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Opportunities and Challenges in Indian Service Sector

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Opportunities And Challenges In Indian Service Sector Presented By: Presented By: Chetan.D.J(MBA090 Chetan.D.J(MBA090 0809) 0809) Suprita.K Suprita.K
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Page 1: Opportunities and Challenges in Indian Service Sector

Opportunities And Challenges In Indian

Service Sector

Presented By:Presented By:

Chetan.D.J(MBA090Chetan.D.J(MBA0900809)0809)

Suprita.K Suprita.K (MBA09008021)(MBA09008021)

Page 2: Opportunities and Challenges in Indian Service Sector

AgendaAgenda MeaningMeaning

Indian Service SectorIndian Service Sector

CharacteristicsCharacteristics

Challenges of Various Service SectorChallenges of Various Service Sector

Opportunities of Various SectorOpportunities of Various Sector

Budget InclusionsBudget Inclusions

Page 3: Opportunities and Challenges in Indian Service Sector

MeaningMeaning A A serviceservice is the intangible equivalent of an economic good.  is the intangible equivalent of an economic good.

Public services are those society pays for as a whole through Public services are those society pays for as a whole through taxes and other means.taxes and other means.

Service sector is the lifeline for the social economic growth of Service sector is the lifeline for the social economic growth of a country. It is today the largest and fastest growing sector a country. It is today the largest and fastest growing sector globally contributing more to the global output and employing globally contributing more to the global output and employing more people than any other sector.more people than any other sector.

The real reason for the growth of the service sector is due to The real reason for the growth of the service sector is due to the increase in urbanization, privatization and more demand for the increase in urbanization, privatization and more demand for intermediate and final consumer services.intermediate and final consumer services.

In advanced economies the growth in the primary and In advanced economies the growth in the primary and secondary sectors are directly dependent on the growth of secondary sectors are directly dependent on the growth of services like banking, insurance, trade, commerce, services like banking, insurance, trade, commerce, entertainment etc.entertainment etc.

Page 4: Opportunities and Challenges in Indian Service Sector

Indian Service SectorIndian Service Sector In alignment with the global trends, Indian service sector has In alignment with the global trends, Indian service sector has

witnessed a major boom and is one of the major contributors to witnessed a major boom and is one of the major contributors to both employment and national income in recent times. The both employment and national income in recent times. The activities under the purview of the service sector are quite activities under the purview of the service sector are quite diverse. diverse.

One of the key service industry in India would be health and One of the key service industry in India would be health and education. They are vital for the country’s economic stability.education. They are vital for the country’s economic stability.

A strong healthcare system helps to create a strong and careful A strong healthcare system helps to create a strong and careful human capital, who in turn can contribute productively to the human capital, who in turn can contribute productively to the nation’s growth.nation’s growth.

The share of service sector in India’s GDP is 54%. The share of service sector in India’s GDP is 54%. In India, service sector has become a dominant contributor, In India, service sector has become a dominant contributor, such that the success in this regard has been called as ‘India’s such that the success in this regard has been called as ‘India’s services revolution.services revolution.

Page 5: Opportunities and Challenges in Indian Service Sector

Services or the "tertiary sector" of the economy covers a Services or the "tertiary sector" of the economy covers a wide range of activities like :wide range of activities like :

Hotels and RestaurantsHotels and Restaurants RailwaysRailways TradeTrade Other Transport & StorageOther Transport & Storage Communication (Post, Telecom)Communication (Post, Telecom) BankingBanking InsuranceInsurance Dwellings, Real EstateDwellings, Real Estate Business ServicesBusiness Services Public Administration; DefencePublic Administration; Defence Personal ServicesPersonal Services Community ServicesCommunity Services RetailingRetailing ITIT Other ServicesOther Services

Page 6: Opportunities and Challenges in Indian Service Sector

Service CharacteristicsService Characteristics 1. 1. IntangibilityIntangibility

Services are intangible and insubstantial: they cannot be touched, Services are intangible and insubstantial: they cannot be touched, gripped, handled, looked at, smelled, tasted or heard. gripped, handled, looked at, smelled, tasted or heard.

A service cannot be (re)sold or owned by somebody, neither can it be A service cannot be (re)sold or owned by somebody, neither can it be turned over from the service provider to the service consumer nor turned over from the service provider to the service consumer nor returned from the service consumer to the service provider. returned from the service consumer to the service provider.

Solely, the service delivery can be commissioned to a service provider Solely, the service delivery can be commissioned to a service provider who must generate and render the service at the distinct request of an who must generate and render the service at the distinct request of an authorized service consumer.authorized service consumer.

