In Focus

In Focus: Moving Ahead with Resilience: The Indian Services Industry

Sector Focus: Services Industry

The Indian cityscape has undergone a significant change with gigantic high-rise residential complexes equipped with state-of-the-art facilities, a robust infrastructure network, and retail centers that cater to global lifestyle needs. The catalyst for this transformation is the 360 degree change in the lifestyle choices made by the modern Indian consumer. In totality, these signs of prosperity mark India’s sustained economic growth over the past decade.

The major contributor to this economic revolution has been the services sector which has had an enormous impact on the depth and dimensions of the Indian economy. In 2011, services accounted for more than 55% of the country’s GDP.1India’s performance in the sector is not only above that of other emerging developing economies, but also very close to that of the top developed countries. Among the top 12 countries with the highest overall GDP in 2010, India ranked 11 in services GDP.2In 2011-12, the services sector is expected to grow by 9.1%.3

While the global economic climate remains volatile with major concerns that the sovereign debt crisis in Europe may bring with it a global wave of severe socio-economic changes, the Indian services sector remains confident and buoyant.

Contributing to the Bigger Picture - SMEs as Partners and Supply Chain Links for Larger Service Providers

The growth in the Indian services sector is spread across multiple areas. Small and medium enterprises (SMEs) play a key role as part of the supply chain for larger businesses in the sector. The fastest growing segments, with maximum involvement from large corporates, are business services, communication and banking. Other rapidly growing services include hospitality, education, healthcare, transport and IT. Better technology services indicate the broader direction in which the Indian services sector is moving. However, the common factor across these industries is that they are increasingly being supported by SMEs, either by strategic outsourcing partners or indispensable supply chain component providers.

The IT/ITES and BPO Industry

The IT/ITES and BPO industry has been one of the major driving forces behind the growth of the Indian economy. In FY 2011, the IT-BPO sector aggregated revenues of $88.1 billion and generated direct employment for over 2.5 million people.4In FY 2012, the IT-BPO revenue is expected to cross $100 billion, and by 2015, it is expected to touch $130 billion.5

At the forefront of this remarkable growth are large IT stalwarts like Infosys, Wipro, and Genpact. All three companies were named among the top 15 global outsourcing service providers in 2011.6

However theirs is just one part of the growth story. Thousands of Micro, Small and Medium (MSME) IT firms have grown in almost all parts of India, providing niche services for Indian as well as foreign clients. API (Application Programming Interfacing) and software development, mobile application development, web and cloud computing services, gaming and consulting -- the Indian IT SME has a lot to offer.

“As IT outsourcing matures, large customers are looking beyond the first wave of cost-saving and demanding higher efficiency and effectiveness,” says the CEO of Nagarro Software, a medium size firm specializing in collaborative, cloud computing, and mobile development projects for enterprise customers. The immense entrepreneurial energy of Indian SMEs, coupled with the fact that the Indian IT sector has not been largely affected by the current economic uncertainty, are factors critical to this success.

“The Indian IT sector, especially software services, will do well to sustain the growth momentum as demand for its offerings in export and domestic markets continue to be favorable despite uncertainty, arising mainly out of the Euro crisis,” says a top industry representative.7

The Healthcare Industry

In India, healthcare is one of the largest service sectors with estimated revenues of around $30 billion, constituting 5% of the GDP.8In terms of jobs created, healthcare was among the top three sectors in 2011, and in 2012; it is expected to add 273,571 jobs.9Meanwhile, the expenditure on healthcare infrastructure is projected to grow by 5.8% p.a., taking the total expenditure in 2013 to $14.2 billion.10

The country is witnessing a surge in diagnostic centers with widespread availability of modern and advanced equipment, previously unavailable in India. Also increasingly common are single specialty hospitals such as eye care hospitals, heart treatment and maternity clinics, well-stocked international and varied pharmacy brands, and day-care surgery centers with sophisticated facilities. With the advent of de-centralized healthcare delivery models which have lower initial investment requirements, shorter payback periods, wider geographic reach, and lower business risk, firms in the healthcare industry can easily acquire capital and financial support from private equity firms and banks, thereby contributing to the growth of the healthcare industry.

