ASSIGNMENTS ON ECONOMIES OF SERVICES

SUBMITTED TO:

SUBMITTED BY:

Dr. ROOPLAL

Kulwinder Singh
2009 -MBA (BE)-10 4th SEM

ROLE OF SERVICE SECTOR IN GDP Service Sector of Indian Economy contributes to around 55 percent of India's GDP during 2006-07. This sector plays a leading role in the economy of India, and contributes to around 68.6 percent of the overall average growth in GDP between 2002-03 and 2006-07. There has been a 9.4 percent growth in the Indian economy during 200607 as against a rise of 9 percent in the same during 2006-07. During this growth in Indian economy, the service sector witnessed a rise of 11 percent in the year 2006-07 against the 9.8 percent growth in 2005-06. The service sectors of Indian economy that have grown faster than the economy are as follows:

Information Technology (the most leading service sectors in Indian economy) IT-enabled services (ITeS) Telecommunications Financial Services Community Services Hotels and Restaurants

There has been a 13 percent hike in the service sectors of trade, hotels, transport and communication in India's economy as compared to the 10.4 percent rise in the previous year. The financial services that comprise of banks, real estate, insurance, and business services witnessed a rise of 11.1 percent during 2006-07 against the 10.9 percent growth in the previous year. Service sectors including community, social, and personal services experienced a growth of 7.8 percent during 2006-07 as against 7.7 percent growth in the previous year. The service sector of India has also witnessed a remarkable rise in the global market apart from the Indian market. It has experienced a rise of 2.7 percent in 2006 from that of 2 percent in 2004. The broad-based services in the trade sector have undergone a large-scale rise. A statistics concerning the growth of India's service sectors are listed below:

The software services in Indian economy increased by 33 percent which registered a revenue of USD 31.4 billion Business services grew by 82.4 percent Engineering services and products exports grew by 23 percent and earned a revenue of USD 4.9 billion Services concerning personal, cultural, and recreational had a growth of 96 percent Financial services had a rise of 88.5 percent Travel, transport, and insurance grew by 23 percent

In India, the growth rate of services in 2004-05, 2005-06 and 2006-07 were 9.6 percent, 9.8 per cent and 11.0 per cent, respectively and is expected to grow at 9.9% in the 11th Plan. The GDP growth performance of the Indian economy during 2003-04 and 2004-05 indicated a possible ratcheting up of the trend rate of GDP growth of the economy from 6% to about 7% per year. The sectoral break-up of Indias growth shows the ratcheting up of the trend growth rate in the services sector from 6.7% in 1983-93 to 8.2% in 1993-03. Since 200405 the growth rate of services sector is at 10 per cent, while the general growth of the economy has moved up to 9.0% in 2005-06 and 9.4% in 2006-07. As a result, the share of services in Indias GDP has increased from 37.6% in 1993 to 54.1% in 2005-06 and 54.9% in 2006-07. If Construction is considered as services as done by RBI, this share will increase by another 6.9% totaling to 61.8 per cent. Thus, India is nearing the shares of countries like the US, where the share of services in GDP is 73% (2003). CONTRIBUTION OF SERVICE SECTOR IN EXPORT Latest data (2006-07) of export of Services for India available mainly by broad categories shows the high growth of miscellaneous services (including software services and business services) which grew by 70.5% in 2004-05 and further by 47.6% in 2005-06 and 35.9% in 200607. Travel services exports grew by 20% and transportation by 28% in 2006-07.

