Service sector generates the greatest number of jobs and has the capacity to absorb a large labour force.
Economic reforms for the past 15 years have mainly focused on the manufacturing sector. Lately, reforms in the financial sector have received some attention. Regrettably, neither the service sector nor the agricultural sector has received any serious thought from the Government. Every budgetary proposal has widened the service tax net. But it has given no sop to this sector, even though it would help tackle our chronic unemployment problem in a big way. It does beg for the Government's serious attention.
Firstly, experience of many a developed country shows that with increasing urbanization and after a certain point in economic development, it is the service sector which grows at a relatively faster pace than either the manufacturing sector or the agricultural sector. It can be said that India too has reached a point when its service sector can expect to grow at a relatively faster pace and needs to be provided not only all the necessary support but perhaps a gentle push. The fact is that this sector is growing at a faster pace than either the manufacturing sector or the agricultural sector.
Secondly, it has been observed that this sector generates the greatest number of jobs and has the capacity to absorb a large labour force ie to say, it has the biggest employment generation potential. In most of the developed countries less than 10 per cent of the population is engaged in agriculture, less than 30 per cent in manufacturing and the rest in the service sector.
Thirdly, the role of imported inputs like machinery, equipment etc., in the service industry is limited and most of it can be easily procured from within the country for a number of service sub sectors. Certain specialized or latest equipment could be imported, if need be, but it will not be a drain on foreign exchange. Besides, the equipment, once imported will have less wear and tear compared to the use of equipment in the manufacturing or agricultural sectors.
Fourthly, the service sector has high potential of earning foreign exchange, especially in the tourism sector, like hotels, travel agencies, restaurants, specialized transport of all kinds, services of guides and so on. In fact, the foreign exchange used to import certain equipment to modernize the service industry would be only a small proportion of potential hard currency earnings.
The Thai experience here can be quite illustrative as its tourist industry is the highest foreign exchange earner. India is a vast country and offers places of historical and cultural interest and beaches to foreign tourists. Though India is the birthplace of Buddha, yet large number of Buddhist pilgrims visit Thailand instead. This is so because tourist infrastructure facilities here are not well-developed --good hotel accommodation is limited, taxis are rickety, domestic flights seldom keep schedules, foreign exchange facilities are limited and so on. In Thailand, every tourist facility, say a hotel or a restaurant, or taxis or exchange bureaus, maintain high standards compared to us. Reason enough for tourists to throng Bangkok.
This is just an example of one service industry where both foreign and domestic tourists expect something much better. The service industry in the wider sense of the term would include legal advisers, artistes, technical consultants, health clubs apart from the tourist industry, financial sector like banking and insurance, transport sector covering rail, road, air, river and sea transport, telecommunications, medical services and so on.
It is time that we pay attention to the expansion of this industry as it will serve the wider purpose of creating more jobs as well as earning more foreign exchange.
As a first measure, there is a need to have a comprehensive investment policy with regard to each sub sector of the service industry and wherever necessary it be supplemented with fiscal concessions etc. such as for development of hotel industry in Bodh Gaya for Buddhist pilgrims or tourist infrastructure in the North-East.
Almost all modes of transport are in need of modernization, some more than others. The air sector has been opened up to private players and investment, yet the quality of service offered leaves much to be desired. For example, the ground services are not up to the mark--sometimes either the weighing machines are not working or the luggage belt is not working or the bags are mixed up. The ground staff approach towards its passengers, whether domestic or international, is far from courteous. It will do well for the airlines and the sector to upgrade ground support facilities, train the staff in guest relations etc. This is bound to attract more people which in turn will generate more employment in various sub sectors of the tourist industry.
As for surface transport, it's in a pathetic state, be it intercity or intra-city. Most buses are rickety, seats uncomfortable and doors missing; same is the case with our taxis and other means of transport. Taxis outside our international airports present a shameful sight. This is an area in the service sector which requires up gradation of technology either through import of technology or through development of indigenous technology.
The situation is much worse in the health sector. Leaving aside some "five star" hospitals in the private sector that cater to the very rich, there is a real shortage of hospitals and medical care centres as against the number of patients. Two, though the country can boast of good doctors, it cannot do likewise for its technical staff which runs and maintains machines, which are invariably imported. Three, because of shortage of funds the cleanliness of hospitals has become a casualty. All this calls for big investment including in technical staff to run and maintain sophisticated equipment.
The infrastructure of the financial sector too is outdated. Even though nationalized banks and insurance companies have decided to go in for computerization, they are way behind counterparts in other countries. Exchanging hard currency for rupee can be frustrating on holidays and Sundays and when bank employees are on strike, or when tourists are asked to fill up forms. If all foreign exchange transactions were to be computerized it would save the tourist a lot of trouble. Similarly, specialized ATMs which would exchange a few specified hard currencies could be set up at vantage points to help the tourist encash money for Indian rupee even on holidays and beyond banking hours.
Simple as it may sound, all this requires upgradation of banking technology so that the normal services to both domestic and foreign customers can be expedited. Extensive computerization would also speed up settlement of business transactions among various parties in India and abroad as business does depend upon the flow of funds.
The development of hotel industry also leaves much to be desired as it also has a high potential of employment. Though the tariff of five-star hotels here are much higher than that of similar hotels in South-East Asia, the services are not at par with them. In fact, smaller hotels in these countries would compare with big hotels in terms of comforts offered but at a relatively cheaper price. In India, in the absence of any policy towards healthy growth of the hotel industry, a number of sub-standard hotels have mushroomed, giving the country a bad name.
In sum, one can say that time is ripe to give an all-round thrust to our service sector through rightful mix of incentives and economic policies.
Dr Vinod Mehta, INFA
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