India and UK to jointly chart services sector growth post Brexit

The services sector in India is set to continue being a strong contributor to Indo-UK bilateral relations as per the finalised Brexit Trade and Security Deal

December 25, 2020

Financial services, ICT exports and other business services are expected to be the focal point of bilateral relations.

The Architecture, IT/ITes and the R&D ecosystem are to see development in the wake of economic recovery from COVID-19.

IHS Markit India Services Index reports that the services sector in India exhibited a 34.2 point contraction since March 2020.

Labour intensive sectors are to parallel the level of exports facilitated by networked sectors as per the Economic Survey of 2019.

The recently finalised Brexit Trade and Security Deal between the United Kingdom and the European Union reveals the nation’s interest in working with India as a key ally in the post-Brexit scenario. The document foresees India’s distinct advantage as a collaborator in the services sector, Experts observe that both nations have structural similarities in the services sector, with financial services, ICT exports and other business services being the focal points of bilateral cooperation. Although Indian entities headquartered in the European Union and the  United Kingdom can anticipate bottlenecks in the movement of resources under the new terms of the Brexit deal, there is potential for growth in domains including architecture, IT/ITes and the R&D ecosystem at large. The latest report by Chatham House titled ‘Global Britain, Global Broker’ identifies deterrents in the furthering of the United Kingdom’s bilateral relations with nations including India and Turkey given the nations’ stance on limiting the increase of West-led imports. 

A closer look at India’s services sector

The service sector in India comprises of multiple sectors including hospitality, logistics, trade, financial services, construction and real estate, healthcare, public service, media and entertainment as well as IT/ITes. Like other sectors, the services sector in India has also been grouped into formal and informal spaces. The IHS Markit India Services Index reports a 34.2 point contraction of the services sector from the impact of the COVID-19 pandemic since the start of the lockdown in March 2020. Owing to global restrictions on movement, the sector can expect to take more time to recover to its pre-COVID pace of progress.

As a contributor to 38% of India’s exports, the sector will benefit from legislation conducive to strengthening the export space in India. The tourism, hospitality and aviation sectors have been most impacted by the globally and nationally mandated lockdowns; the IT/ITes sector has played a crucial role in the migration of MSMEs to the digital medium as well as in the use of smart technologies to mitigate the impact of the pandemic. 

The Telecommunications sector is yet another space that has contributed significantly to India’s services sector. 2020 saw India take radical steps in increasing telephone connectivity through remote parts of the nation. The laying of a satellite connectivity cable line between Tamil Nadu and the Andaman & Nicobar islands as well as initiatives to increase connectivity in the North Eastern states of India were two key initiatives taken. This will also provide more employment opportunities for women in the sector.

The status quo of India-United Kingdom Relations

Bilateral cooperation between the nations is taking on a new dimension with increased scope for the signing of a bilateral FTA for the seamless implementation of trade relations. As India is participating in the global initiative to build a more robust network of global supply chains, allies among the G20 nations, ASEAN nations and Indo-Pacific regions are being brought together. Dr Avinash Paliwal opines that India’s engagement with the United Kingdom and the European Union could be substantially improved given that the former has opted out of the Regional Comprehensive Economic Partnership (RCEP) recently. Efforts have been made to increase bilateral investment in the technology startup ecosystem as well as in the smart cities space. 

The UK-India Education and Research Initiative (UKIERI) documents that more than US$ 101bn have been spent through bilateral collaboration in the education sector. Partnerships have been formed between India’s IITs and the UKIERI to promote education in the Northeastern states of India. The Union Cabinet approval for a bilateral MoU on the regulation of healthcare products can help further bilateral cooperation in the healthcare sector.

Way forward for the Indian services sector

The Economic Survey of 2019-2020 records that India has exhibited higher levels of exports in Telecommunication, Electrical Machinery as well as Automobile sector. Labour intensive sectors are yet to parallel the contribution of the networked sectors. With the implementation of the Atmanirbhar Bharat, there is need to evaluate the quantum of permissible imports and the relaxation of sectoral regulations to facilitate seamless trade relations. The availability of a vibrant youth population expands the potential of nationwide skilling initiatives to elevate existing skill sets to meet the requirements of the services sector. With the arrival of the COVID-19 vaccine, the aviation, tourism and hospitality sectors can expect to make a gradual recovery from the impact of the pandemic. Targeted policy making combined with vibrant skilling as well as the use of requisite technology can catalyse economic recovery of the Indian service sector.