2. Perishability2. Perishability The service relevant resources, processes and systems are assigned for The service relevant resources, processes and systems are assigned for

service delivery during a definite period in time. service delivery during a definite period in time. If the designated or scheduled service consumer does not request and If the designated or scheduled service consumer does not request and

consume the service during this period, the service cannot be consume the service during this period, the service cannot be performed for him. performed for him.

From the perspective of the service provider, this is a lost business From the perspective of the service provider, this is a lost business opportunity as he cannot charge any service delivery; potentially, he opportunity as he cannot charge any service delivery; potentially, he can assign the resources, processes and systems to another service can assign the resources, processes and systems to another service consumer who requests a service. consumer who requests a service.

Page 7: Opportunities and Challenges in Indian Service Sector

3. 3. InseparabilityInseparability The service provider is crucial for service delivery as he The service provider is crucial for service delivery as he

must promptly generate and render the service to the must promptly generate and render the service to the requesting service consumer. requesting service consumer.

Additionally, the service consumer is inseparable from Additionally, the service consumer is inseparable from service delivery because he is involved in it from service delivery because he is involved in it from requesting it up to consuming the rendered benefits. requesting it up to consuming the rendered benefits.

4. Simultaneity4. Simultaneity Services are rendered and consumed during the same Services are rendered and consumed during the same

period of time. period of time. As soon as the service consumer has requested the service As soon as the service consumer has requested the service

(delivery), the particular service must be generated from (delivery), the particular service must be generated from scratch without any delay and friction and the service scratch without any delay and friction and the service consumer immediately consumes the rendered benefits for consumer immediately consumes the rendered benefits for executing his upcoming activity or task.executing his upcoming activity or task.

Page 8: Opportunities and Challenges in Indian Service Sector

5. 5. VariabilityVariability Each service is unique. It is one-time generated, Each service is unique. It is one-time generated,

rendered and consumed and can never be exactly rendered and consumed and can never be exactly repeated as the point in time, location, circumstances, repeated as the point in time, location, circumstances, conditions, current configurations and/or assigned conditions, current configurations and/or assigned resources are different for the next delivery, even if the resources are different for the next delivery, even if the same service consumer requests the same servicesame service consumer requests the same service

Page 9: Opportunities and Challenges in Indian Service Sector

Challenges Ahead IT and Challenges Ahead IT and ITESITES The sustainability of impressive growth of Indian economy has been questioned in The sustainability of impressive growth of Indian economy has been questioned in

the wake of some challenges in the form of lack of social infrastructure, physical the wake of some challenges in the form of lack of social infrastructure, physical infrastructure; IT infrastructure ,agricultural and industrial sector reforms, rupee infrastructure; IT infrastructure ,agricultural and industrial sector reforms, rupee appreciation etc. appreciation etc.

Challenges in the field of IT and ITES like rising labour costs, rapid growth in Challenges in the field of IT and ITES like rising labour costs, rapid growth in demand for talented manpower/quality staff, high attrition rate, etc are some other demand for talented manpower/quality staff, high attrition rate, etc are some other limiting factors .The growth of IT and ITES is having social, economic, health, limiting factors .The growth of IT and ITES is having social, economic, health, ethical and environmental implications also .ethical and environmental implications also .

It is also important to point out here that the measurement of output , It is also important to point out here that the measurement of output , productivity , non-availability of data or availability of data after a time lag are productivity , non-availability of data or availability of data after a time lag are other problems confronted with in case of services .other problems confronted with in case of services .

The problem gets further compounded because of the entry of new species of The problem gets further compounded because of the entry of new species of services (like IT, ITES etc ) & lack of development of concepts on the one hand services (like IT, ITES etc ) & lack of development of concepts on the one hand and non-inclusion of unpaid households on the other. Therefore, it is too difficult and non-inclusion of unpaid households on the other. Therefore, it is too difficult to achieve the same level of output in terms of quality.to achieve the same level of output in terms of quality.

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Insurance sector - Hurdles:Insurance sector - Hurdles: This industry has been growing between 15 and 20 percent, but it lags for behind its This industry has been growing between 15 and 20 percent, but it lags for behind its

global counterparts. This was due to the following reasons. .global counterparts. This was due to the following reasons. .Insurance companiesInsurance companies do not create products that the market wants. do not create products that the market wants.

Insurance awareness among the general public is low.Insurance awareness among the general public is low.

Term- Insurance Plants are not promoted.Term- Insurance Plants are not promoted.

Unit -linked assurances are not available.Unit -linked assurances are not available.

