Editorial 1: The rise of Service sector
Recent Context:
- Economic survey 2021-22 highlighted that India has the fastest-growing service sector which is contributing over 50% to the country’s GDP and it is the largest recipient of FDI inflows in India
- Two major leaps are underway in India’s services sector that could define the trajectory of the country’s growth.
- fast-evolving services exports to the rest of the world.
- And rapid transformation of domestic services.
- They are both changing in shape and form as they modernise. There is also signs of new services rising up the value chain and crossing over into manufacturing.
Role of service sector in exports to the rest of the world
- On a net basis, service sectors are now raking in $60 billion a year more in revenues than three years ago.
- The pandemic period has opened in ways for IT services. Work from home increased the demand for tech capability across firms. And the exuberance continues, with a broadening out in both the services provided and the service providers.
- India has moved up the new dimensions of service exports and now selling a host of professional services, ranging from accounting, legal, HR, to business development, design, and R&D. And the list is only increasing.
Major contributor to IT sectors:
- At least four different service providers are dominating the scene. While large IT firms continue to grow, they are not the only engines of growth.
- Mid-sized IT firms have been gaining market share and consulting firms are growing their services export books.
- And finally, India can now boast the world’s largest share in Global Capability Centres (GCCs).
What are GCCs and challenges with respect to slowing global growth?
- GCCs have traditionally provided tech and IT support to their parent MNC companies, but have gradually moved up the ladder to higher-value-added services like legal, audit, design and R&D.
- In 2022-23, around 1,600 GCCs made up a market of $46 billion, employing 1.7 million.
- When looking through India’s services export data, it is no surprise that even though professional and consulting services exports are still just a quarter of IT services exports, they have grown the fastest, at a 31 per cent CAGR (compounded annual growth rate) over the last four years, followed by computer services (16 per cent) and R&D (13 per cent).
- Slowing global growth is likely to squeeze tech budgets. However, we believe that the growth has a structural element to it. Once global growth bottoms out, India’s services exports can begin to gather pace again. There are several reasons for this.
- One, there is a seemingly permanent change in attitude about getting more work done from “home”.
- Two, India can offer a skills portfolio which is able to produce a gamut of services, ranging from engineering to design. Impressive internet penetration, young and digitally savvy demographics, and improving education attainments have made this possible.
- Three, India offers cost-competitiveness. For instance, in value terms, Indian IT services exports make up 18 per cent of global trade, but in volume terms, this doubles to 36 per cent.
Rapid transformation of domestic services.
- India has an impressive digital public infrastructure. Many tech start-ups have plugged into it using a variety of business models.
- Most are focused on the services sector but over time they could become more ambitious and move into manufacturing and agriculture.
- In one sense, rather than be confined to growing “new India”, they could take on the challenge of lifting “old India” up.
- Let’s start with the manufacturing sector. Digital infrastructure can be used to solve many of the daily problems that small manufacturers face.
- Start-ups could help small firms gain access to formal credit, cheaper raw materials, bigger final markets, better warehousing and logistics, and enhanced quality checks.
- By enabling small manufacturers to gain the advantages larger ones benefit from (that is simulate scale), they are incentivised to expand.
- Indeed, we are already finding evidence of the “new” domestic services sector companies, for instance in the transport services, procurement support, and ecommerce sectors, making forays into manufacturing.
Why is this important?
- At the heart of India’s jobs problem is a sluggish low- and medium-tech manufacturing sector. Too many manufacturing firms remain too small for too long, so they never enjoy economies of scale or create enough jobs.
- Indian need to being reforms which remove many of the impediments manufacturer sector.
Conclusion:
- As the rise in modern services can energise manufacturing. It is, therefore, heartening to see examples of multinationals crossing over from producing services to manufactured goods in India.
- Domestically, it is encouraging that services start-ups are venturing into manufacturing. Therefore, this could well be the start of a trend that will drive growth and jobs in the economy.
Editorial 2: Arc of India’s tie with Israel
Recent Context:
- Recently, Hamas, the militant group ruling the Gaza Strip, mounted one of the most audacious attacks on Israel and many have called it the worst inside the Jewish state’s territory since its creation in 1948.
- Indian Prime Minister Narendra Modi expressed shock and called “terrorist attacks” and conveyed “solidarity with Israel”.
