<p>Our GDP growth rates are better than the global average, generating buoyancy in the stock markets and allowing a veritable flood of IPOs. This story is primarily propelled by the excellence of our services sector and by the consumption booster, triggered by the ever-rising inward remittance flows (above $ 100 billion) of our migrant workers. These achievements are called our demographic dividend-induced, ‘consumption-linked’ growth story. Our services sector successes have so far been a result of individual entrepreneurship and initiative and less of active state initiatives which, so far, tended to focus more on supporting manufacturing. But now, potentially problematic scenarios are building up.</p>.<p>The services sector growth is globally linked to urban development. Our focus on creating and supporting urban development became muted after the initial strong starts, witnessed in the early plan years. The services sector growth also, thus, remained muted till end-1980s. However, the scenario changed thereafter. The end of the Cold War and the near simultaneous creation of a unipolar world and the internet provided the backdrop for corporations visualising the entire globe as a single city. Globalisation allowed our services sector and our skilled youth to grow beyond our boundaries. Accordingly, the principal markets for our services sector and our ever-growing labour force are countries of the Middle East and some of the advanced economies. We are often celebrated as the ‘the office of the world’.</p>.<p>Now, changes are again afoot in the world order. Ranging alongside are the debates in the USA – our primary market for services – by Donald Trump’s successful ‘MAGA’-based presidential campaign. The rapid, and often unsettling, political developments in the Middle East may also create problems. Further, the emergence and rapid progress of AI will soon start altering the composition and orientation of this ‘office’. Two important questions arise: Can we hold on to our services sector gains? Can we continue to grow our services exports per past rates or better? While our policymakers cannot do much to guide these forces, they need to recognise the looming storm clouds and focus on reducing our dependence on global markets, by creating additional internal markets and market demand for services.</p>.<p>Our services exports are, in essence, manpower exports that have mitigated the employment challenge by acting as a safety valve to help regulate our demographic dividend. However, if we cannot continue growing our services exports at current rates, we will have many more ‘educated unemployed’ youths to manage. Currently, the employment problem is perceived by policymakers as a ‘number game problem.’ So, the promotion of labour-intensive manufacturing is seen as the most appropriate policy solution. A counter exists in the example of Bangladesh, the poster-child of success in this field. It has created relatively far more such manufacturing jobs than us. This, however, did not prevent youth unrest over jobs and the consequent turmoil.</p>.<p>The incongruence stems from the fact that individuals view employment not as a ‘number game’ but as a ‘dignity and status’ need. A ‘labour-intensive’ manufacturing job is not very attractive. If we look at the employment challenge from the lens of dignified jobs, we lack considerably. Illustratively, jobs in education/health services are globally considered top-rung dignified. They account for only about 5% of our domestic jobs but are at double or higher percentages in China/Brazil and over 4 to 5 times our percentages in the advanced economies, as per the ILO database.</p>.<p>Another important fact is that despite our successes, we account for only 4.3 per cent of the global services trade and are still 7th ranked. This is primarily so because while we are a dominant player in the BPO services (which developed without significant state support), this is only a portion of the global services market. Other important, often much larger, services sectors include financial, health, education, logistics and distribution, and human capital management. The problem is that we are almost entirely inward-looking and have not attempted to create facilities to attract global demand for these other services. This requires specific policy signaling as is done to attract manufacturing.</p>.<p>We illustrate by analysing our health sector. India’s per capita hospital bed availability is below 0.7 per 1,000 (global rank below 100). Yet currently, over 20,000-25,000 Indian students go abroad every year to study medicine because of inadequate domestic capacity in medical colleges. This signals the existence of a low hanging fruit – we could use tax signals to attract private sector investment for hospital development in currently under-served areas. SEZ-type schemes for ‘medical college-cum-hospitals’ in deficient states/districts with tourism potential/infrastructure could become runaway successes. This is just one example of forward-looking thinking. Brainstorming by qualified sector experts could generate workable ideas on how to create centres of self-sustainable growth in other services. External adversities are better handled by developing a more proactive stance rather than by adapting reactive economic policies later.</p>