Returns from Insurance Products are low.Returns from Insurance Products are low.

There is a deficiency of innovative and buyer-friendly insurance products.There is a deficiency of innovative and buyer-friendly insurance products.

Most agents and development officers are interested only in producing new business Most agents and development officers are interested only in producing new business servicing existing customers satisfactorily has not been a priority for them the obvious servicing existing customers satisfactorily has not been a priority for them the obvious reason to this is that incentives which are based on new business generation and not reason to this is that incentives which are based on new business generation and not on satisfactory serving of existing customers. I t is surprise to note that more than 10% on satisfactory serving of existing customers. I t is surprise to note that more than 10% of LIC policies are surrendered or get lapsed every year.of LIC policies are surrendered or get lapsed every year.

There is no market research worth the name and computerization is woefully There is no market research worth the name and computerization is woefully inadequate.inadequate.

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BANK BANK CHALLENGESCHALLENGES

First, the market is seeing irregular growth driven by new products and First, the market is seeing irregular growth driven by new products and services that include opportunities in credit cards, consumer finance and services that include opportunities in credit cards, consumer finance and wealth management on the retail side, and in fee-based income and wealth management on the retail side, and in fee-based income and investment banking on the wholesale banking side. These require new investment banking on the wholesale banking side. These require new skills in sales & marketing, credit and operations.skills in sales & marketing, credit and operations.

Second, banks will no longer enjoy bonus treasury gains that the decade-Second, banks will no longer enjoy bonus treasury gains that the decade-long worldly decline in interest rates provided. This will expose the weaker long worldly decline in interest rates provided. This will expose the weaker banks. banks.

Third, with increased interest in India, competition from foreign banks will Third, with increased interest in India, competition from foreign banks will only build up. only build up.

Fourth, given the demographic shifts resulting from changes in age profile Fourth, given the demographic shifts resulting from changes in age profile and household income, consumers will increasingly demand enhanced and household income, consumers will increasingly demand enhanced institutional capabilities and service levels from banks.institutional capabilities and service levels from banks.

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Retail Sector-ChallengesRetail Sector-Challenges The challenges facing the Indian organized retail sector are various The challenges facing the Indian organized retail sector are various

and these are stopping the and these are stopping the Indian retail industryIndian retail industry from reaching its  from reaching its full potential. The behavior pattern of the Indian consumer have full potential. The behavior pattern of the Indian consumer have undergone a major change. This have happened for the Indian undergone a major change. This have happened for the Indian consumer is earning more now, western influences, women working consumer is earning more now, western influences, women working force is increasing, desire for luxury items and better quality force is increasing, desire for luxury items and better quality

The biggest challenge facing the Indian organized retail sector is the The biggest challenge facing the Indian organized retail sector is the lack of retail space. lack of retail space.

Trained manpower shortage is a challenge facing the organized retail Trained manpower shortage is a challenge facing the organized retail sector in India. sector in India.

The Indian government have allowed 51% foreign direct investment The Indian government have allowed 51% foreign direct investment (FDI) in the India retail sector to one brand shops only. This have (FDI) in the India retail sector to one brand shops only. This have made the entry of global retail giants to organized retail sector in made the entry of global retail giants to organized retail sector in India difficult. This is a challenge being faced by the Indian organized India difficult. This is a challenge being faced by the Indian organized retail sector. retail sector.

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Prospects for Growth in the Prospects for Growth in the Services Sector Services Sector

One of the major drivers of service sector growth in the post One of the major drivers of service sector growth in the post globalization era in India is the IT and ITES sector. globalization era in India is the IT and ITES sector.

“ “The IT and BPO industries can become major growth The IT and BPO industries can become major growth engines for India, engines for India,

India’s IT and BPO industries could account for 10-12% of India’s IT and BPO industries could account for 10-12% of India’s GDP by 2015India’s GDP by 2015

India’s offshore IT and BPO industries hold the potential to India’s offshore IT and BPO industries hold the potential to create over 9 million jobs by 2010, 2.3 million direct jobs create over 9 million jobs by 2010, 2.3 million direct jobs and 6.5 million indirect jobs.and 6.5 million indirect jobs.

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The revenue generation from total software and services The revenue generation from total software and services segment is likely to touch $ 60-billion mark by 2010.segment is likely to touch $ 60-billion mark by 2010.

