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Challenges and Opportunities in the Services Sector for India’s GDP

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  • Post published:October 21, 2023
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Last Updated on January 24, 2024 by Kanakkupillai

India boasts an extraordinary population and economic development at an extraordinary rate; exploiting these assets requires comprehensive reform of India’s labour market involving increased women workforce participation rates and greater productivity levels.

Attracting foreign investment remains difficult, and pent-up demand may moderate slightly, yet services remain an integral component of economic activity and should continue to strengthen over FY 2023-2024.

Over the previous 20 years, India has made extraordinary advances in healthcare. Life expectancy today exceeds 67 years; infant mortality and under-5 deaths have declined substantially, and access to affordable health services has vastly increased as an expert medical workforce and affordable options exist today. Unfortunately, however, communicable disease outbreaks, as well as lifestyle diseases like cardiovascular illness, diabetes and cancer, continue to pose threats to its population’s well-being.

Demand for healthcare skyrocketed during the second wave of the coronavirus pandemic, placing immense pressure on public healthcare systems worldwide; India, in particular, was almost brought close to collapse from the severe strain experienced.

The government and private sectors joined efforts to ensure Malaysia’s healthcare system ran efficiently. Yet, significant challenges remained within it, from insufficient supply chains, digital health records and staff shortages to having one of the lowest allocations relative to GDP for health expenses, leading to high out-of-pocket healthcare expenditures.

Key challenges

One key challenge lies in increasing healthcare investments; currently, only 3.3% of GDP has been dedicated towards healthcare investments compared with international standards of 6.1% of GDP; increasing this commitment would result in enhanced access to affordable healthcare services as well as strengthening public health infrastructure and prioritizing disease prevention as a government goal.

Government spending must also increase on education and training to enhance healthcare quality while expanding the number of medical specialists available for future needs.

The government should prioritize strengthening healthcare delivery by increasing funding for community-based health workers, creating primary healthcare centres, and ensuring healthcare workers receive adequate training under safe working conditions to reduce transfers to urban hospitals.

Potential of Healthcare

India is world-renowned for its cultural legacy, natural beauty and diversity of wildlife – attractions that draw millions of tourists annually. India features stunning beaches, mountain ranges and national parks that provide recreational activities; additionally, its numerous historical monuments from across the world draw history buffs, while spiritual pilgrimage sites draw religious tourists flocking here annually.

India needs to strengthen its tourism sector for economic viability. This may involve increasing infrastructure investments, encouraging domestic travel, expanding marketing and promotion activities, providing incentives to companies investing in tourism, and encouraging local communities and entrepreneurs alike to participate. Thus, this will help drive year-round tourism growth throughout all states.

Tourism remains an economic driver despite its challenges. It provides employment and creates a community among workers in this sector. Tourism also generates income in rural communities.

Measures further ahead

India must take measures to improve tourism’s image by prioritizing traveller safety, increasing efforts to preserve India’s culture and traditions, and cutting red tape so visitors may visit more easily.

FAITH has suggested that governments provide financial support for tourism and hospitality via grants, interest-free loans and tax reductions to help alleviate working capital issues for companies operating within these sectors. E-visa waivers could also be provided while setting standards that require restaurants to install partitions at table spaces that make visible cooking areas accessible by patrons and digital menus with disposable crockery for guests.

India’s information technology (IT) industry has long been recognized for contributing significantly to GDP and earning foreign exchange, which in turn helps fund other sectors of its economy. Unfortunately, India’s IT sector faces many challenges from other developing nations like China and the Philippines; technological shifts may render some workers redundant, so governments must invest more in research & development initiatives and streamline core government processes to increase productivity & efficiency.

India is transitioning towards manufacturing, yet services must sustain growth momentum. A stable revival in the MSME sector is key for broad-based economic development and meeting domestic demand; to do this effectively requires higher skills among workers as well as better access to financing; policy initiatives have provided relief in terms of emergency credit line guarantee (ECLG) schemes during pandemic outbreaks as well as production-linked incentive schemes to mitigate financial strain; furthermore emerging sectors like green energy, e-mobility, semiconductors and food processing offer further prospects of global and domestic growth respectively.

India can enhance the services sector’s contribution by prioritizing high-value-added services that attract foreign demand and raise earnings, such as tourism, healthcare and elderly care services. India should strive to become more cost-competitive in higher education – an area international students seek.

India can still leverage the services sector’s strength despite all of the challenges involved, even as these sectors face further restructuring and competition from rival markets. Skilled labour, rapid infrastructure development and an existing industrial ecosystem can all make a country more globally competitive while meeting foreign companies’ need to diversify supply chains. India boasts a vast population with significant employment and earning potential, giving its people tremendous economic power that must be harnessed effectively to spread benefits throughout society. Economic progress depends upon increased productivity and higher wages for working-class individuals; to accomplish this efficiently, an approach must be taken towards development that directly tackles service sector issues.

