India needs to look beyond IT and BPO, says Anand Sharma

"Services beyond a point will grow only when manufacturing grows. Manufacturing is the multiplier," said Anand Sharma, Minister of Commerce & Industry, at the Services Conclave organized by industry body Confederation of Indian Industry (CII) in New Delhi.

The minister said that once manufacturing grows, it will transform the country.

"The new policy will take manufacturing share in our GDP from a low 16 per cent to 25-26 per cent in a decade. For one manufacturing job, there will be 3-4 coming up in the services sector. That will change the game," he said.

Sharma was referring to the 13 new greenfield industrial townships, or National Investment and Manufacturing Zones (NIMZ), that are being planned by the government.

According to the minister, the services sector has acquired its own profile over a period of time. "Some people have a misconception. They associate the services sector only with the burst in IT and communications. It is true that these are the dominant sectoral verticals when it comes to services exports," he said.

"Our share in global trade is still very low. Every effort is being made to increase our exports, both services and merchandise exports. Together, these two account for a little over $1 trillion now. In a global market (of $4 trillion) of services exports, India's share is still low at $227 billion. The growth is skewed," he added. He went on to say that focus has been directed towards IT, BPO, software solution, banking and accounting services so far.   

Highlighting the need to develop strengths in the services sector beyond just IT and BPO, the minister said that India's services sector has issues related to high transaction costs.

"I don't think we have strengths in maritime transport and shipping. We have to become more efficient in bringing down the time for delivery of cargo, ensuring faster turnaround time at ports, and ensuring that our packaging industry and cargo handling services improve," Sharma said.

The services sector has a dominant share in India's GDP. It contributes 60 per cent to GDP and 35 per cent to overall employment. The government has been investing in a large number of institutions considering that two-third of India's population consists of young people, according to him.

"Our median age will not reach 30 years by 2020 and will not cross 35 years even by 2040. We have more than doubled IITs, added four new national institutes of design, IIITs and new universities," he said. This is an opportunity to prepare young people, Sharma added.

The minister said the services sector has to look at newer markets to grow.

"In 2009, when we saw our merchandise exports, we realised that we were not present in many major markets," Sharma added. He went to say that the merchandise exports has seen strong growth in the Asia Pacific, African and South American markets. This makes him believe that there is potential in newer markets for the services sector.

The minister pointed out that when the global economy is challenged, there is a tendency toward protectionism. "This is a considered view which I have been telling our partners, especially the US and Europe, that protectionism will be counter-productive and dangerous. It will deepen the recession. There are industry concerns when there is an enhancement of visa fees," he said. But these concerns are natural, according to him.