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Service sector seeks government attention
May, 22nd 2008

Though primarily an agrarian society, India has reached a point where its service sector can expect to grow at a relatively faster pace and needs to be provided not only all the necessary support but also perhaps a gentle push.

ECONOMIC REFORMS for the past 15 years have mainly focussed on the manufacturing sector. Lately, reforms in the financial sector have received some attention. Regrettably, neither the service sector nor the agricultural sector has received any serious thought from the government. Every budgetary proposal has widened the service tax net. But it has given no sop to this sector, even though it would help tackle our chronic unemployment problem in a big way. It does beg for the governments serious attention.

Firstly, experience of many developed countries shows that with increasing urbanisation and after a certain point in economic development, it is the service sector that grows at a relatively faster pace than either the manufacturing or the agricultural sector. It can be said that India too has reached a point where its service sector can expect to grow at a relatively faster pace and needs to be provided with not only all the necessary support but also perhaps a gentle push. The fact is that this sector is growing at a faster pace than either the manufacturing or the agricultural sector.

Secondly, it has been observed that this sector generates the greatest number of jobs and has the capacity to absorb a large labour force, ie, it has the biggest employment generation potential. In most of the developed countries, less than 10 per cent of the population is engaged in agriculture, less than 30 per cent in manufacturing and the rest in the service sector.

Thirdly, the role of imported inputs like machinery, equipment etc in the service industry is limited and most of it can be easily procured from within the country for a number of service sub-sectors. Certain specialised or latest equipment could be imported, if need be, but it will not be a drain on foreign exchange. Besides, the equipment, once imported will have less wear and tear compared to the use of equipment in the manufacturing or agricultural sector.

Fourthly, the service sector has high potential of earning foreign exchange, especially in the tourism sector, like hotels, travel agencies, restaurants, specialised transport of all kinds, services of guides and so on. In fact, the foreign exchange that imports certain equipment to modernise the service industry would be only a small proportion of potential hard currency earnings.
The Thai experience here can be quite illustrative as its tourist industry is the highest foreign exchange earner. India is a vast country and offers places of historical and cultural interest and beaches to foreign tourists. Though India is the birthplace of Gautam Buddha, yet large numbers of Buddhist pilgrims visit Thailand instead. This is so because tourist infrastructure facilities here are not well developed - good hotel accommodation is limited, taxis are rickety, domestic flights seldom keep schedules, foreign exchange facilities are limited and so on. In Thailand, every tourist facility, say a hotel or a restaurant, or taxis or exchange bureaus, maintain high standards compared to us, which is reason enough for tourists to throng Bangkok.

As a first measure, there is a need to have a comprehensive investment policy with regard to each sub-sector of the service industry and wherever the need be, it should be supplemented with fiscal concessions etc, such as development of hotel industry in Bodh Gaya for Buddhist pilgrims or improvement of tourist infrastructure in the North-East.

Some more than others, almost all modes of transport are in need of modernisation. The air sector has been opened up to private players and investment, yet the quality of service offered leaves much to be desired. As for surface transport, its in a pathetic state, be it inter-city or intra-city. Most buses are rickety, seats uncomfortable and doors missing; same is the case with our taxis and other means of transport too. Taxis outside our international airports present a shameful sight. This is an area in the service sector that requires upgradation of technology either through import of technology or through development of indigenous technology.

The situation is much worse in the health sector. One, leaving aside some five star hospitals in the private sector that cater to the very rich elite class, there is a real shortage of hospitals and medical care centres as against the number of patients. Two, though the country can boast of good doctors, it cannot do likewise for its technical staff, which runs and maintains machines, which are invariably imported. Three, because of shortage of funds, the cleanliness of hospitals has become a casualty. All this calls for big investments including in technical staff to run and maintain sophisticated equipments.

The infrastructure of the financial sector too is outdated. Even though nationalised banks and insurance companies have decided to go in for computerisation, they are way behind their counterparts in other countries. Simple as it may sound, all this requires upgradation of banking technology so that the normal services to both domestic and foreign customers can be expedited. The development of hotel industry also leaves much to be desired as it also has a high potential of employment. Though the tariff of five-star hotels in India is much higher than that of similar hotels in Southeast Asia, the services are not at par with those. To sum up, one can say that the time is ripe to give an all round thrust to our service sector through rightful mix of incentives and economic policies.

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