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Fast-Growing Industry:SERVICE SECTOR NEEDS MORE ATTENTION, by Dr. Vinod Mehta, 29 December 2005 Print E-mail


New Delhi, 29 December 2005                                 

Fast-Growing Industry


By Dr. Vinod Mehta

The economic reforms for the past one decade and a half have mainly focussed on the manufacturing sector and very little attention has been paid to the service sector.  The time has come to give serious attention to this sector for a number of reasons, especially the traditional service sector like hospitality, medical care etc.

Firstly, as the experience of many developed countries has shown that after a certain point of development and with increasing urbanization it is the service sector which grows at a relatively faster pace than either the manufacturing sector or the agricultural sector.  India can also be said to have reached a point when its service sector can expect to grow at a relatively faster pace and this needs to be given the necessary support; the Indian IT sector is already growing at a very fast pace.

Secondly, it has also been observed that this sector generates the largest number of jobs and has the capacity to absorb a large number of the labour force, i.e. to say, it has a relatively largest potential of employment generation.

Thirdly, the role of imported inputs like machinery, equipment etc., in the service industry is very limited and most of the equipment needed can be easily procured from within the country for a large number of service sub-sectors.  It may need import of certain specialized equipment or some latest equipment which will not be a drain on foreign exchange.  And the equipment once imported will have less wear and tear compared to use of equipment in the manufacturing or agricultural sectors.

Fourthly, the service sector has a very good potential of earning foreign exchange especially the service sector related to tourism 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.  The tourist industry of Thailand is the most important foreign exchange earner. 

Compared to Thailand, India is a vast country and there are a large number of places of historical interest to foreign tourist; beaches to spend their holidays; India is the birthplace of Buddha, yet large number of Buddhist pilgrims go to Thailand and rarely come to India.  It is because the tourist infrastructure facilities are not well developed; the good hotel accommodation is limited, taxis are rickety, domestic flights seldom keep the schedules, facilities for converting foreign exchange are limited and so on.  In Thailand, every tourist facility, be it hotel, be it a restaurant, or taxis or exchange bureaus all are of high standard compared to India.  For this reason tourists arrive in Bangkok by hordes.

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 the services of law 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 high time that attention is paid to the expansion of this industry in the country.  It will also 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 sector and wherever necessary it be supplemented with fiscal concessions etc. as for instance for development of hotel industry in Bodh Gaya for Buddhist pilgrims or for development of tourist infrastructure in north-east and so on.

Almost all modes of transport are in need of modernization, some more than others.  The air sector has been opened up to the private sector and private investment, yet the quality of service leaves much to be desired.  The ground services are not up to the mark--sometimes the weighing machines are not working and sometimes the luggage belt is not working and sometimes the bags are mixed up.  The behaviour of the ground staff towards the passengers, whether domestic or international, is far from courteous.  Therefore, what is needed in this sector is upgradation of ground support facilities, proper training of ground staff in human relations as all this will attract more people which, in turn, will generate more employment in various sub-sectors of the tourist industry.

The surface transport--whether inter-city or intra-city-- is really in very bad shape.  The buses are rickety, the seats are uncomfortable, doors are missing; so is true of taxis and other means of transport.  All of these things are manufactured in the country but the technology is very backward and discarded in almost all the countries.  The buses manufactured in the country and in other countries stand class apart.  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.  One, there is a real shortage of hospitals and medical care centres relative to the number of patients.  Two, though the country can boast of a large number of good doctors and a few very good hospitals, yet we do not have enough of technical staff to run and maintain those machines which are invariably imported.  Three, because of the shortage of funds the cleanliness of the hospitals has become a casualty.  All this calls for big investments in this sector, including investment on the technical staff to run and maintain the sophisticated equipment.

The infrastructure of financial sector is also outdated.  Even though the nationalized banks and insurance companies have decided to go in for computerization of their work, yet they are much behind their counterparts in other countries of the world.  Whereas in other countries because of extensive computer network it takes a maximum of five minutes to encash a cheque or to credit a cheque, in India it would take a minimum of fifteen minutes to encash a cheque and a minimum of two days to credit the local cheque and anywhere from 15 days to one month to credit an outstation cheque.

Again exchanging hard currency for rupee can be frustrating on holidays and Sundays and when the bank employees are on strike; and on the top of it the tourists are asked to fill up forms.  If all the foreign exchange conversion transactions were to be computerized, just entering the name and the passport number in the computer and the calculation done instantly would save the tourist from a lot of frustration.  Similarly ATMs which would exchange a few specified hard currencies could be set up at vantage points to help the foreign tourist to encash his money for Indian rupee even on holidays and also beyond banking hours.

All this requires up-gradation of banking technology so that the normal services to both domestic and foreign customers can be speeded up.  Extensive computerization would also speed up the settlement of business transactions among various parties in India and abroad; the whole business depends upon the flow of funds and computerization can help considerably in this direction.

Taking an overall view, one can say that the time is ripe to give an all round big thrust to the service sector in the country. It is hoped that the next year’s budget will provide some push to the traditional service sector.---INFA

 (Copyright, India News and Feature Alliance)






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