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Impact on the Indian Service Sector

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  2. 2. What is Service Sector?<br />It is one of the three economic sectors<br />
  3. 3. The Service Sector<br /><ul><li>Definition :</li></ul> Services are defined as "intangible goods".<br /><ul><li>Involves :</li></ul>I.T. and related services like BPO’s<br />Telecommunications services<br />Financial Services like Banking, Insurance <br />Tourism <br />Transport<br />Healthcare/ Medical services<br />Retailing & Distribution <br />Construction & Engineering services<br />Community Services like defense <br />
  4. 4. Importance of the Service Sector:<br /><ul><li>Employment to 28% of Indian workforce – 142 million.
  5. 5. Contributes to more then half to Indian’s GDP – 62% in 2007-08.
  6. 6. Services exports accounts for 40% - $86 billion in 2007-08.
  7. 7. Complements Primary and secondary sector.</li></li></ul><li>Reasons for growth<br />The real reason for the growth of the service sector is due to -<br /><ul><li>increase in urbanization,
  8. 8. increase in privatization
  9. 9. increase in demand for intermediate and final consumer services
  10. 10. Quality services development is vital for the well being of the economy in order to support the primary and secondary sectors</li></ul>The out come<br /><ul><li>The rise in the service sector's share in GDP marks a structural shift in the Indian economy and takes it closer to the fundamentals of a developed economy.
  11. 11. service sector growth needs to be supported by proportionate growth of the industrial sector.</li></li></ul><li>Contribution to the GDP of the Indian Economy <br />
  12. 12. What is theWorld Trade Organization? <br /><ul><li>“WTO is an International body designed to play the role of a watchdog in spheres of trade in Goods, services foreign investments, IPR etc.”
  13. 13. Goal is to help producers of goods and services, exporters, and importers conduct their business.
  14. 14. Location: Geneva, SwitzerlandEstablished: 1 January 1995Created by: Uruguay Round negotiations (1986-94)   Membership: 153 countries on 23 July 2008 Head: Pascal Lamy (Director-General)</li></li></ul><li>History<br /><ul><li>GATT formed in 1947
  15. 15. Focus on multilateralism
  16. 16. Uruguay Round
  17. 17. Final Act of 1994
  18. 18. WTO incepted on 1st Jan, 1995</li></li></ul><li>
  19. 19. Principles<br /><ul><li>To help trade and services flow as freely as possible
  20. 20. To achieve further liberalization gradually through negotiation
  21. 21. To set up an impartial means of settling disputes</li></li></ul><li>INDIA AND WTO :<br /><ul><li> India is a founder member of (GATT) 1947
  22. 22. Member of the successor-WTO,
  23. 23. Came into effect on 1.1.95 after Uruguay round
  24. 24. India abides all the agreements under the WTO.</li></li></ul><li>The WTO functions on the basis of three agreements-<br />
  25. 25. General Agreement on Trade of Services(GATS):<br /><ul><li> Multilateral rules governing international trade in services.
  26. 26. Negotiated in the Uruguay round.
  27. 27. Developed in response to the huge growth of the services economy.
  28. 28. Based on commitments by member nations.</li></li></ul><li>Coverage and terms:<br /><ul><li>The agreement covers all internationally-traded services.
  29. 29. It also defines four ways (or “modes”) of trading services:</li></ul>MODE-1-Cross border supply<br />MODE-2-Consumption abroad<br />MODE-3 Commercial Presence<br />MODE-4-Presence of natural persons<br />Exceptions <br /><ul><li>Governmental services
  30. 30. Services not competing commercially</li></li></ul><li>Most-favored-nation (MFN) treatment<br /><ul><li>Favor one, favor all.
