Prime Minister of India - Dr. Manmohan Singh

PM Inaugurates Servin XPO 2006 Exhibition

The Prime Minister, Dr. Manmohan Singh has announced that the Government is considering setting up a High Level Group in the Planning Commission to look into all aspects influencing the performance of the Services sector and suggest policy measures which would need to be taken to sustain its competitiveness in the coming years.

Inaugurating Servin XPO 2006 exhibition organised by the Federation of Indian Export Organisations, here today, the Prime Minister expressed the hope that the recommendations of this High Level Group, which would consist of members from government, business and academia, would act as a roadmap for this sector.

Referring to the role of human resources in the development of services sector as a whole, Dr. Singh stressed the need to expand our educational system and improve our skill-building abilities in order to translate the "demographic dividend" into a "development dividend". "This is an urgent priority which we need to attend to immediately", he added.

The Prime Minister highlighted several factors to improve the country's competitiveness in education, legal and health services. In education services, he called for huge investments to set up more universities, professional colleges, nursing schools, etc. to feed the emerging domestic and international demand. "We need a policy regime which facilitates and promotes investment in education services", he asserted.

Stressing the need for expertise in international law, commercial law and third country law, Dr. Singh called for a more open legal sector. In order to tap opportunities in the Health services, the Prime Minister suggested that an accreditation mechanism for hospitals and laboratories needs to be established and that standards be developed which meet international customer requirements.

The Union Minister for Commerce and Industry, Shri Kamal Nath, diplomats, senior Government officials, business leaders and others participated in the function.

Following is the text of the Prime Minister's address on the occasion:

"I compliment Shri Kamal Nath and his colleagues in the Ministry of Commerce for having imparted a new sense of dynamism to India's industry and trade and that includes the exporting sectors as well.

I am therefore very happy to be here in your midst to inaugurate Servin XPO 2006. I compliment the Federation of Indian Export Organisations for hosting this innovative exhibition. I am happy to note that the focus of this event is on sub-sectors of really vital interest to our country - education, medical and life sciences, travel and tourism, scientific and engineering services and consultancy services. Apart from show-casing the strength of Indian services industry, I hope your meeting will focus on issues concerning domestic reform in these sectors to make us truly globally competitive.

Services play a crucial role, not just in our economy but in our trade as well. They now account for more than 50% of our GDP. Services' exports too have been on the increase and now account for a third of our total exports of goods and services. The service sector has also contributed immensely to employment growth in recent years. In some ways, the growth of the service sector has been one of the notable success stories of the Indian economy - both domestically and on the global plane. Currently, it is services, along with manufacturing, which are driving our GDP growth to higher rates. In fact, it is services exports, as well as foreign remittances of Indian workers abroad, which are keeping our current account deficit in the balance of payments in a zone of comfort. While all efforts are being made to boost agricultural and industrial growth, services will continue to bear proportionately a much larger burden of propelling our economy to a higher growth trajectory in years to come.

On the global scale, the service sector has seen robust growth, benefiting all countries. It accounts for 60% of world output, a third of global employment and a fifth of world trade. The growth in trade in services of course is a recent phenomenon. Therefore, unlike in manufacturing where the developed world has had a historic lead, this is a sector where the developing countries need not suffer from a handicap and they have been able to compete effectively. It would not be an exaggeration to say that the success of the service sector in India and elsewhere is changing the global economic order.

The most commonly known success story in our country has been in the field in Information Technology and BPO services. This has been the result of the IT revolution, the consequent disaggregation of service delivery processes, the technological revolution in telecommunications and the ability to deliver services from a distance. This has enabled the development of new business models whereby firms under pressure to cut costs have opted to outsourcing services across geographical boundaries. New business and service relationships are being forged across continents in a manner and in fields which were unimaginable even a decade ago.

And as I scan the horizon, I do not see any limits to these dynamic processes in the near future. I am told that by the year 2010, as much as US$110 billion of business could be off-shored with India in a position to capture atleast half this market. The direct and indirect employment impact of these developments could exceed a crore jobs within five years. This could contribute an additional 1% per year to our GDP growth as well.

I am happy that your seminar will be focusing on services other than IT which could in the future have the same growth potential as Information Technology. Health services, legal services, higher education services and tourism services are all areas where we have a core competence which could be tapped successfully to boost our exports.

Our experience in the last two decades has shown that liberalized service sectors like IT, telecommunication and banking services have attracted significant amount of foreign direct investment and witnessed faster growth. On the other hand, sectors that have not been exposed to sufficient competition and where the regulatory framework is weak, they have failed to make a similar impact on the growth processes of our economy. Therefore, we need to focus on first developing our capabilities in these new services and then showcasing them globally at large.

I would also like to mention the remarkable success we have achieved in a service activity which tends to get ignored. This is the service provided by our emigrants. The largest single item in our export basket today is the remittances sent back home by workers in foreign countries. Globally, the total remittances to the developing countries exceed the FDI flows and are twice the amount of official development assistance extended by the developed countries to developing countries. We need to focus on this important service activity as well.

If we have to enhance the prospects for the services sector and capitalize on the opportunities at our doorstep, we need to pay focused attention to factors, which affect the competitiveness of each sub-sector. Each sub-sector has its unique characteristics. These need to be identified and measures taken to improve the supply capabilities of each sub-sector.

In the field of educational services, we need huge investments to set up more universities, professional colleges, nursing schools, etc. This is necessary to feed the emerging domestic and international demand. We need a policy regime which facilitates and promotes investment in educational services. There is need for greater investment, both by the public and private sectors. I am told that more than US$ 3 billion is spent annually by our students going abroad to study. This could be easily retained in India if we are able to expand educational facilities and improve their quality to world standards.

Similarly, with the increasing integration of the Indian economy with the evolving global economy, we need expertise in international law, commercial law and third country law. For this, a more open legal sector is necessary. Health services are an emerging area which hold immense potential for India. In particular, medical outsourcing and medical tourism provide an opportunity for the health sector which we should be able to exploit. For this, an accreditation mechanism for hospitals and laboratories needs to be established. We need to develop standards which meet international customer requirements.

While there are specific issues concerning each sub-sector, services as a whole are critically dependent on one factor - viz., human resources. The success of the service sector cannot be sustained if we do not improve our skill and knowledge base. India has an enormous demographic advantage in the medium term, as one of the youngest countries in the world. In the coming two decades, India will get demographically still younger with 60% of our 1.2 billion people being under the age of 35. It is estimated that by 2020, the US, China, Japan and Russia will be short of 42 million people of working age. Against this, India will have a surplus of 47 million working age people. However, to translate the "demographic dividend" into a true "development dividend", we have to expand our educational system and improve our skill-building abilities. This is an urgent priority which we need to attend to immediately.

Services are a crucial sector of our economy and it is necessary to sustain the rapid growth of this sector. For this, we have our job cut out. Our government is committed to sustaining the rapid growth of this sector. We are considering setting up a High Level Group in the Planning Commission to look into all aspects which influence the performance of the Services sector and suggest policy measures which would need to be taken to sustain its competitiveness and growth in the coming years. I hope that the recommendations of the High Level Group, which would consist of members from government, business and the academia, would act as a roadmap for the growth of this sector.

I am confident that working together, we will be able to take the Services revolution forward. I once again congratulate all of you for organizing this event. I wish your deliberations and expo all success".