Recent developments in

India’s Services Sector

Opportunities for Australia

Richard S Andrews
Executive Director
Economic Analytical Unit
 Key points
• Services sector is key to India’s
development prospects
• This makes it a particularly prospective
sector for Australian companies.
• While Australia is already capitalising to
some extent, there is scope to do more
• But…need to be in it for the long haul
 Services and India’s development
• Phenomenal growth in high-end services
has driven India’s recent performance.
• The question is – can growth in one sector
translate into an “Indian development
model” based on services?
• Services: 60 per cent of the Indian
economy – and growing.
 Services sector gaining ground
Sector shares in GDP (at factor cost and 1999-00 prices),
in per cent, 1990–91 to 2005–06
100%

80%

60%

40%

20%

0%
1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

Agriculture Industry Services

Sources: 1999-2000 to 2004-05 data from Central Statistical Organisation, http://mospi.nic.in/5_gdpind_const.htm,

accessed June 2006; 2005-06 data from Press Information Bureau, Press Note, 'Revised Estimates of Annual National
Income, 2005-06 and Quarterly Estimates of Gross Domestic Product, 2005-06', available at http://mospi.nic.in,
accessed June 2006; pre-1999-2000 data from 31 May 2006RBI 2005b, Table 3.
 Services and India’s development
• Phenomenal growth in high-end services
has driven India’s recent performance.
• The question is – can growth in one sector
translate into an “Indian development
model” based on services?
• Services: 60 per cent of the Indian
economy – and growing.
 What’s happening.
• A critical element in the services sector’s growth
has been government’s change of mind on
regulation
• Deregulated or little-regulated sectors have
grown fastest
Liberalised services sectors have grown faster
Average growth rates over the 1990s of selected services sectors
%
Business services, incl IT 21.1

Communications 15.1

Banking 11.8

Life insurance 11.0

Hotels & restaurants 10.1

Education 9.9

Medical & health 9.0

Distribution 8.1

Road transport 7.7

Air transport 6.1

Legal services 5.8

Construction 5.2

Real estate 4.9

Water transport 4.4

Dwellings 4.1

Entertainment services 3.4

Railways 3.2

Postal 1.8

Storage 1.7

Significantly liberalised Moderately liberalised Non-liberalised

Source: World Bank 2004.

 What’s happening.
• A critical element in the services sector’s growth
has been government’s change of mind on
regulation
• Deregulated or little-regulated sectors have
grown fastest
• The demonstration effect plus lobbying by the
success stories are driving further reform
momentum.
• This means a dynamic environment – which will
create opportunities as nature of business
changes.
 Where the opportunities will be
• While IT/ITES has been the headline-
grabber, the services sector covers a
broad spectrum
• Important to look across whole services
sector for opportunities
• These will differ depending on the role of
the specific sector in the economy.
 1. The IT/ITES boom
• India’s boom driving “tradability revolution” for
services and emergence of multi-directional
international supply chains
– India’s business services
imports have boomed at the same time as exports
 Strength of commercial services trade
Services trade and major components (US$ billion)

50 35

45 Exports Imports
30
40

25
35

30 20

US$ b
US$ b

25
15
20

15 10

10
5
5
0
0
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
Travel Transportation Other commercial services Travel Transportation Other commercial services Total services
Total services Software services Other business services

Source: Ministry of Finance 2006, Chapter 6 and Appendix Table 6.3. Pre 1999–00 data from RBI 2005b, Table 146. Pre 2003–04 software services data from RBI
Database on Indian Economy, available at https://cdbmsi.reservebank.org.in/cdbmsi/servlet/login/, accessed January 2006.
 1. The IT/ITES boom
• India’s boom driving “tradability revolution” for
services and emergence of multi-directional
international supply chains
– India’s business services
imports have boomed at the same time as exports
– Opportunities for collaboration, participation in supply
chains, and just staying up to date with international
developments.
– But highly competitive
• Also opportunities in other high-end services
such as biotechnology
 2. Dynamic enablers
• Telecommunications – critical to ongoing
IT/ITES boom
– Huge growth (especially in mobile market) but huge
competition
– Mainly niche opportunities for Australia
• Finance – crucial to spreading growth
– Increasing affluence giving rise to demand for new
financial products
– Opportunities for project finance generated by need
for infrastructure development
– Ongoing reforms in banking and insurance
 Dynamic enablers (cont)
• Energy and transport infrastructure – will
determine sustainability of India’s boom
– Recognition by government of need for external
involvement
– Improved public sector fiscal position and
mechanisms for drawing in foreign capital and
expertise
– Australian companies (e.g. SMEC, Clough, Leighton)
operating successfully already
– Specific areas of Australian expertise – airports etc
• Education (key Australian export)
– Watch for changing profile
 To be continued …
• Retail – burgeoning middle class drives
demand for international standard retailing
– Structural and cultural shifts required with
major implications for logistics and other
industries
• Tourism/hospitality
– Greater accessibility of travel (deregulated
airlines) will drive demand for expanded
facilities (e.g. middle-range hotels)
 Australia’s presence
• Australia’s second fastest growing
services market after China - but it’s
mostly education
• Increasing number of Australian success
stories
• Momentum from recent government –
level visits and initiatives builds on
generally favourable perceptions
• Plenty of competition for limelight
 To remember
• India is a “long haul” investment destination –
reflected in differing assessments
– Rewards can be great and business environment is
becoming increasingly transparent
– Need to understand nature of business relationship &
– Pursue targeted marketing strategy: India is not a
homogeneous market.
– But difficulties should not be underestimated – talk to
others who are doing it.