  31. 31. Meaning-</li></ul>Treating one’s trading partners equally on the principle of non-discrimination.<br /><ul><li>Applies to</li></ul>All services, but some special temporary exemptions allowed.<br />In order to protect the general MFN principle-<br /><ul><li> exemptions could only be made once
  32. 32. nothing can be added to the list. </li></li></ul><li>SERVICE SECTOR COMPONENTS<br />
  33. 33. InformationTechnology Sector:<br /><ul><li> IT products account for a very large part of world trade
  34. 34. Trade in IT products expands faster than trade in other goods
  35. 35. Today about 93% of IT products are imported duty free
  36. 36. Tariffs have been reduced to zero from about 4% in developed countries; </li></ul> more important tariff cuts in developing counties<br />Major Agreement:<br /><ul><li> Information Technology Agreement (ITA){1997}
  37. 37. India being a member of the WTO abides with the conditions of </li></ul> these commitments<br />
  38. 38. The expansion of world exports of IT products and other manufactures, 1996-2005(Indexes, 1996=100)<br />18<br />
  39. 39. Impact<br /><ul><li> India's reputation both as a source and a destination for skilled workforce helped it improve its relations with a number of world economies
  40. 40. Major shifts occurred among principal traders. Asian countries (China and India) became more important on the exports and the imports side
  41. 41. A total of 60,000,000 Internet users—comprising 6.0% of the country's population, and 4,010,000 people in the country have access to broadband Internet— making it the 18th largest country in the world in terms of broadband Internet users.
  42. 42. Emergence of Indian IT Giants(Post 1997)</li></li></ul><li>
  43. 43. Indian IT Industry - Exports<br />Includes IT Services & Software, ITES-BPO and Hardware<br />Source: NASSCOM, Strategic Review 2005<br />
  44. 44. Indian IT Export Destinations<br />Excludes hardware exports<br />Source: NASSCOM, Strategic Review 2004<br />
  45. 45. Cross Border Service Providers<br />India - the largest<br />“Cross-border” <br />IT Services Provider<br />Estimated Value of Offshore Sourcing (US $ M) – CY 2004<br />Source: neoIT, NASSCOM<br />
  46. 46. EXAMPLES:<br /><ul><li>Infosys went public in 1993 and share prices sky rocketed to and all time high of Rs.8100 per share by 1999.
  47. 47. Wipro (Western India Vegetable Products Ltd) a consumer goods company turned into one of the prime players in the field of IT, by 2000 Wipro Ltd ADRs( American Depository Receipts) were listed on the New York Stock Exchange.
  48. 48. Mahindra Satyam(Earlier Satyam Tech) established its global presence with a staggering number of 30 countries in the between 1997-2000
  49. 49.  1999, TCS saw outsourcing opportunity in E-Commerce and related solutions and set up its E-Business division with ten people. By 2004, E-Business was contributing half a billion dollars (US) to TCS</li></li></ul><li>Telecommunications Sector:<br />Post liberalization the industry has grown rapidly, an increase in tele-density has a multiplier effect on GDP growth rate.<br />India’s commitments<br /><ul><li>Signatory of BTA along with the USA and its 68 trading partners.
  50. 50. Covers local voice services, both cellular and wire line; circuit-switched data transmission; facsimile; and private-leased circuit services.
  51. 51. Excludes- long-distance and international voice services
  52. 52. Liberalizing Foreign Capital Investment & Industrial De-licensing</li></li></ul><li>Impact on the Telecom Sector<br />
  53. 53.
  54. 54. Tourism Sector<br />Tourism commitments have been made by over 125 WTO members.<br />India’ commitments<br /><ul><li>Commitments covered as per GATS -</li></ul> travel agencies, restaurants , hotels.<br /><ul><li>Foreign equity participation - 51% permitted
  55. 55. Foreign direct investment- 100% permitted</li></li></ul><li>Impact of the WTO Agreement on the Tourism Sector<br />The Agreement lead to an increase in-<br /><ul><li>Foreign exchange
  56. 56. Tourists - over 22% per year till 2010.
  57. 57. Employment- 20 million people
  58. 58. Tourism products</li></li></ul><li>
  59. 59. Financial Sector:<br /> Includes<br />Insurance, banking, securities, asset management services, financial advice and information services.<br />India’s commitment<br /><ul><li>MFN status to all foreign banks and financial service company
  60. 60. 12 new bank branch licenses per year to foreign banks.
