The Hindu Business Line : `Manufacturing, farm growth to help services'

INDIAN Chamber of Commerce, Kolkata, in a research paper titled "Services sector: Propelling sustainable double-digit GDP growth", released here recently, has said that the services sector in India, which contributed to 51 per cent of nation's GDP in 2003, needs to grow between 12 per cent and 15 per cent in the future in order to achieve a sustainable double-digit GDP growth.

According to ICC, double-digit GDP growth was needed for higher per capita income, sustaining high investment and demand, generating large-scale employment and expanding the physical and social infrastructure.

The paper, attempting to present industry's viewpoints on services sector growth to the new government, encapsulates overall policy recommendations in sectors such as industry, services, agriculture, exports and foreign direct investment.

The rise in service sector's share in GDP during the last two and half decades marks a structural shift in the Indian economy and takes it closer to the fundamentals of a developed economy, it is pointed out.

It is pointed out that growth in agriculture and manufacturing sectors would lead to multiple benefits for the service sector as well, as it does not function in isolation. Calling for a multi-pronged committed effort to encourage the services sector, the ICC study has suggested that there was also a need to unfetter the manufacturing sector, rationalise labour laws and encourage value addition in the agriculture sector.

According to Mr Anup Singh, President of the chamber, the exercise was in keeping with the chamber's theme for 2004: "Towards sustainable double digit growth: Shaping a new future for India."

Pointing out that the study has attempted to present three different scenarios, he said "given the size of the country and its population, the current levels of GDP growth will at best maintain a status quo and will not create conditions to move towards greater economic prosperity and global competitiveness. Hence, the target should be to double per capita GDP in next 5 years."

While scenario 2 looks at a baseline "business as usual" approach, scenario 2 focuses on manufacturing and services, envisaging a growth of 3.5 per cent in agriculture, 10 per cent in industry and 12 per cent in services, which can yield a growth of approximately 10 per cent, which would double per capita income.

Scenario 3, which talks of a much more ambitious target, somewhat akin to what China unleashed, suggests a complete review of the nation's potential in major sectors of the economy, and recommends extraordinary steps to propel India into a very high growth trajectory, like in China, Singapore, Korea and Taiwan.

The service sector, according to ICC, constitutes many areas such as trade, hotels and restaurants, transport, storage and communication, financial services, banking and insurance, community and personal services including public administration and defence, and other services including IT and IT-Enabled Services.

Calling for a "One India Trade Framework", modelled on the European Union, with no barriers like octroi, entry tax and so on, the study has proposed that target growth rate for trade be pegged at 12 per cent against the current rate of 9 per cent.

Identified as the single largest component of the services sector, trade pertains to wholesale and retail trade in commodities, both produced at home (including exports) and imported, purchase and selling agents, brokers and auctioneers.

The suggested target growth rate for hotels and tourism is 20 per cent (against the current 11 per cent), backed by a strong open skies policy with fiscal incentives for developing tourist resorts and greater marketing for international tourists.

Quoting studies by NCAER, the ICC paper says that the IT-Enabled Services-BPO sector will contribute 7 per cent of India's GDP by 2008. The services sector accounts for about 26 per cent of total employment while the industrial sector only 17.6 per cent of the workforce.

It is pointed out that India's relatively jobless service sector growth was unlike the experience of other countries, where the service sector has also tended to gain a larger share of employment over time. India has an exceptionally low share of services employment.

The chamber, quoting a Deloitte Touche study, says $356 billion of financial services work will be `offshored' from the developed countries over the next 5 years, and if India could get even a third of this, the additional jobs alone would make up 15 per cent of the country's GDP by the end of the decade.