Services sector woes deepening

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Bikky Khosla | 12 Nov, 2013
Services sector activity in India remained subdued for the fourth straight month in October due to fall in number of new orders, a HSBC survey showed recently. Though there is a moderate improvement with the HSBC Services Purchasing Managers' Index (PMI) compiled by Markit for the sector inching up to 47.1 in the month from 44.6 in September, an index value of below 50 still indicates contraction, and the findings clearly signal to the fact that there is an urgent need to stop lending a blind eye to this sector.

According to an estimate, the services sector contributes 35 percent to employment, 25 percent to total trade, 40 percent to exports, 20 percent to imports and accounts for over 50 percent of FDI into the country. The sector's share in GDP increased from 33.5 percent in 1950-51 to 56.3 percent in 2011-12. India's share in the world exports of services has increased from 0.6 percent in 1990 to 3.3 percent in 2011. Going by these statistics, it seems that the trend is very encouraging, but a closer look gives a not so positive picture, particularly in terms of exports.

There is still a big scope of improvement for services exports and unlocking the true potential of the sector, for which, what is important is to diversify the service export basket both in terms of services and markets. At present, the IT and related services sector contributes a major portion to the basket and around three fourth of total service exports goes to just three markets -- the US, the UK and Canada. This situation needs to be changed. First of all, concrete steps should be taken to boost services exports from also the non-IT sub sectors, and, in addition, market diversification needs to be encouraged through appropriate policy measures.

For the past few years, our government is focusing on boosting the manufacturing sector. There is not an iota of doubt that there is an urgent need to push this key sector's share in GDP, and also that the service sector has continued to be a star performer over the years, but all this does not mean that we should ignore one for the sake of the other. And it should also be kept it mind that there are many other sub-sectors in the services industry -- besides IT and ITES -- whose interests have never been taken much into account by the government.

According to some news reports, the government is drawing a fresh road map for enhancing services exports through diversification. This is a very welcome step. It is also reported that the Centre has started an exercise to properly keep track of services sector data. I think steps in this direction should have been taken much earlier, though it is better late than never. In fact, for me it very surprising how the government has managed till now -- how are they negotiating with the ASEAN for a services FTA without any convincing mechanism to collect data of its own services sector?

I invite your feedback.