The major category of export of services of India is the miscellaneous services category with a share of 76.7% in total services exports in 200607. While software services is the major item under miscellaneous services exports, since 2003-04, non-software miscellaneous services exports have grown rapidly almost equaling the value of software services exports. The major contributors among non-software miscellaneous services are business services (75.5% share and 82.4% growth) and financial services (10.3% share and 88.6% growth). The next two important services are communications services and others which have registered negative growth in 2006-07. While negative growth of communications services( 6.7% share and -5.2% growth) is probably a reflection of falling prices of telecommunications services, the negative growth of others (3.46% share and - 73.4% growth) is probably a reflection of the improving data classification by RBI following the recommendations of the committees to systematize the data on services. ROLE OF SERVICE SECTOR IN EMPLOYMENT India is witnessing a transition from agriculture-based economy to a knowledge-based economy. The knowledge economy creates, disseminates, and uses knowledge to enhance its growth and development. One of the major functional pillars of this economy is Information Technology (IT) and IT-enabled services (ITeS) industry. The 'Department of Information Technology' has been making continuous efforts to make India a front-runner in the age of Information revolution. IT continues to be a dominating sector in the overall growth of the Indian industry. A large number of Indian software companies have acquired international quality certification. Several policies have also been framed on the key issues of IT infrastructure, electronic governance as well as IT education.

Another major and upcoming service industry has been media and entertainment. It is basically an intellectual property-driven sector with small to large players spread throughout the country. It covers film, music, radio, broadcast, television and live entertainment. It plays a significant role in creating people's awareness about national policies and programmes by providing information and education to all. The 'Ministry of Information and Broadcasting' is responsible for formulation and administration of the rules, regulations and laws relating to media industry. Besides, retailing has been one of the fastest growing service sector both in terms of turnover and employment. Many national and global players have been investing in the retail segment and are making all efforts to further expand the sector. Out of the total retail outlets in the country, most of them are related to food items. However, to supplement the achievements and meet the shortfalls in all the sub-sectors of the service industry, travel and tourism sector has to be developed in a sustainable manner. Being one of the largest industry in terms of gross revenue and foreign exchange earnings, it stimulates growth and expansion in other economic sectors like agriculture, horticulture, poultry, handicrafts, transportation, construction, etc. as well as gives momentum to growth of service exports. It is a major contributor to the national integration process of the country as well as preserver of natural and cultural environments. The 'Ministry of Tourism' has been undertaking several policy measures and incentives so as to boost the sector such as the announcement of the National Tourism Policy. All this shows that services hold immense potential to accelerate the growth of an economy and promote general well-being of the people. They offer innumerable business opportunities to the investors. They have the capacity to generate substantial employment opportunities in the economy as well as increase its per capita income. Without them, Indian economy would not have acquired a strong and dominating place

on the world platform. Thus, service sector is considered to be an integral part of the economy and includes various sub-sectors spread all across the country.

ASSIGNMENT 2 BPO: PROBLEMS & PROSPECTS BPO [Business Process Outsourcing] has been the latest mantra in India today. As the current sources of revenue face slower growth, software companies are trying new ways to increase their revenues. BPO is top on their list today. IT services companies are making a quick entry into the BPO space on the strength of their existing set of clients. The philosophy behind BPO is specific, do what you do best and leave everything else to business process outsourcers. Companies are moving their non-core business processes to outsource providers. BPO saves precious management time and resources and allows focus while building upon core competencies. The list of functions being outsourced is getting longer by the day. Call centers apart, functions outsourced span purchasing and disbursement, order entry,

