abhishreshthaa
Abhijeet S
Service Sector
The service sector, which contributes about 49 per cent of GDP is expected to grow at faster rate of 6.5 per cent in 2001-02 as compared to 4.8 per cent in 2000-01.
But while everyone was practically ignoring it, the services sector has grown by leaps and bounds in size, significance — even in trade. According to the latest estimates, it accounts for about 63 per cent of the world economy. Industry accounts for 32 per cent and agriculture for just 5 per cent. Nearly 70 per cent of the labour force in developed economies is employed in the services sector.
Take a look at some more figures — we hate figures, mind you — before we unfold the magic of services in various economies around the world.
That’s to give you an idea of the impact this sector has had worldwide, from the developed economies of the West to developing economies whose experience has been closer to India’s. And as we go along, we’ll ask a few simple questions: How does India stack up in comparison to other economies around the world? Where are we headed?
Worldwide, every one out of ten workers is employed in tourism, estimates the World Tourism Organisation. And though the world trade in commercial services, at $1,435 billion, is still less than one-fourth of the world merchandise trade, studies reveal that its growth potential is far higher. The services’ contribution to the US economy is even more overwhelming. It accounts for 78 per cent of the private sector GDP in the US and contributes 80 per cent of the jobs.
In India, the services sector trade surplus offsets partially the merchandise trade deficit in the US too. In 1999, an average services sector worker in the US was earning $500 a year, more than the average manufacturing employee.
Says Zubin Dubash, executive director of The Indian Hotels Company, which runs the Taj chain: “We’re a vast country, just like the USA, and our growth model can replicate their economy.
The services sector can drive economic growth and thereby create the purchasing power required to sustain large-scale manufacturing, which is currently hampered by lack of demand from the domestic market.”
The services sector — including mega-infrastructure services such as power, transport and telecom — account for 70-75 per cent of the economy in most OECD (Organisation for Economic Cooperation and Development) countries. While that may not be surprising, even developing countries have a significant proportion of their GDP coming from the services sector.
The recent focus on the sector — in developed and developing economies alike — stems from three major benefits. First, this residual sector is seen to be the sole net provider of jobs in future, especially in developed economies. While machines are fast replacing humans in agriculture and industry, services seem to have a continued appetite for human capital.
Second, as illustrated by the recent recession in the US, the services sector has a much lower volatility than manufacturing. This could be because most of the services are sold at the consumption point; and there are no inventories. Thus, they are insulated from the kinds of inventory fluctuations that affect manufacturers.
The third factor relates to the tremendous potential for trade in services. The services revolution so far had occurred largely within national boundaries. But the expected liberalisation in the area of General Agreement on Trade in Services (GATS) is projected to lead to a huge increase in services trade in future. And a greater liberalisation of services, along with dismantling of monopolies, would lead to price cuts and quality improvement in many of the services, which would also have spillover productivity gains for the other sectors.
Most developed countries clearly see the services sector as their competitive edge in the 21st century, but the benefits of trade liberalisation are significant even for developing countries in certain areas. Says Supachai Panitchapakdi, designated director-general of the WTO: “It’s been estimated that by 2008, the IT sector in India could account for 35 per cent of India’s exports and attract $5 billion in foreign direct investment per year...
Health services are another area in which developing countries could become major exporters, either by attracting foreign patients to domestic hospitals and doctors, or by temporarily sending their health personnel abroad. According to a WHO source, the cost of coronary bypass surgery could be as low as $5,000 in India and Thailand as compared to over $50,000 in the US.”
Indeed, during the nineties, developing countries’ exports of services more than doubled to $347 billion — growing at a faster pace than for developed countries. Travel and tourism seems to be the most dynamic services sector for most developing countries, and is the top currency earner for 40 of them. Other exports of services showing high dynamism include communication, construction, business services and cultural services.
There are various success stories of countries specialising in specific sectors for global servicing. For example, Kenya became a major exporter of professional services through a sustained high government spending on education and technical training. Professionals account for about 38 per cent of the total employment in Kenya, concentrated mainly in medical services, educational services, accounting and management services.
Thailand’s tourism services sector, which now accounts for over 5 per cent of its GDP, has also seen tremendous growth, thanks to the government’s conscious efforts to promote public-private partnerships in tourism. Tourist arrivals in Thailand increased from 5.3 million in 1990 to 8.6 million in 1999, which was partly a result of the ‘Amazing Thailand 1998-1999’ campaign.
India and other developing economies can gain because of low cost of certain labour-intensive services, with the advances in communication facilitating trade of more services. If the negotiations succeed in breaking through the barriers on movement of persons — for which some countries, including India, are pressing — then we could see the developing world sharing a sizeable chunk of welfare gains from the global services economy.
