India Services Sector: A Multi-trillion Dollar Opportunity for Global Symbiotic Growth

The Indian service sector is the fastest growing service sector in the world. It contributes more than 60% to India’s economy and accounts for 28% of employment. The sector has witnessed good revenue growth from some of the largest and upcoming sectors including Information Technology, Professional services, Telecom, Healthcare, Space, Education etc. The Indian Government has taken up a number of initiatives such as Digital India, Make in India, Smart Cities etc. to boost the growth of the sector further.

Confederation of Indian Industry (CII) brought out the report titled “India Services Sector: A Multi-trillion Dollar Opportunity for Global Symbiotic Growth” at the 3rd “Global Exhibition of Services” (GES) held in April 2017. Outlining current conditions for 21 services sectors, the report covers their profile in India and recommendations for development and export of these services. The report will be useful for businesses as the report identifies the future prospects for each of the services sectors covered in the publication.

This article briefly describes two of the most prominent services sectors and two emerging sectors with good potential for global leadership as identified by the report.

Information Technology

The Indian Information Technology (IT) sector has a large global presence, spanning 200 cities across 86 countries in the world and has been growing rapidly over the last few years. The size of the sector in 2015-16 was US$143 billion and the sector is expected to reach US$155 billion by 2017. The IT sector contributed 9.5% to the country’s GDP and more than 45% in total services exports in 2015-16.

Total revenues from the sector amounted to US$143 billion with majority of the revenues coming from exports.

Figure 1: Domestic Export and Export IT and ITEs Revenue in $billion

Total value of exports stood at US$108 billion in 2016, with the export market growing at a CAGR of 13.5%. North America is the major destination for IT exports and generates 60% of the export revenue.

The software and hardware sectors attracted cumulative FDI inflows worth US$21.02 billion between April 2000 and March 2016. With 3.7 million people employed, the sector is a major contributor with respect to employment generation and is also the fourth largest urban employer of women, adding to gender parity and social progress.

Rapid digital transformation across industries, growing internet penetration, affordable new age technologies such as artificial intelligence, robotics, and virtual reality and rising demand for cost effective IT services in emerging economies are some of the key demand drivers for this sector.

The domestic IT market in India has a high growth potential driven by Digital India initiatives of the Government. There are also significant opportunities for the sector in terms of regional global expansion, given that Japan and China are the largest technology spenders in the Asia Pacific region.

Professional Services 

The Indian professional services sector lends support to businesses across the world by offering a variety of services including audit and accounting, management consulting, architectural, engineering and legal services.

The domestice professional services market has become a rapidly emerging sector with the market size reaching US$14.43 billion in 2016. A significant share of the professional services market is dominated by management consulting which is expected to be worth US$5.4 billion by 2018. At present, there are 10,330 management institutes spread across the country with 700,000 faculty and 2 million enrolment, making it a significant contributor to the global management consultancy space.

The world professional services export market recorded an impressive growth rate of 9.4% in the first half on 2015-16. Globally, management consulting exports occupy a significant share of the exports market and are worth US$28.4 billion. A skilled talent pool, proficiency in English, growing export market for audit and consulting, technology driven professional services, and popular R & D hubs are some of the major demand drivers of the sector for India.

Various initiatives by the Government such as Make in India, liberalization of FDI and trade policies, and government’s push to ease of doing business as well as a large domestic market with growing number of start-ups have given significant push to this sector. These initiatives have attracted a large number of foreign investors to start businesses in India which will in turn create a huge demand for consulting services.

The sector has an immense potential to expand globally, especially with respect to its audit and accounting, management consulting and architecture and engineering services. The US and UK are the major export destinations for the audit and accounting services, US and Europe for management consulting while UK, France, Germany, Italy, South Korea, Australia account for architecture and engineering services. Rapid urbanization and industrialization, new technology based business models and ease of doing business in the country are some of the major reasons behind the rapid growth of these sectors.

While IT and professional services contribute hugely to India’s services exports, it also enjoys interesting capabilities across other sectors. Below is a glimpse of two of these promising areas, which may not be large in terms of revenues but establish a special niche for the country.

Space

The Indian Space Industry is a new area of opportunity for the country and includes satellite services such as satellite launch services, satellite manufacturing and ground equipment. The Indian Department of Space (DoS) has the primary responsibility of promoting the development of space science and space infrastructure while the Indian Space Research Organization (ISRO) pilots all Indian Space activities.

ISRO has launched a total of 52 space missions, including 26 satellite missions and 26 launch vehicle missions and met 90% of its planned 5-year target between 2012 and 2016. With its low cost satellite launches and developed expertise in multiple launch technology, India has well established itself in the commercial satellite market and has been launching satellites for foreign markets for over 15 years. As of date, ISRO has launched 180 foreign satellites for 23 countries with the US accounting for the largest share of satellite launches.

Figure 2: Foreign Satellites launched by ISRO

 

 

ISRO has invited private sector companies to participate in satellite manufacturing. As part of the Make in India initiative, ISRO plans to develop a 100-acre hi-tech Space Park in Bengaluru, where private players will set up facilities to make subsystems and components for satellites.

The government has increased its space budget estimate by more than 20% to US$ 1.35 billion in FY 2017-18, with a view to provide initial finding for two new ambitious Indian space science missions – one to Mars and another to Venus.

As one of the leading service providers in terms of the number of satellite launches, the Indian Space Industry holds potential for global expansion across several countries such as the US, UK, Canada, Germany, France, Korea and the Middle East. Thus, the Government should encourage private players in the industry to develop capacity and capability in pursuing space activities.

Sports 

The Sports Sector in India has experienced steady growth in last few years, with increasing investments coming in from the corporate houses in sports properties and events, an expanding spectator base and rising number of sports channels. The Sports Service Sector in India includes different segments and provides variety of services including sports tourism, sporting goods (in manufacturing and retail), sports medicines, sporting management and sponsorship.

Diverse stakeholders are involved in sports management in India and stakeholder participation continues to increase in the Indian sporting industry with the advent of new leagues.

Figure 3: Diverse Stakeholders

In India, most of the spending comes from sponsorships and advertising for the major sports events. In 2016, the Indian sports sponsorship market grew 19.3% to US$0.95 billion, with cricket accounting for highest sponsorships.

Some of the key drivers of this sector include a favourable demographic profile, increased female viewership worldwide, increased demand for data analytics services for enhancing performance of players and increased online viewership fuelled by internet and mobile connections.

It has been estimated that about 1.33 million young people are likely to take up sports as their full time profession by 2017 in India. The Ministry of Youth Affairs and Sports (MYAS), under the Government of India, is implementing various projects through the Sports Authority of India (SAI). At present, there are 70 Sports Training Centres with a total strength of 1183 trainees.

The Indian sports sector has plenty of opportunities to expand globally. MYAS has sports agreements with a number of countries including Australia, France, Hungary, Kazakhstan, Netherlands, New Zealand, etc., which have strengthened cooperation and contributed greatly to the development of sports.

CII’s Role in Promoting Services

To provide a fillip to the services sector in India, CII brings together international stakeholders for learning more about the potential. The GES takes place every year, and is followed up with thought leadership, policy recommendations for various sectors, and overseas missions which serve to highlight India’s proficiencies. The GES hosted by CII along with the Ministry of Commerce and Industry, Government of India, and Services Export and Promotion Council (SEPC) provides a global platform for increasing trade in services, enhancing strategic cooperation and strengthening multilateral relationships between all stakeholders.

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