billing and collection, human resources administration, cash and investment management, tax compliance, internal audit, pay roll...the list gets longer every day. What is BPO? Business process outsourcing is a general term used to describing the outsourcing of critical, but non-core, business processes or functions of an organization to external vendors for long periods of time on a set of predefined performance metrics. BPO services have gained prominence during the past couple of years as more and more organizations have recognized the practical and enhanced value of externally delegating processes as opposed to them in-house. BPO usually refers to processes in organizations delivering services to customers as opposed to organizations that manufacture and deliver products. BPO involves the complete transfer of a business process or function to an external service provider who executes the transferred business process or function typically with extensive usage of IT in the delivery process. The BPO vendor completely takes over the execution of the process in that sense it is the transfer of the ownership of the process. BPO is most easily applied across IT intensive functions such as payroll processing, human resources, financial accounting, logistics, administration, customer interface applications (call centers, ATMs) etc. However, BPO differs from traditional IT outsourcing and the two terms cannot be used interchangeably. IT outsourcing involves specific task management and/or task specific applications, which may be part of a larger business process, but most often do not involve an end-to-end process per se. E.g. maintenance of servers or maintaining specific security applications are typical IT outsourcing tasks. There is no specific business process involved. On the other hand BPO would typically allow an organization to completely outsource a full process with all its sub elements and focus on the core elements of an organizations strategy. It is a complete transfer of process ownership from the company to the BPO vendor. Benefits Benefits derived from BPO can be summarized as follows: 1. Productivity Improvements 2. Access to expertise 3. Operational cost control 4. Cost savings 5. Improved accountability 6. Improved HR 7. Opportunity to focus on core business Future Prospects of BPO Industry From the last two decades Business Process Outsourcing is catering various industries like Retail, Insurance, Mortgage, Banking and Finance, Healthcare, Telecommunications, Technology, Travel and Hospitality and more. Companies are consolidating and standardizing operating processes by outsourcing the business process to third parties that offer economies and focused management expertise. In the present scenario many UK and USA based companies are resorting to Asian countries like India, China, Russia and Philippines to outsource their business processes. Offshore BPO is predicted to grow at a significant rate per year. BPO within AsiaPacific market is expected to display a growth rate of about $14 billion by 2010.

Business Process Outsourcing help companies achieve indomitable position in the service market and generate high profits by improving their business operations. Business Process Outsourcing is a tool that allows the companies to survive in the cut throat competition by retaining their customers and providing high rate of customer satisfaction. The advancements in technology and infrastructure have made it easier to carry out BPO services. Countries offering cost advantage by way of cheap labor along with skilled workforce are ideal destinations for BPO industry. Future of BPO in India: Today 55% BPO services are carried out by Indians and the future prospects are even more promising with increasing number of graduates in the country who are well versed in English language. People in India have now started looking at BPO jobs as long term career as it offers fast-track career advancement opportunities. Earlier only professional degree holders used to get hefty salaries but the advent of BPO has made graduates to earn well in the service sector. Subsequently Indias economy has got a hike since the establishment of BPO firms. Problems of BPO Security issues NASSCOM has estimated that India may have lost out IT and ITES business opportunities worth about $7 billion to $8billion because of security concerns among potential foreign clients. While global clients are convinced about the delivery capabilities of Indian IT and BPO companies, data security issues are a major concern in any discussion on off shoring services to India. Shortage of suitable staff Staff shortages could be a major bottleneck for the industry, according to the report. The skills and quality of the workforce needs to be improved because only 25% of technical graduates are suitable for employment in the offshore IT industry in India, while only 10% to 15% of general college graduates are suitable for employment by the BPO industry, according to Jayant Sinha, a partner at McKinsey.

Poor infrastructure The urban infrastructure in India needs to be improved as off shoring companies deal with various bottlenecks. Further growth of the industry will have to come from entirely new business districts outside the first- and second-tier cities. The Nasscom / McKinsey report proposes setting 10 or 12 integrated townships in India with associated infrastructure such as roads and international airports BPO Backlash Along with the phenomenal increase in BPO to India there has been a backlash against outsourcing. The opposition and backlash is coming mainly from developed countries that are directly affected by outsourcing to India. An anti-outsourcing movement has drawn wide support as layoffs continue to mount at such U.S. companies as IBM, which is cutting 13,000 jobs in Europe and the United States and adding 14,000 in India, according to the Washington Alliance of Technology Workers. Though this anti-outsourcing movement is gaining momentum but the

pace at which the trend of outsourcing is continuing to India, this is going to double in a couple of years. It is because of numerous advantages that India enjoys in comparison to other countries.