India’s service sector serves as its economic backbone. Industries encompassing this industry range from trade, hotels, transportation and communication, banking, insurance, real estate community services, IT support, and personal services, to name just some examples. Indian manufacturing comprises more than 60% of GDP and employs one-quarter of workers; its development faces numerous roadblocks: global economic recession and pandemic have limited growth while high input prices threaten margins and profit. India remains plagued with low-productivity informal sector jobs offering poor pay that do not fully utilize female labour forces, hampering growth. Health care, education, and employment must all improve to support economic development in India and remove obstacles to successful business operations effectively. At the same time, obstacles must also be removed to enable this endeavour to succeed.

The government has already taken steps to overcome some of these difficulties through reforms designed to enhance the investment climate and make hiring and expanding easier for businesses. Cutting red tape and streamlining regulations remain among their highest priorities – one such program is Aadhaar, which has registered over one billion citizens so far.

India is making strides to enhance infrastructure development and innovation – two essential ingredients of service-sector expansion – but finding new sources of expansion remains vital. India should seek markets where its strengths can be capitalised upon, for instance, alternative energy production, manufacturing or agriculture development.

India’s future service sector success rests heavily on its ability to quickly grow, increase productivity, create jobs and take advantage of India’s demographic dividend by engaging young people and increasing female labour force participation rates. Such changes require massive efforts from both private and public sectors; governments, in particular, should invest heavily in revamping education systems with quality skills provision while encouraging businesses to leverage emerging technologies if they want this sector to remain an economic powerhouse worldwide.

Strengthen India’s Services Sector for GDP

In July, S&P Global India services purchasing managers’ index readings reached the highest point since 2013, evidenced by strong resilience despite rising interest rates and slower manufacturing growth.

India should look beyond manufacturing when considering exports; service sector expansion and increasing remote work arrangements must also be prioritized. Expanded global capability centres will facilitate an increase in India’s exports from this sector.

Healthcare can be an immensely valuable service sector that contributes significantly to India’s GDP. Indian healthcare provides world-class care at lower costs than its developed nation counterparts while producing comparable results. Yet, unique soft skill utilization and tech implementation challenges also exist.

India must strengthen its domestic healthcare system by training more medical professionals and increasing supply. India currently falls far short of international healthcare standards by 35% versus 48% when considering hospital beds and physician-to-population ratios respectively.

Australia is highly esteemed for its clinical research capabilities; to enhance engagement in India’s healthcare industry further, Australia should form stronger partnerships in areas like telehealth and eHealth as well as take advantage of lower manufacturing costs and tax holidays available here for Australian pharmaceutical and medical device firms seeking access through licensed manufacturing or special healthcare zones. Smartphone users within India could help Australia create apps designed to streamline patient data flow while working alongside Indian firms on nutraceuticals, vaccines and clinical trials.

Tourism brings immense economic benefits by increasing foreign exchange earnings and creating employment opportunities. India benefits tremendously by welcoming tourists from across the globe onto her shores; international tourism will only become more prominent as disposable incomes increase and more Indians can afford international trips themselves; domestic tourism should flourish rapidly, too.

Schemes in India

Dekho Apna Desh is designed to promote tourism by offering financial assistance for domestic tourism sites while encouraging middle-class residents to spend more on leisure travel.

India is an attractive travel destination, boasting an expansive coastline suitable for cruise tourism. To meet demand while also increasing access for locals and experiencing India’s cultural richness and natural splendour.

India has quickly emerged as an invaluable back-office centre, particularly regarding BPO services and software development. Tighter global labour markets and increasing acceptance of distributed work models should further fuel India’s services economy sector growth in this arena – one that ranks among its fastest-expanding segments.

Retail, higher education and healthcare in India have all seen steady expansion thanks to household spending as disposable income has increased. To capitalize on these growth drivers in India, talent should be developed further while proactive enterprises with market aggressiveness and inventive resilience should be established and fostered.

India has taken early steps toward building its digital economy with initiatives like Aadhaar and IndiaStack – two identity management solutions with low costs that offer comprehensive decentralized identity services with payment and data storage functions that could have significant effects on how individuals spend and borrow, increasing credit availability significantly in turn.

Since the introduction of the Internet, businesses across the globe have relied on India for outsourced software development and customer support services. Global trends such as digitization and automation, supply chain changes, urbanization, income increases and demographic shifts could further expand India-based services.

India’s large firms fail to realize their productivity and profitability potential; their productivity ranks only one-tenth to one-quarter of that of other emerging economies while profits continue to be concentrated among 20 firms in this space.

India can capitalize on this trend to develop high-value service sectors such as higher education, medical tourism and elderly care that use demographic advantages for investments. Improving India’s financial sector quality will increase household savings while simultaneously stimulating productivity; creating deeper capital markets while funnelling savings directly into productive firms through efficient banking systems can simultaneously drive both savings and productivity increases.

Supreena

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