Retaining competitiveness of the services sector

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Anwarul Hoda (left), Chairman, High Level Group on Services Sector, with Montek Singh Ahluwalia, Deputy Chairman of Planning Commission, releasing a report on services sector recently in New Delhi.
Anwarul Hoda (left), Chairman, High Level Group on Services Sector, with Montek Singh Ahluwalia, Deputy Chairman of Planning Commission, releasing a report on services sector recently in New Delhi.

Hoda committee recommends education reform and development councils

The growth of the financial services sector will be hampered by shortage of qualified people.

To enhance the competitiveness of the services sector, the high level group set up by the Planning Commission has recommended that the education system must be reformed and expanded. The skill deficit in almost all service sectors must be eliminated through concerted action and the physical infrastructure, including the urban infrastructure and civic amenities, brought to world standards.

The group, chaired by Planning Commission member Anwarul Hoda, noted: “Shortages exist equally at the level of managers and supervisors, and of skill categories. In some categories, the numbers being turned out by the institutions are extremely inadequate, while in other, the quality of trainees is poor and they need to undergo ‘finishing’ process so that they become employable.” It has, therefore, recommended the establishment of the private sector led development councils for each sub-sector, broadly on the model of the Construction Industry Development Council.

Urban infrastructure

Of particular interest to the services sector, the group report said, was the quality of urban infrastructure, including sewerage, drainage, water supply, solid waste management and urban transportation.

This was important in any city for smooth movement of people and goods. “All cities must have an integrated traffic and transportation plan, the implementation of which should be monitored by a Unified Metropolitan Transport Authority, as envisaged in the National Urban Transport Policy.

In large cities, a major requirement is provision of mass rapid transit systems, connecting various parts of the cities, including the railway stations and airports. The competitiveness of the services sector is affected if too much time of the worker is taken in commuting between residence and the workplace. In view of the increasing congestion and rising costs in existing metros, it is necessary for the State governments to promote new townships.”

Trade in IT and ITeS being a main driver of growth in India’s trade in services in recent years, this sector has been dealt with in detail. India has become a leader in IT and BPO offshore segments, accounting for an estimated 64 per cent of offshore IT spends and 41 per cent of offshore BPO spends in 2007. The report noted: “India cannot aspire to become a knowledge society with a Gross Enrolment Ratio — GER — of 11 per cent, against the world average of 23.2 per cent. It has become imperative to consider ways of expanding the system for higher education.”

The group recommended that constraint of educational institutions being run only by non-profit organisations be removed, and the concern for social equity be met by mandating full or part scholarship seats for meritorious students who do not have the means to pay the fees. To start with, this could be tried in technical education.

To deal specifically with the security concerns of systems in this critical sector, the group suggested that a separate data protection law, in conformity with EU directives on data protection and EU Safe Harbour Decision is imperative.


With tourism accounting for 5.83 per cent of the GDP and 8.27 per cent of employment in the country, it called for special attention. It has been estimated that the shortfall in tourist accommodation in the country will be 1.50 lakh rooms by 2010, of which more than one lakh will be in the budget category. As land prices and availability were the main bottlenecks, the State governments could arrange for long-term lease of lands for hotel development. Similarly, the Indian Railways could speed up the proposal for development of budget hotels in its land on a PPP basis. Beach tourism was of particular interest and the Coastal Regulation Zone requirements have posed a major barrier. The group calls for a decision in line with prevailing practices in other countries.

It has also recommended special incentives and tax breaks for development of convention centres and promotion of Meetings, Incentives, Conference and Exhibitions (MICE).

There has been considerable focus on health, medical education, and medical insurance too.

The group emphasised the need for early implementation of the National Commission for Enterprises in the unorganised sector for a health insurance scheme for BPL families — about five crore families in five years.

Considering the number and the variety of services, the group set up two sub groups — one on the financial sector (headed by ICICI Bank Managing Director K. V. Kamath), and another on tourism (headed by ITC’s Executive Director S. S. H. Rehman). These sub-groups submitted their reports, which were incorporated in the final report.

Financial services

The projected shortage of manpower in financial services, notably banks and insurance, has been underlined in the report, which calls for consolidation among players and leverage of the synergistic benefits.

The growth of the financial services sector will be hampered by shortage of qualified people, unless there was investment in educating and training professionals. “There is need for vocational training to equip those with high school and graduate level qualifications with skills for financial sector jobs.” On bank jobs, it specifically recommends: Individual banks should be given the freedom to determine their recruitment, placement, promotion, performance evaluation, and compensation policies, including performance bonuses and stock options.

These are essential tools in attracting, retaining, and leveraging human capital, which is a key competitive differentiator.



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