The service sector, which contributes about 49 per cent of GDP is expected to grow at faster rate of 6.5 per cent in 2001-02 as compared to 4.8 per cent in 2000-01.
But while everyone was practically ignoring it, the services sector has grown by leaps and bounds in size, significance — even in trade. According to the latest estimates, it accounts for about 63 per cent of the world economy. Industry accounts for 32 per cent and agriculture for just 5 per cent. Nearly 70 per cent of the labour force in developed economies is employed in the services sector.
Take a look at some more figures — we hate figures, mind you — before we unfold the magic of services in various economies around the world.
That’s to give you an idea of the impact this sector has had worldwide, from the developed economies of the West to developing economies whose experience has been closer to India’s. And as we go along, we’ll ask a few simple questions: How does India stack up in comparison to other economies around the world? Where are we headed?
Worldwide, every one out of ten workers is employed in tourism, estimates the World Tourism Organisation. And though the world trade in commercial services, at $1,435 billion, is still less than one-fourth of the world merchandise trade, studies reveal that its growth potential is far higher. The services’ contribution to the US economy is even more overwhelming. It accounts for 78 per cent of the private sector GDP in the US and contributes 80 per cent of the jobs.
In India, the services sector trade surplus offsets partially the merchandise trade deficit in the US too. In 1999, an average services sector worker in the US was earning $500 a year, more than the average manufacturing employee.
Says Zubin Dubash, executive director of The Indian Hotels Company, which runs the Taj chain: “We’re a vast country, just like the USA, and our growth model can replicate their economy.
The services sector can drive economic growth and thereby create the purchasing power required to sustain large-scale manufacturing, which is currently hampered by lack of demand from the domestic market.”
The services sector — including mega-infrastructure services such as power, transport and telecom — account for 70-75 per cent of the economy in most OECD (Organisation for Economic Cooperation and Development) countries. While that may not be surprising, even developing countries have a significant proportion of their GDP coming from the services sector.
The recent focus on the sector — in developed and developing economies alike — stems from three major benefits. First, this residual sector is seen to be the sole net provider of jobs in future, especially in developed economies. While machines are fast replacing humans in agriculture and industry, services seem to have a continued appetite for human capital.
Second, as illustrated by the recent recession in the US, the services sector has a much lower volatility than manufacturing. This could be because most of the services are sold at the consumption point; and there are no inventories. Thus, they are insulated from the kinds of inventory fluctuations that affect manufacturers.
The third factor relates to the tremendous potential for trade in services. The services revolution so far had occurred largely within national boundaries. But the expected liberalisation in the area of General Agreement on Trade in Services (GATS) is projected to lead to a huge increase in services trade in future. And a greater liberalisation of services, along with dismantling of monopolies, would lead to price cuts and quality improvement in many of the services, which would also have spillover productivity gains for the other sectors.
Most developed countries clearly see the services sector as their competitive edge in the 21st century, but the benefits of trade liberalisation are significant even for developing countries in certain areas. Says Supachai Panitchapakdi, designated director-general of the WTO: “It’s been estimated that by 2008, the IT sector in India could account for 35 per cent of India’s exports and attract $5 billion in foreign direct investment per year...
Health services are another area in which developing countries could become major exporters, either by attracting foreign patients to domestic hospitals and doctors, or by temporarily sending their health personnel abroad. According to a WHO source, the cost of coronary bypass surgery could be as low as $5,000 in India and Thailand as compared to over $50,000 in the US.”
Indeed, during the nineties, developing countries’ exports of services more than doubled to $347 billion — growing at a faster pace than for developed countries. Travel and tourism seems to be the most dynamic services sector for most developing countries, and is the top currency earner for 40 of them. Other exports of services showing high dynamism include communication, construction, business services and cultural services.
There are various success stories of countries specialising in specific sectors for global servicing. For example, Kenya became a major exporter of professional services through a sustained high government spending on education and technical training. Professionals account for about 38 per cent of the total employment in Kenya, concentrated mainly in medical services, educational services, accounting and management services.
Thailand’s tourism services sector, which now accounts for over 5 per cent of its GDP, has also seen tremendous growth, thanks to the government’s conscious efforts to promote public-private partnerships in tourism. Tourist arrivals in Thailand increased from 5.3 million in 1990 to 8.6 million in 1999, which was partly a result of the ‘Amazing Thailand 1998-1999’ campaign.
India and other developing economies can gain because of low cost of certain labour-intensive services, with the advances in communication facilitating trade of more services. If the negotiations succeed in breaking through the barriers on movement of persons — for which some countries, including India, are pressing — then we could see the developing world sharing a sizeable chunk of welfare gains from the global services economy.