Weakness in the service sector is detrimental to the economy given its high contribution to GDP

- India's share in global business services exports has not yet reached a respectable level

Activities in the country's service sector in June slowed as expected due to the impact of the second wave of Corona. Regulatory measures taken by various states of the country to curb the spread of the second wave of Corona had an impact on trade operations, including the service sector. The services sector's IHS Market Purchasing Managers' Index (PMI), which stood at 7.50 in May, fell sharply to 31.60 in June, hitting an 11-month low. After July 2020, there was a sharp decline in service sector activity. There has also been a significant decline in new trade and employment.

Service providers were forced to cut staff for the seventh consecutive month in June. The number of employees has been reduced the most in June. The cost of providing services also increased due to higher cost of raw materials and transportation in the service sector. With the third wave of Corona looming in September-October, employment in the manufacturing and services sectors is unlikely to see much improvement in the coming days.

With the service sector contributing more than 50 per cent to the country's gross domestic product (GDP), any adverse impact on the service sector can be considered an economic risk to the country. Given the overall economic impact of the corona, it is doubtful that the country's economic growth rate will be in double digits in the near future. Given the high share of the service sector in GDP, there is a perception that it will still take time for economic growth to pick up. Given the high share of the service sector, it has become necessary to make efforts to accelerate its development. Given the protectionist policies being pursued by some developed countries, including the US, India will have to look to strengthen its service sector market in the Corona era. With the contraction in activity in the service sector, employment has also been affected. On the price front in the service sector, the cost of raw materials has also gone up and this has put financial pressure on service providers. In addition to fuel, higher tax rates have pushed up raw material prices in the service sector.

In the post-Corona era, does India need to think about its new export hubs, or should it limit its exports to developed countries only? The United States and European countries have been major importers of India's business services such as engineering, accounting, IT, management consulting. In addition, China is also emerging as a major importer of the service sector. Although India's workforce with technical and English knowledge is a credit, India's share in global business services exports has not yet reached a respectable level.

Frequent changes in visa rules in the US and the growing anti-outsourcing mentality have had an impact on India's information technology exports to the US in recent years. In such a scenario, if India is to maintain or increase its service sector exports, it will have to focus on domestic development of other business services besides traditional services and increasing its exports.

Competitiveness is becoming a major hurdle in India's service exports. The high cost of manpower has resulted in an impact on India's competitiveness against countries like China. In addition to expanding Indian trade across borders, India now needs to become aggressive in establishing a business presence after the Corona period in the nations that receive our services. India is a powerhouse in IT and IT enabled services but increasing exports of other non-IT business services will be necessary after the Corona era. Without relying solely on exports of certain types of services, India must take steps to increase demand for new sectors such as education and healthcare. Corona has boosted the country's GDP by providing incentives for growth in the domestic market for IT services at a time when demand for domestic IT services has risen sharply.

It is a fact that even three decades after India opened its doors to the world in the 1990s, India has not been able to make a dent in the service sector globally. During the Corona period, not only India but also other countries were affected in trade. However, with countries like the US, UK, Europe, Japan and China lagging behind Corona and reverting to economic growth, if India is to accelerate its economic growth, there will be no slowdown in the services sector. As the maths of global trade has changed in the Corona era, there is an opportunity for India to spread its wings in the service sector at home and abroad, which is gaining momentum. The decline in the service sector seen during the Corona period is temporary and the service sector is expected to go beyond the previous level of Corona.