Post independence, emergence of India-Israel relation
- India’s political attitude towards Israel was set quite firmly shortly after independence in 1947, when Jawaharlal Nehru and Mahatma Gandhi vowed to support the Palestinian cause as they rejected the idea of two nations on the basis of religion.
- While they had sympathy for the Jews, both were of the view that any State based on religious exclusivity could not sustain on moral and political grounds.
- India’s position with regard to Palestine was also guided by the general consensus in the Arab world, the Non-Aligned Movement, and the United Nations.
- When the partition of Palestine plan was put to vote at the UN, India voted against, along with the Arab countries. When Israel applied for admission to the UN, India again voted against.
- New Delhi, however, recognised Israel on September 17, 1950, after two Muslim-majority countries, Turkey and Iran, did so. In 1953, Israel was allowed to open a consulate in Mumbai, but no diplomatic presence was granted in New Delhi.
- On January 10, 1975, India recognised PLO as the sole and legitimate representative of the Palestinian people and permitted it an independent office at New Delhi.
- While India was one of the last non-Muslim states to recognise Israel, it became the first non-Arab state to recognise the PLO.
Under Indira and Rajiv Gandhi regime
- In 1980, during Indra Gandhi time, India upgraded the PLO office to that of an embassy endowed with all diplomatic immunities and privileges.
- In March 1983, when the NAM summit took place in India, it came up with a strong statement of solidarity for Palestine. In April 1984, PM Indira Gandhi visited Arafat’s headquarters in Tunis after a state visit to Libya.
- Then Prime minister , Rajiv Gandhi continued with India’s approach towards Palestine, and throughout the outbreak of the Palestinian intifada (uprising) in December 1987 in Gaza and West Bank due to the ‘iron fist’ policies of Israel, India maintained its steadfast support.
Changing dynamic of India-Israel relation
- However, by this time, there were critics of New Delhi’s Palestine policy and its outright support to the Arab world within India.
- The Arab countries’ neutral position during the 1962 India-China war and their support to Pakistan during the 1965 and 1971. On the other hand, Israel helped India with arms and ammunition in the 1962 and 1965 wars.
- Things changed in West Asia when Iraq invaded Kuwait in August 1990. The PLO lost its political leverage on account of its support to Saddam Hussain. Around that time, the Soviet Union disintegrated, and this prompted India to make drastic changes in its policy towards West Asia.
- It established full diplomatic relations with Israel in January 1992, days after the Chinese established diplomatic relations with Tel Aviv.
India’s Military ties with Israel
- The establishing of full diplomatic ties with Israel came in especially handy during the Kargil conflict in 1999.
- The Indian Air Force desperately needed precision target bombs as Pakistani intruders were hiding in caves and bunkers atop mountains in Kargil.
- The IAF reached out to their Israeli counterparts, who wasted no time. They are understood to have dug into their emergency stockpiles and shipped the weapons to India, which proved to be decisive in the hour of need.
- After this, the Vajpayee government sent Foreign minister Jaswant Singh for the first bilateral visit in 2000. Home minister L K Advani visited Israel in the summer of 2000, followed by more high-profile visits.
- During PM Modi’s visit to Israel in 2017 — the first Prime Ministerial visit and he skipped the customary stop at Palestine, which was the norm with previous ministerial visits.
- And later the Prime Minister visited Saudi Arabia, Iran, Qatar, UAE — all regional rivals of Israel — between 2014 and 2017, before the trip to Israel. New Delhi hosted Palestinian President Mahmoud Abbas in May 2017. In all public pronouncements, South Block officials-maintained India’s position on its support towards the Palestinian cause.
- Modi later visited Palestine in February 2018, but didn’t visit Israel — achieving a complete dehyphenation of the ties.
In the past decade
- In the last decade , ties have deepened in security, defence, and connectivity with Israel, but also with partners in West Asia — Saudi Arabia, Egypt, Qatar and Iran.
- The Indian strategic approach to engage with all sides in the complex West Asian region is born out of necessity: the 90 lakh-strong Indian community in the region and connectivity to West Asia and Europe. Crucially, more than 50% of India’s energy imports are sourced from West Asia.
Conclusion:
- The spate of horrifying surprise attacks over the weekend puts India in a diplomatic tight spot. This is because the current hostility tests the Abraham Accords and the efforts towards rapprochement between Saudi Arabia and Israel, which held the promise of reshaping age-old fault-lines in the Middle East. India was hoping to reap the dividends of the newfound peace in the region.