Procuring 26 licenses to sell a sandwich: Why India’s services sector needs a closer look

The potential of this service sector is immense, but has enough been done to help the sector grow, particularly after the Covid waves battered the restaurant and travel industry? ETRise Top MSMEs Conversation recently held a discussion on this subject with Sandeep Narula, Chairman, Electronics and Computer Software Export Promotion Council (ESC), Kanika Tekriwal, founder, JetSetGo, Anurag Katriar, President, National Restaurant Association of India (NRAI) and Nisha Taneja, Professor, Indian Council for Research on International Economic Relations (ICRIER). Here’s an excerpt.

Force to reckon with

In the last 20 years, this sector has attracted $83 billion worth of Foreign Direct Investment (FDI). 75% of which have gone into the computer hardware and software segment. In what is now being termed as the Covid year, this sector got $18 billion in FDI, which will support technology enablement across all sectors and the value chain. A large number of exports come from the services sector. In 2021, it was worth $200 billion, 50% of which were in the software segment.

“The contact intensive industries that include restaurant and travel suffered the most and saw a contraction of 15%,” said Nisha Taneja. This is in contrast with the software sector, which did an export of $146 billion in 2021 and showed at 3% growth even in a pandemic year. The sector hopes to see a substantial jump in this year too.

Talking about the challenges to stay afloat, Kanika Tekriwal said that people have realized meetings can be held via Zoom and other video conferencing programs. “The need to travel for business meetings, which accounted for 80% of our businesses, has come down. This trend is here to stay. The focus has shifted to leisure,” she added. While Tekriwal was cautiously optimistic, Anurag Katriar sounded grim and called the restaurant sector “the poor cousins of the larger hospitality industry.” He rued over the high rate of mortality. “We were the first sector to shut down and the last to open. With lots of restrictions which vary from one state to the next. The only segment that remained insulated was the home delivery business, but the way that ecosystem works doesn’t make it profitable. Nightclubs, banquets, bars and fine dining restaurants are totally dead. Things are going to be tough unless the vaccination reaches a certain critical mass.”

The challenges

The government has announced several programs to help this sector like the infusion of non-interest-bearing bonds, National Digital Health Mission, the National Broadband mission and others. The government also aims to convert 20% of the economy into a digital economy. A fresh tranche has been disbursed for new skill development needed in a post Covid world, but it is unclear which of these are oriented towards the services sector.

Another challenge is the regulations and the regulators-it’s important to have this structure in place. “The biggest roadblocks are the changes in policies. How will small industries keep a track of this? There is also confusion about e-commerce that doesn’t help the consumers. Our policies towards FDI are unclear although we’ve had investments in the manufacturing sector and seen the auto sector grow because of this. We’ve been having consultations about regulation for the last three years on data privacy, but we still haven’t come up with it,” said Taneja.


(Watch the entire ETRise Conversation on, “Has enough been done to help India’s services sector.”)

Problems for the restaurant sector lies in the fact that it doesn’t have a ministry. When the pandemic started, this sector wanted cash flow to support its workers or policies to defer payments. As the pandemic continued unabated, their demands grew, which were not met by the government. “We are a very large employer of human capital, and we were seeking ways to make sure that these people don’t starve. Unfortunately, it was too little too late. The liquidity support which we got was of some help, but it is a debt that still needs to be paid and that’ll be possible when the businesses open up. From now on, we need policy support, because the world has changed completely. In this new world, we need new policies to stay afloat. For example, the new excise policy in Delhi is a welcome change for the F&B industry. It’s time to re-look at the hospitality business and change policies so that it can grow.”

Tekriwal was of the opinion that for the aviation sector, the ministry has done a stellar job, but as it trickles down to bureaucracy and regulators, everything gets lost. “My company is taking huge risks in the middle of COVID to keep things working and the ministry’s support is fantastic, but as it trickles down to the regulator, it’s all getting lost in transition. There is a big divide between vision and execution. We need to adapt and change, but those executing, don’t have the bandwidth, resources or capability to do so,” she added.

Electronic manufacturing, designing and services are an important vertical for India, especially in view of the large domestic consumption, which by 2025 is likely to exceed $400 billion. Electronics will surpass the next oil import bill by that year.

The government and the industry have taken several steps for this sector, including the PLI scheme for electronics, mobile computer networking and components. This is helping the electronic industry to grow. The software segment has been doing very well for a long time now. There is a need to focus on the electronic hardware segment to make India the hardware capital of the world. “We hope that by 2025 the initial estimate of $400 billion import will reduce, thanks to the PLI scheme and other initiatives taken by the industry,” Narula said.

India became an IT powerhouse because of the talent available in the country and the government setting up a dedicated ministry to push the right policies and get private sector players into the game. “I think we can use food in a big way to attract tourism in the country. Prime Minister Narendra Modi has been clear that tourism is one of the test areas for him. India is a culinary nation. The kind of soft skills we have in India can be channelized and we can become a powerhouse in no time. But there is an urgent need to deregulate this. I can’t procure 26 licenses to sell a sandwich. It is easier to get a gun license in India,” said Katriar.

What needs to be done?

The experts had these tips for the government to focus on:

• Access to the capital remains the biggest challenge for the software sector. The government needs to get the right capital inflow for the software companies so that the sector can make their own products.
• The government has to create an environment that is safe. Developing guidelines for vaccinations and giving the consumer the comfort that it’s a safe environment.
• The government can focus on Fintech which has a lot of growth potential.
• Medical travel is an untapped sector and India has the potential to become a hub for the entire South Asian region, some of the African countries and Middle Eastern countries.
• The focus can be more on e-commerce so that it can bring in more business or increase the number of hours that we conduct a trade. Nightlife economy can play a big role in helping the economy grow.
• It is time to simply focus on the plans the government has to execute and implement them.

ETRise Top MSMEs Conversation has eBay as its Sell global partner, Deutsche Bank as Banking partner, MIDC as State partner and CARE Advisory as the Assessment partner.

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