Time to reboot

Aditi Pathak | Updated on January 09, 2018 Published on December 21, 2017

IT services should go beyond legacy traits

India’s services sector has proven to be more resilient than the goods sector both on export earnings and contribution to the Gross Value Added. Currently, the sector employs about 30 per cent of the country’s total workforce. But with the IT sector reaching maturity, can we find new champions that will grow enough to absorb more people?

ICT and business services together form 75 per cent of India’s exports earnings in services, employing nearly 12 million. But the sector is under pressure as the two major markets — the US and the UK — are moving towards protectionism, and we have little choice but to focus on at least retaining the current market share.

So, how to identify the new champions? Two tools, developed by the Organization of Economic Cooperation and Development, can help here.

The first tool rates significant services sectors on three vital parameters. First, share of domestic employment embodied in final foreign demand. This reveals the extent of a country’s integration into the global economy. Next is per cent current price value added per person employed (in $) and, finally, the nature of employment.

We evaluated the ratings of significant sectors and identified the potential sectors in two categories. These are:

1) R&D and other business activities. These have the highest component of domestic employment embodied in the final foreign demand. Hence jobs in this sector would expand jobs for the top skill labour force and impact the expansion of the production frontier.

2) Services such as real estate, renting and business activities, transport and storage, posts and telecommunication, wholesale and retail trade, and repairs. These have a fair amount of domestic employment component in them. They have the potential to engage the ever-expanding workforce by employing semi-skilled or unskilled labour force.

Tool two is the services trade restrictiveness indices (STRI). This evidence-based tool identifies services trade restrictions across significant services sectors in five areas: Restrictions on foreign entry, restrictions on movement of people, other discriminatory measures, barriers to competition and regulatory transparency. A high STRI score indicates more restrictions.

Sadly, for us, the STRI scores are high for legal, commercial banking and insurance services. STRI is high for professional services where the requirements for obtaining a license and practice are challenging. It is nearly impossible for a foreign supplier to satisfy the conditions for services such as legal and auditing services.

To address the issue of high STRI, simplifying domestic regulation for each of the sectors along with reforms in the communications and distribution sectors is necessary. This will also drive manufacturing and subsequent exports.

India is pushing for the establishment of the global standards on services trade at the WTO. If adopted, this will make developed countries’ visa regimes more transparent and open for skilled professionals. India is also pushing for greater market access in services through its FTA engagements.

The services sector has shown a phenomenal growth in the past decade. Cultivating new segments will provide sure and steady jobs and high returns.

The writer is in Indian Economic Service. The views are personal

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Published on December 21, 2017
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