Indian Service Sector

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INDIA’S SERVICES SECTOR: Unlocking Opportunity

Unlocking Opportunity
Australian Government
Department of Foreign Affairs and Trade
Economic Analytical Unit

©Commonwealth of Australia 2007 This work is copyright. Apart from any use permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth available through the Attorney-General’s Department. Requests and inquiries concerning reproduction and rights should be addressed to Commonwealth Copyright Administration, Copyright Law Branch, Attorney-General’s Department, Robert Garran Offices, National Circuit, Canberra ACT 2600 or by email to

Australia. Dept. of Foreign Affairs and Trade. Economic Analytical Unit. India’s services sector: unlocking opportunity. Bibliography. ISBN 9781921244056. 1. Service industries - India. 2. India - Commerce. 3. India - Economic conditions. 4. India - Economic policy. I. Title. 338.470954 Editing by Peter Judge. Typesetting by Lyn Lalor. Production by Jean Penny, Pirion Print and Design. Cover photo by Adrian Westwood, Firefly Creative.



executive summaryi

‘In 1991, with India running out of hard currency, Manmohan Singh…decided that India had to open its economy. “Our Berlin Wall fell…and it was like unleashing a caged tiger… We went from quiet self-confidence to outrageous ambition in a decade” [Tarun Das, Chief Mentor, Confederation of Indian Industries].’ (Thomas Friedman, The World is Flat) Optimism abounds in India. Well it might. Keynote reforms, initiated by the then Finance Minister Dr Manmohan Singh in 1991, provided the momentum for a major reduction of the role of the public sector in the economy, a degree of deregulation, and greater integration of India’s economy into international markets. India’s entrepreneurial spirit was unleashed. The result has been a shift from India’s traditional annual GDP growth rates of around 3.5 per cent to a much faster growth trajectory. Between 1991 and 2005 the economy expanded at an annual average of around six per cent. In the past three years growth has been higher still, at around eight per cent. Growth for 2006–07 may be even higher, with the economy expanding at an annualised rate of 9.2 per cent in the third quarter of 2006. These figures call to mind the performance of the economic success stories of East Asia – Japan, Taiwan, the Republic of Korea, the high-growth ASEAN economies and, most recently, China. Extrapolating from macro factors – such as demographics and potential for technological ‘catch-up’ – and assuming an ongoing reform effort, studies by a number of prominent analytical organisations have projected that India could even outperform these dynamic economies over the next fifty years. If so, these studies claim, by 2050 India could be the third-largest economy in the world (in market exchange rate terms) by a significant margin, behind only China and the United States. Such developments would profoundly shift the world’s economic centre of gravity. This study does not seek either to substantiate or to disprove these rosy projections. Any such attempt would be futile. Too much is dependent on factors which cannot be plausibly predicted, such as the ongoing willingness and ability of Indian governments to sustain a reform program over long periods; the health of the international economy; new developments in technology; and the shape of the international trading system. Instead we ask: How might it happen? Is there a plausible path from today’s India to the projected giant economy of 2050? What opportunities might successful pursuit of that path generate for Australian services providers? And finally, what factors need to be taken into account along the way as Australian companies consider whether they should be seeking to participate directly in India’s growth? 1


While some contend that...
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