India sets the tone in creation of world-class services jobs

Service sector companies in information technology (IT), banking and finance segments comprise nearly half of the new jobs created in FY23 by India Inc., while firms in the manufacturing, infrastructure and consumption sectors saw moderate job creation, according to the latest study by Bank of Baroda that has been released recently.

Of the 8.12 million new jobs created by Indian companies, firms in these three services sectors created 3.91 million (48.2 per cent) employment during the year. The IT sector (2.06 million) led with the most jobs created, followed by banking (1.25 million) and finance (Rs. 575,000), the data showed.

India needs to create an estimated 10 million to 12 million jobs each year for the unemployed, new workforce entrants, and surplus agricultural workers to be able to secure non-farm work.

India’s share in global services exports has more than doubled over the last 18 years and the rise of global capability centres (GCCs) has played a crucial role in the expansion, according to a Goldman Sachs report. The proliferation of GCCS has given a boost to real estate, expanded services exports, added to economic growth, created jobs and led to rapid increase in revenues for these firms. GCCs are specialised offshore entities set up by companies operating across the world and these centres support a raft of business processes, including IT, human resources, finance, analytics, among others.

“Revenues of GCCs in India have grown nearly 4x at a CAGR of 11.4% over last 13 years to $46 billion as of FY23. The number of GCCs has more than doubled from 700 to 1,580 over the same time period, with the sector adding around 1.3 million employees (11.6% CAGR), taking the total employee headcount to 1.7 million in FY23,” says the report by Goldman Sachs titled “India’s rise as the emerging services factory of the world.”

“Over the next few years, we expect strong growth in high-value services to continue. We expect the growth in high-value services to domestically drive top-end discretionary consumption and commercial and residential real estate demand,” says the report. It said India’s services exports grew to nearly $340 billion in 2023 at a CAGR of around 11% from 2005 (nearly double global growth) outpacing goods export growth. “As a result, India’s share in global services exports rose from under 2% in 2005 to 4.6% in 2023, while India’s share in goods exports only increased from 1% in 2005 to 1.8% in 2023.”

It said within services, computer services remain the dominant sub-sector, accounting for nearly half of India’s services exports in 2023. However, professional consulting exports have been the fastest growing sector.

Between 2004 and 2014, India’s economy grew at a rate of nearly 8% per year (despite the global financial crisis in 2008). This rapid growth was accompanied by a hastening of structural change in employment.

During that period, the economy created on average 7.5 million new non-farm jobs every year. The number of manufacturing jobs in India rose from 53 million in 2004 to 60 million by 2012.

An area where employment can be generated is, indeed, services. Public expenditure should prioritise public health, education, vocational training and universities.

These sectors are labour-intensive, contribute to the creation of public goods, and will build the human capital needed by both manufacturing and modern export-oriented services. That is the only way India’s health and education services can reach the levels observed in East Asia and attract more foreign investment.

A renewed focus on smaller enterprises across these sectors is needed. Inclusive growth requires providing jobs rapidly at the bottom of the pyramid, not only at the top of the wage – and skill – distribution.

In his new book, ‘Breaking the Mould’, former governor of the Reserve Bank of India, Raghuram Rajan, says that India needs to focus on exports of services, drawing on the country’s new digital infrastructure and IT-based services growth for the domestic (and export) market.

Competitive wages, highly skilled human resources and geopolitical nudges are pushing companies to explore India as the ‘next’ manufacturing destination, especially for ESDM. Strategic collaboration with other countries can facilitate relocation of sub-component value chains to India, enabling local firms to develop niche advantages and achieve greater self-reliance in the production of electronics by consolidating value chains and leveraging the four most critical levers of the production system – technology, talent, trunk infrastructure and trade. Service sector will create maximum jobs by 2028 and employment will rise by 22 per cent, points out a ORF report. It advocates prioritizing investment in women’s skilling, financial inclusion, and entrepreneurship to capitalize on these opportunities and foster inclusive economic growth.