<p>Our GDP growth rates are better than the global average, generating buoyancy in the stock markets and allowing a veritable flood of IPOs. This story is primarily propelled by the excellence of our services sector and by the consumption booster, triggered by the ever-rising inward remittance flows (above $ 100 billion) of our migrant workers. These achievements are called our demographic dividend-induced, ‘consumption-linked’ growth story. Our services sector successes have so far been a result of individual entrepreneurship and initiative and less of active state initiatives which, so far, tended to focus more on supporting manufacturing. But now, potentially problematic scenarios are building up.</p>.<p>The services sector growth is globally linked to urban development. Our focus on creating and supporting urban development became muted after the initial strong starts, witnessed in the early plan years. The services sector growth also, thus, remained muted till end-1980s. However, the scenario changed thereafter. The end of the Cold War and the near simultaneous creation of a unipolar world and the internet provided the backdrop for corporations visualising the entire globe as a single city. Globalisation allowed our services sector and our skilled youth to grow beyond our boundaries. Accordingly, the principal markets for our services sector and our ever-growing labour force are countries of the Middle East and some of the advanced economies. We are often celebrated as the ‘the office of the world’.</p>.<p>Now, changes are again afoot in the world order. Ranging alongside are the debates in the USA – our primary market for services – by Donald Trump’s successful ‘MAGA’-based presidential campaign. The rapid, and often unsettling, political developments in the Middle East may also create problems. Further, the emergence and rapid progress of AI will soon start altering the composition and orientation of this ‘office’. Two important questions arise: Can we hold on to our services sector gains? Can we continue to grow our services exports per past rates or better? While our policymakers cannot do much to guide these forces, they need to recognise the looming storm clouds and focus on reducing our dependence on global markets, by creating additional internal markets and market demand for services.</p>.<p>Our services exports are, in essence, manpower exports that have mitigated the employment challenge by acting as a safety valve to help regulate our demographic dividend. However, if we cannot continue growing our services exports at current rates, we will have many more ‘educated unemployed’ youths to manage. Currently, the employment problem is perceived by policymakers as a ‘number game problem.’ So, the promotion of labour-intensive manufacturing is seen as the most appropriate policy solution. A counter exists in the example of Bangladesh, the poster-child of success in this field. It has created relatively far more such manufacturing jobs than us. This, however, did not prevent youth unrest over jobs and the consequent turmoil.</p>.<p>The incongruence stems from the fact that individuals view employment not as a ‘number game’ but as a ‘dignity and status’ need. A ‘labour-intensive’ manufacturing job is not very attractive. If we look at the employment challenge from the lens of dignified jobs, we lack considerably. Illustratively, jobs in education/health services are globally considered top-rung dignified. They account for only about 5% of our domestic jobs but are at double or higher percentages in China/Brazil and over 4 to 5 times our percentages in the advanced economies, as per the ILO database.</p>.<p>Another important fact is that despite our successes, we account for only 4.3 per cent of the global services trade and are still 7th ranked. This is primarily so because while we are a dominant player in the BPO services (which developed without significant state support), this is only a portion of the global services market. Other important, often much larger, services sectors include financial, health, education, logistics and distribution, and human capital management. The problem is that we are almost entirely inward-looking and have not attempted to create facilities to attract global demand for these other services. This requires specific policy signaling as is done to attract manufacturing.</p>.<p>We illustrate by analysing our health sector. India’s per capita hospital bed availability is below 0.7 per 1,000 (global rank below 100). Yet currently, over 20,000-25,000 Indian students go abroad every year to study medicine because of inadequate domestic capacity in medical colleges. This signals the existence of a low hanging fruit – we could use tax signals to attract private sector investment for hospital development in currently under-served areas. SEZ-type schemes for ‘medical college-cum-hospitals’ in deficient states/districts with tourism potential/infrastructure could become runaway successes. This is just one example of forward-looking thinking. Brainstorming by qualified sector experts could generate workable ideas on how to create centres of self-sustainable growth in other services. External adversities are better handled by developing a more proactive stance rather than by adapting reactive economic policies later.</p>
