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Putting Services at the Service of Growth

, by Anjana Grewal - docente della Misb Bocconi, la Mumbai international school of business Bocconi, translated by Alex Foti
India's service sector is the world's tenth largest, accounting for $770 billion in 2011, with a 9.2% yearly growth over the 2001-2011 decade. The boom is propelled by a number of factors, from IT innovations to urbanization, which affect banking, insurance and tourism

India has profoundly changed over the last decade. Services have made the difference. In 2001, service industries were ninth in TV advertising and fifth in print advertising. Ten years later, service companies were the most important advertisers on magazines and newspapers, and the third most important advertisers on TV. National statistics show that services have jumped from 50% to 58.2% of GDP between 2001 and 2011.

In 2011, Indian GDP due to services was worth $770 billion (around €593 billion), i.e. the world's tenth largest. In the 2001-2011 period, India recorded the highest growth rate in the tertiary sector, 9.2% p.a., among the leading 15 economies of the world. Growth in services has been higher than in industry or agriculture. Services have been the engine of growth and economic change for the Indian economy.

Liberalization of trade, the IT revolution, tourism, banking and insurance are the segments that have boosted service growth. Also urbanization (projected to affect 40% of the popoluation by 2030) has been driving service growth.

In spite of current political uncertainty, India is set to attain the $5 billion target by 2025, thus becoming one of the top five economies of the globe. No matter what happens in the political realm, India's economic weight is poised to surpass France, Germany, and Italy.

Looking at various service segments, retailing is going to boom in the next few years. Government is attracting international monobrand and multibrand retailers. For example, Zara, Marks & Spencers and Mango are looking for the right locations to open shop in India. The country's largest mall has recently sprouted in Kerala. Luxury goods are very much in demand: purchases have grown by 20% in just a year.

The banking industry has supported growth while maintaining the economy stable, also during the crisis. Under the new regulatory framework, foreign direct investment in banking will be possible, opening the possibility of new financial ventures in India.

Finally, Indian Internet users are mushrooming. Today, there are 125 million Indians connected to the web. They will be 350 million by 2015, second only to the Chinese. The growth in Internet penetration is favored by the drop in the prices of mobile devices and connection costs. With the right infrastructure, a wireless Internet boom could be around the corner. Again, it will be services leading the country's economic transformation.

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