There is a huge potential for growth in the services sector There is a huge potential for growth in the services sector because of increase in disposable income, increasing because of increase in disposable income, increasing urbanization, growing middle class, a population “bulge” in urbanization, growing middle class, a population “bulge” in the working age groups providing ‘demographic window of the working age groups providing ‘demographic window of opportunity,’ and emergence of a wide array of opportunity,’ and emergence of a wide array of unconventional /new services like IT, ITES, new financial unconventional /new services like IT, ITES, new financial services (ATMs,credit cards) and tourism services (eco-services (ATMs,credit cards) and tourism services (eco-tourism, health tourism) etc. tourism, health tourism) etc.

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Insurance Sector - Insurance Sector - Emerging Areas:Emerging Areas:

Demand for Pension PlansDemand for Pension Plans Separateness of Banking and InsuranceSeparateness of Banking and Insurance Role of Information Techno-logy Role of Information Techno-logy Using Postal NetworkUsing Postal Network Creating Insurance awarenessCreating Insurance awareness Innovative ProductsInnovative Products

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Insurance sector in India- Insurance sector in India- Future Scenario:Future Scenario:

In India, only 10% of the market share has been tapped by LIC In India, only 10% of the market share has been tapped by LIC and GIC and the balance 90% of the market still remains and GIC and the balance 90% of the market still remains untapped. This vast Potential can be tapped only by a large untapped. This vast Potential can be tapped only by a large number of insurance. To serve the population of more than number of insurance. To serve the population of more than 100 crore Indians, Indian insurance market offers tremendous 100 crore Indians, Indian insurance market offers tremendous opportunities to private insurers. With the increase in the life opportunities to private insurers. With the increase in the life expectancy of individuals and disintegration of Joint – familyexpectancy of individuals and disintegration of Joint – family

Each individual now has arranged cover for himself and for Each individual now has arranged cover for himself and for his family. Therefore, coverage of insurers has to grow very his family. Therefore, coverage of insurers has to grow very fast.fast.

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Opportunities Of Retail SectorOpportunities Of Retail Sector The retail industry in India amounted to US$ 200 billion in 2006, The retail industry in India amounted to US$ 200 billion in 2006,

and out of this amount the Indian organized retail sector amounted to and out of this amount the Indian organized retail sector amounted to US$ 6.4 billion. The opportunities in India organized retail sector US$ 6.4 billion. The opportunities in India organized retail sector can be judged from the fact that by 2010 it is expected to rise to US$ can be judged from the fact that by 2010 it is expected to rise to US$ 23 billion.  23 billion. 

The Indian government in 2005 allowed foreign direct investment The Indian government in 2005 allowed foreign direct investment (FDI) in single brand retail to 51%. This have opened up a lot of (FDI) in single brand retail to 51%. This have opened up a lot of opportunities in India organized retail sector. In fact 325 opportunities in India organized retail sector. In fact 325 departmental stores, 300 new malls, and 1500 supermarkets are departmental stores, 300 new malls, and 1500 supermarkets are being built which shows the tremendous opportunities in the being built which shows the tremendous opportunities in the organized retail sector in India.  organized retail sector in India. 

The opportunities in the organized retail sector in India have also The opportunities in the organized retail sector in India have also increased with the desire of many global retail giants to set up shop increased with the desire of many global retail giants to set up shop here. The global retail giants who are entering the Indian organized here. The global retail giants who are entering the Indian organized retail sector are:retail sector are:

Tesco . Wal- MartTesco . Wal- Mart Metro AG . Carrefour SAMetro AG . Carrefour SA

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2011 Budget2011 Budget Service tax rate kept at 10 percent  Service tax rate kept at 10 percent 

Service tax widened to cover hotel accommodation above Rs Service tax widened to cover hotel accommodation above Rs 1,000 per day, A/C restaurants serving liquor, some category 1,000 per day, A/C restaurants serving liquor, some category of hospitals, diagnostic tests. of hospitals, diagnostic tests. 

Service tax on air travel increased by Rs 50 for domestic travel Service tax on air travel increased by Rs 50 for domestic travel and Rs 250 for international travel in economy class. On and Rs 250 for international travel in economy class. On higher classes, it will be ten per cent flat. higher classes, it will be ten per cent flat. 

SECTOR SPENDINGSECTOR SPENDING To allocate more than 1.64 trillion rupees to defence sector in To allocate more than 1.64 trillion rupees to defence sector in

2011-12 2011-12

To allocate 520.5 billion rupees for the education sector. To allocate 520.5 billion rupees for the education sector. Rs.21,000 crore for Sarva Shiksha Abhiyan.  Rs.21,000 crore for Sarva Shiksha Abhiyan.  * To raise health sector allocation to 267.6 billion rupees * To raise health sector allocation to 267.6 billion rupees

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THANK YOUTHANK YOU


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