  61. 61. 51 % foreign investment </li></li></ul><li>Impact<br />Growth-<br />20% in insurance products<br />New and innovative products<br />Entry of foreign companies-<br />Example-<br /> Tokio Marine,Lombard General, AMP, New York Life<br />Technological advancements, heightened competition and consolidation<br />Outsourcing as a source of revenue with development of IT<br />Growth of 34% in the installation of ATMs<br />Indicates- <br />Personal financial transactions have become easier and more efficient<br />
  62. 62.
  63. 63. Health<br />Includes-<br /><ul><li> hospital services- health services delivered under the </li></ul> supervision of doctors<br /><ul><li>Other health services -ambulance services and residential </li></ul> health facilities<br />Does not include-<br />Medical and dental services, veterinary services and the services provided by nurses, midwives etc., which are grouped separately under “professional services<br />
  64. 64. India’ commitments<br />India has undertaken liberalization of mode 1,2 and 3<br />Liberalization of mode 1<br />Development of tele medicine<br />Liberalization of mode 2<br />increase in foreign patients & medical professionals going abroad to provide their services<br />creation of newer products <br />example-medical tourism<br />Establishment of link between natural resources,tourism and health<br />Capitalization on traditional and alternate forms of medicine <br />Example-<br /> ayurveda and unanni<br />
  65. 65. Liberalization of mode-3<br />Encouraged foreign companies to set up branches in India to provide their services <br />Interesting avenue for countries wishing to encourage foreign investment in the health sector<br />Example-<br />Max Healthcare and Singapore General Hospital (SGH) have entered into collaboration for medical practice, research, training and education in healthcare services.<br /> Apollo Hospitals Enterprise Ltd has entered into a joint venture with Amcare Labs US, to set up a diagnostic laboratory in Hyderabad. An initial amount of Rs.2.2million USD id to be invested<br />
  66. 66. Transport Sector<br />The GATS primarily deals with<br /><ul><li> Air Transport or Aviation
  67. 67. Maritime Transport or Shipping</li></ul>Air Transport or Aviation<br /><ul><li>India’s commitments
  68. 68. FDI (Domestic Airlines) :Increased from 40 - 49%
  69. 69. NRI's and PIO have been allowed 100 % FDI.
  70. 70. Excludes from the agreement the largest part of air transport services: traffic rights and services directly related to traffic. </li></li></ul><li>Maritime Transport or Shipping<br />It includes shipping and port facilities<br /><ul><li>India’ commitments</li></ul> Offers private companies incentives –<br />Example-100 per cent tax exemptions for port development for a period of 10 years.<br /><ul><li>Elimination of restrictions on
  71. 71. cargo reservations
  72. 72. foreign equity participation
  73. 73. Establishment of commercial presence
  74. 74. access to/use of port services and multimodal transport services
  75. 75. most-favored nation (MFN) exemptions.</li></li></ul><li>
  76. 76. Impact of the WTO Agreement on the Maritime Industry<br /><ul><li>Automation & specialization of vessels
  77. 77. Improvement in port services
  78. 78. Boosted exports
  79. 79. Increase in cargo handling capacity </li></ul>Estimated- 1,855 million tons by 2012.<br /><ul><li>Increase in global share- </li></ul>Estimated- Ship Building Industry in expected to be 15 per cent by 2020.<br />
  80. 80. CONCLUSION<br />The Indian economy has experienced a major transformation.<br />There are still a few uncertainties which India is apprehensive of-<br /><ul><li>Finance Sector</li></ul> Permitting FDI to a very large extent will reduce the governments control on the sector<br /><ul><li>Health Sector-</li></ul> There will be greater disparities between the poor and the middle and upper middle class when it comes to acquiring health care services and products<br /><ul><li>IT Sector-</li></ul> Software, and business services related to IT, may have new restrictions as some US states are passing laws to limit business outsourcing. This could serve as a major drawback to India<br /><ul><li>Tourism Sector-</li></ul> Over 40 members have made commitments, often subject to restrictions, such as economic needs tests and limitations on the share of foreign capital.<br />