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Recent developments in
India¶s Services Sector
Opportunities for Australia
Richard S Andrews
Executive Director
Economic Analytical Unit
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Key points
Services sector is key to India¶sdevelopment prospects
This makes it a particularly prospectivesector for Australian companies.
While Australia is already capitalising tosome extent, there is scope to do more
But«need to be in it for the long haul
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Services and India¶s development
Phenomenal growth in high-end serviceshas driven India¶s recent performance.
The question is ± can growth in one sector translate into an ³Indian developmentmodel´ based on services?
Services: 60 per cent of the Indianeconomy ± and growing.
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Services sector gaining ground
Sources:1999-2000 to 2004-05 data from Central Statistical Organisation, http://mospi.nic.in/5_gdpind_const.htm,accessed June 2006; 2005-06 data from Press Information Bureau, Press Note, 'Revised Estimates of Annual National
Income, 2005-06 and Quarterly Estimates of Gross Domestic Product, 2005-06', available at http://mospi.nic.in,accessed June 2006; pre-1999-2000 data from 31 May 2006RBI 2005b, Table 3.
Sector shares in GDP (at factor cost and 1999-00 prices),in per cent, 1990±91 to 2005±06
0%
20%
40%
60%
80%
100%
1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
Agriculture Industry Services
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Services and India¶s development
Phenomenal growth in high-end serviceshas driven India¶s recent performance.
The question is ± can growth in one sector translate into an ³Indian developmentmodel´ based on services?
Services: 60 per cent of the Indianeconomy ± and growing.
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What¶s happening.
A critical element in the services sector¶s growthhas been government¶s change of mind onregulation
Deregulated or little-regulated sectors havegrown fastest
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Liberalised services sectors have grown faster
Significantly liberalised Moderately liberalised Non-liberalised
Source: World Bank 2004.
Average growth rates over the 1990s of selected services sectors
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wellings
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ailways
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%
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What¶s happening.
A critical element in the services sector¶s growthhas been government¶s change of mind onregulation
Deregulated or little-regulated sectors havegrown fastest
The demonstration effect plus lobbying by thesuccess stories are driving further reformmomentum.
This means a dynamic environment ± which willcreate opportunities as nature of businesschanges.
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Where the opportunities will be
While IT/ITES has been the headline-grabber, the services sector covers abroad spectrum
Important to look across whole servicessector for opportunities
These will differ depending on the role of the specific sector in the economy.
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1. The IT/ITES boom
India¶s boom driving ³tradability revolution´ for services and emergence of multi-directionalinternational supply chains
± India¶s business services imports have boomed at thesame time as exports
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Strength of commercial services trade
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Services trade and major com onents (US$ billion)
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s://cdbmsi.reservebank.org.in/cdbmsi/servlet/login/, accessed January# $ $ %
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Ex orts
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1. The IT/ITES boom
India¶s boom driving ³tradability revolution´ for services and emergence of multi-directionalinternational supply chains
± India¶s business services imports have boomed at thesame time as exports
± Opportunities for collaboration, participation in supplychains, and just staying up to date with internationaldevelopments.
± But highly competitive Also opportunities in other high-end services
such as biotechnology
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2. Dynamic enablers
Telecommunications ± critical to ongoingIT/ITES boom ± uge growth (especially in mobile market) but huge
competition ± Mainly niche opportunities for Australia
Finance ± crucial to spreading growth ± Increasing affluence giving rise to demand for new
financial products
± Opportunities for project finance generated by needfor infrastructure development
± Ongoing reforms in banking and insurance
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Dynamic enablers (cont)
Energy and transport infrastructure ± willdetermine sustainability of India¶s boom ± Recognition by government of need for external
involvement
± Improved public sector fiscal position andmechanisms for drawing in foreign capital andexpertise
± Australian companies (e.g. SMEC, Clough, Leighton)operating successfully already
± Specific areas of Australian expertise ± airports etc Education (key Australian export)
± Watch for changing profile
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To be continued «
Retail ± burgeoning middle class drivesdemand for international standard retailing
± Structural and cultural shifts required withmajor implications for logistics and other industries
Tourism/hospitality
± Greater accessibility of travel (deregulatedairlines) will drive demand for expandedfacilities (e.g. middle-range hotels)
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Australia¶s presence
Australia¶s second fastest growingservices market after China - but it¶smostly education
Increasing number of Australian successstories
Momentum from recent government ±
level visits and initiatives builds ongenerally favourable perceptions
Plenty of competition for limelight
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To remember
India is a ³long haul´ investment destination ±reflected in differing assessments
± Rewards can be great and business environment is
becoming increasingly transparent ± Need to understand nature of business relationship &
± Pursue targeted marketing strategy: India is not ahomogeneous market.
± But difficulties should not be underestimated ± talk toothers who are doing it.