This growth is driven by factors such as committed government initiatives for improved medical infrastructure, focus on Public Private Partnership (PPP) models, and sharper awareness of ailments and health amongst the urban population. This awareness has, in turn, led to increased spending on lifestyle and health. It has also created a rising market for health insurance. Moreover, with cutting-edge treatments that offer 99.99% cure and speedy recovery, consumers feel a strong sense of cost-validation which boosts the demand and need for common procedures such as non-invasive day-care surgeries, dentistry, and ophthalmology treatment.

India has rapidly become a medical hub that boasts of experienced and knowledgeable doctors and specialists offering treatments at substantiated costs. This has made the country a key attraction for a number of medical tourists from across the world. According to a recent study conducted by the Associated Chambers of Commerce and Industry of India (ASSOCHAM), titled ‘Emerging Trends in Domestic Medical Tourism Sector’, “The inflow of medical tourists in India is growing at a compounded annual growth rate (CAGR) of 40% since last 3 years."11

The Travel and Hospitality Industry

India’s travel, tourism and hospitality industry is one of the fastest growing service industries in the country thanks to a burgeoning middle class, increasing purchasing power, a rising inflow of foreign tourists, and successful government campaigns promoting ‘Incredible India'. In 2011 alone, travel and tourism contributed to 6.4% of the GDP, and is forecast to rise by 7.3% in 2012.12In terms of employment, travel and tourism directly supported 24,975,000 jobs (5% of employment) in 2011, and is expected to rise by 3% in 2012.13Foreign Exchange Earnings (FEE) from tourism in 2011 were $16,564 million with a growth of 16.7% over 2010.14

Clearly, India is fast becoming a popular tourist destination world over. Between April 2000 and December 2011, the hotel and tourism sector generated a total of $3,195.70 billion in Foreign Direct Investment (FDI).<spanclass="small_fonts">15In 2011 alone, the country welcomed 6.29 million foreign tourists, compared to 5.78 million in 2010.16By 2022, international tourist arrivals are forecast to total 11,276,000, generating an expenditure of `1,382.6 billion.17

In 2010-11, the travel and hospitality industry faced the challenge of a significant decline in corporate travel due to serious cost cutting by global corporate houses, as well as the fear of terrorism, and a lack of a sense of safety post the 2008 Mumbai terror attacks. However, the hospitality sector has shown resilience, improving its security management and performance.

With the growth of budget hotels along with low cost airlines, online travel bookings, and group travel, SMEs in the travel and tourism sector have shown rapid progress. They have been targeting niche markets specializing in corporate travel, leisure travel, and even hitherto unheard services like wedding travel and planning.

“IATA statistics show that today, maximum business is generated in Asia. Asia and particularly India now have a major role to play in shaping this sector while also enjoying maximum share. However, with more disposable income, Indians prefer to travel overseas rather than within the country. We have over 14 million Indians traveling overseas, but the figure for inbound tourism stands at a dismal 6 million - this can definitely increase if we begin to seriously promote India as a destination to be explored and discovered.”, says Vivek Dadhich, Managing Director of Noida-based Bluemoon Travels, a new age travel company offering leisure travel and MICE - travel planning services for Meetings, Incentives, Conventions, and Exhibitions.

The logistics and transport industry

The Indian logistics market recorded revenues of about $82.10 billion in 2010, witnessing a growth of about 9.2% over the previous year. The main drivers fueling this growth include rapidly rising fortunes of the country’s manufacturing and retail sectors, rising international trade, and ongoing infrastructure development initiatives by the Government of India, such as dedicated freight corridors project, port development, building of logistics hubs and warehouses, and technology upgrades.18

There has been a steady inflow of private equity investments in the logistics industry. The development of basic infrastructure such as roads, airports, ports, and railways by large Indian infrastructure companies has helped SMEs capitalize on the many opportunities that have opened up. Today there is no dearth of courier companies, logistics solution providers, and transporters in the SME space. Innovation and differentiation are the keys to success. SMEs in this industry are focusing on providing logistics solutions to specific customers such as e-commerce, oil, construction and mining companies.


While the global economic climate remains volatile, timely utilization of opportunities will ensure that Indian SMEs continue on their growth trajectory in the services sector. Intelligent strategizing, a progressive outlook, and adequate support from the government and financial institutions will prove to be critical in helping the services sector overcome these tumultuous economic times, and pave the way for a promising and rewarding future.



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