterinarians. They go to beauty salons for haircuts. Some
double-career couples drop their children at day-care centres before going
to work.
 For
their homes they hire maids, gardeners, plumbers, electricians, interior
decorators and architects. Outside the home, schoolteachers, police officers
and public servants contribute to their daily lives. Lawyers, accountants,
stockbrokers and insurance agents help keep finances and personal affairs
in order.
They start
their day with reading newspapers. At night and on weekends, they watch
the talents of a dazzling variety of entertainers or sportspersons on
tv or films. To maintain their health and well-being they turn to doctors,
nurses, dentists and social workers.
All this-and
more-is India's services economy.
The services
sector dominates the Indian economy today, contributing more than half
of our national income. It's the fastest growing sector, with an average
annual growth rate of 8 per cent in the 1990s. One in every two Indians
earns his livelihood by providing services. An India Today-ORG-MARG poll
shows that a majority of middle-class families want their children to
work in the services sector (see feature "Better Off Than Dad").
1950-51
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1990-91
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1999-2000
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|
Figure are % shares |
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Agriculture |
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Industry |
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Services |
| Source:
National Accounts Statistics and RBI |
That is because
services is the most diverse sector of the economy, encompassing neurosurgeons,
college professors and housemaids. Its span of careers ranges from the
traditional favourite IAS to the latest in management, software development
and fashion technology, taking in its fold some of the newest professions
as well as some of the oldest. In this sector workers are the highest
paid and best educated. But they could also be the lowest paid and least
educated.
Though the
services sector has expanded relentlessly in the past decades, three related
events of the 1990s gave it pre-eminence. An explosion in information
technology (IT) fuelled the upsurge in telecom, software, finance and
banking, just when consumer tastes and globalisation of business powered
a boom in accountancy, law, entertainment and retailing. What made the
boom in services even more visible and fascinating was a slower growth
and painful restructuring of India's manufacturing industry and a virtual
stagnation in agriculture. The consequence: India seems set to leapfrog
from agriculture to services, bypassing the industrial revolution. This
is unlike most other economies that graduated from farm to factories.
There are definitive reasons to believe that the services sector will
outstrip its performance in the next 10 years. Four trends indicate this:
- A mere
$50-million industry in 1989, it today earns $6 billion (Rs 27,600
crore) in revenues and is projected to grow to $87 billion (a fifth
of India's current national income) by 2008. By then it could employ
70 lakh people.
- The
spread of cable TV and the booming music and entertainment business
made recreation a Rs 16,000 crore industry in 1999. This will multiply
to Rs 60,000 crore by 2005.
- From
a government-controlled monopoly in the pre-1990s, telecommunications
has emerged as a $7 billion industry today and is estimated to grow
to $20-25 billion in the next five years.
-
With $50 billion in sales, retailing accounts for 11 per cent of
the economy and employs 20 million people, or 6 per cent of the
country's total workforce.
Call it the conquest of brain power over horsepower, term it the
superiority of human capital over physical capital, or simply see
it as the age of ideas. Service is India's New Economy.
Interestingly,
the economy has changed its composition faster than observers and policymakers
have realised. That is why a trend as significant as this has not caught
the attention of the media or the Government as much as it should. Most
debates on the health of the economy are based almost solely on the fortunes
of the manufacturing industry, which now contributes only 22 per cent
to our national income. The Indian Constitution does not even recognise
services as an economic activity and the government did not tax services
at all till as late as 1994-95. Despite its phenomenal growth, services
is one of the least heard, least talked about and most misunderstood sector
of the economy.
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