Championing services: The enabling environment cannot remain constrictive

The Union Cabinet’s approval last week for a Rs 50 billion fund to promote 12 “Champion Services” reflects a recognition of the critical role of the sector, which now accounts for over half of India’s gross domestic product. The services singled out for this status include the usual suspects – IT and IT-enabled services, hospitality, medical tourism, legal services, financial services, accountancy and so on. It is unclear yet how the fund will be structured to achieve the stated goal of promoting the development of these industries to “help them realise their potential”. The intention behind this decision is undoubtedly estimable, especially since manufacturing has manifestly not delivered the kind of employment potential that this government had hoped for when it was voted to power. A dynamic services sector, on the other hand, holds out far greater promise in this respect.

Several issues arise in this context, however. The first and obvious issue concerns the foundations on which to build a strong services sector. Services, by definition, are people-intensive; but as basic functions are increasingly automated, the jobs opportunities will lie higher up in the value chain of the knowledge economy. Maximising the opportunities from the kind of relatively sophisticated services that the Cabinet note listed demands a far higher standard of basic social infrastructure than India can currently boast of. Just as the Indian Institutes of Technology and the regional engineering colleges provided the knowledge workers that powered India’s IT and ITeS boom in the late nineties and early noughties, India urgently needs to improve the all-round standard of education. Setting aside the IITs and IIMs, the delivery of most vocational and professional education lies in the domain of the private sector with widely varying quality standards. Spending funds on creating an “IIT/IIM” education model for these “champion services” could be a good place to start spending the corpus.

India’s long experience with brain drain holds out the salutary lesson that merely creating superior knowledge workers will be a zero-sum game if the enabling environment remains constrictive. This, indeed, is the core learning from the IT/ITeS story. It is mistakenly assumed that this industry flourished entirely on its own steam with no help from the government. The Champion Services programme would do well to build on this experience for other sectors too. Crucially, this exercise should also involve streamlining rules and regulations. Accountancy, one of India’s rapidly growing professions, is a case in point where regulations limiting foreign direct investment protect small, often bucket-shop outfits. The covert circumvention of this restriction by the global accountancy firms that operate through proxy local firms is a good example of growth-restricting protectionism in a sector where demand is high and expanding. In medical services again, recent changes to regulation are unlikely to enhance India’s reputation as a hub for global tourism: allowing homeopathic doctors to practice as allopathic doctors is unlikely to enhance health outcomes. Championing services demands a hard look at such micro-issues too.