Services sector post-COVID

Services sector post-COVID: Shifting gears for the next ‘wave’!

With the rise of digitisation and automation, accelerated by the COVID-19 pandemic, India will have to evolve its strategic approach towards services in order to stay competitive in the sector in the post-pandemic future.

BY VIRAT BAHRI

The services sector is the highest contributor to India’s GDP at over 50%. Unfortunately, it was also among the worst affected as a result of the pandemic-related transformations.

Within services, however, noncontact segments like IT, financial services, professional and business services were relatively unaffected, while tourism, retail, trade, hotels, entertainment and recreation were deeply impacted. The business community witnessed a sudden surge in use of technology tools that enabled remote working. There is a general consensus that this paradigm will outlive the pandemic.

A McKinsey Global Survey of Executives concludes that as a result of COVID-19, companies have accelerated the digitisation of their customer and supply chain interactions by 3-4 years, and Asia Pacific is at the forefront of this change. Companies that have proven more resilient to the crisis have identified strengths in a range of technology capabilities – filling gaps for technology talent during the crisis, use of more advanced technologies, and speed in experimenting and innovating.

To understand the importance of improving India’s digital resonance for its services sector, we look at how some of the major sectors have been transformed by the pandemic.

INFORMATION TECHNOLOGY

The sector stands to benefit from the growing prominence of remote interactions and the demand for knowledge intensive and high technology services. Indian companies witnessed revenue growth of over 21% in H1, 2021-22, owing to demand for digital support, cloud services and infrastructure modernisation to address new pandemic challenges.

IT companies need to prepare to tap on sunrise segments including remote collaboration tools, e-commerce and Industry 4.0 technologies. IT spending trends show the possibility of increased investments in cloud infrastructure services and specialised software. Emerging tech areas like IoT software, big data/analytics, AR/VR, etc are expected to grow the fastest by 104% between 2018 and 2024.

HEALTHCARE

The healthcare ecosystem was brought to desperate fire-fighting mode during the pandemic. Shortage of essential equipment like oxygen, medicines, PPE kits and hospital beds took a toll.

This tragic period has also made us realise both the importance of technology, and its relatively weak penetration in healthcare. Telehealth systems had to evolve in quick time to respond.

In July 2021, McKinsey concluded that telehealth services had risen 38X from the prepandemic baseline. Buoyed by this trend, venture capitalist (VC) firms invested 3X more money in digital health startups in 2020 as compared to 2017. India’s healthtech industry, valued at US$ 1.9 billion in 2020, is expected to reach US$ 5 billion by 2023, growing at a CAGR of 39%.

Telehealth tech, continuous and remote diagnostics, remote mental healthcare, virtual fitness, and aging-in-place technologies are expected to continue to grow post the pandemic.

EDUCATION

As per World Economic Forum, even before COVID-19, there was already high growth and adoption in education technology, with global

EdTech investments reaching US$ 18.66 billion in 2019 and the overall market for online education projected to reach US$ 350 billion by 2025.

COVID -19 has acted as a catalyst to accelerate the pace of adoption of online teaching tools. Whether it is virtual tutoring, video conferencing tools, or online learning software, there has been a significant surge in usage in India.

Indian edtech startups raised US$ 4.7 billion in 2021 with three unicorns, making it the third most funded sector during the year.

TOURISM

Consulting firm Oliver Wyman forecasts a sharp rebound in global tourism, expecting it to exceed pre-pandemic levels by 2023, basing their forecasts on herd immunity/vaccination trends and travel sentiments apart from other statistics. It is an apt time to attract global travellers and offer them bespoke experiences to chart a new growth trajectory.

It is felt that the rise of platformbased business models and digital transformation will be key to recovery. This digitisation could lead to some job losses in the short term, necessitating reskilling. Companies that effectively leverage data to understand and adapt to consumer sentiments and market trends will be more likely to stay ahead.

MEDIA & ENTERTAINMENT

Though film production and exhibition have been deeply impacted, digital platforms and OTTs had more than their moment in the sun.

While there will be an obvious rebound to some extent post pandemic, the World Economic Forum believes that some of this changed behaviour could become deeply embedded. According to Research Dive, the global OTT marketplace is expected to post a CAGR of 19% by 2026 (16% prepandemic) to reach US$ 438.5 billion.

FINANCIAL SERVICES

Financial services firms have a major role in reviving business and economy post-pandemic as well as ensuring large scale financial inclusion with seamless digital access. Fintech firms are leading the way in this regard, playing a critical role in taking financial services like payments, neobanks, lending, insurance & stockbroking to the last mile. From being considered an extension of the BFSI ecosystem, fintech firms are moving centrestage at a brisk pace.

E-COMMERCE

When everything else stalled during the pandemic-induced lockdowns, e-commerce witnessed a 10-year growth boost in just three months starting from March 2020, according to Shopify. IBM’s US Retail Index suggests that the pandemic hastened the transition to e-commerce by 5 years. When

NATIONS MUST ENSURE WIDESPREAD DIGITAL ACCESS, & BUILD A FACILITATIVE ENVIRONMENT FOR DIGITAL INNOVATION.

it comes to India, Worldplay FIS (financial technology product and services provider) predicts that e-commerce will grow by 84% to US$ 111 billion by 2024 due to gains in demand generated by the COVID pandemic impact.

It is no longer the purview of traditional websites – consumers are equally tuned to making their purchases on social media sites, digital payment applications and also their Whatsapp. The e-grocery segment has been a major beneficiary, as users get comfortable with making daily purchases through mobiles.

GIG ECONOMY

As work from home gained momentum in 2020, it boosted the already emerging gig economy and hybrid work force. Backed by a robust digital infrastructure and well-drafted laws, the gig economy is sure to create enormous employment in the foreseeable future. According to Oxford Internet Institute’s Online Labour Index, India has the highest number of gig workers, with 24% of global online labour. Boston Consultancy Group (BCG) projects that the gig economy has the potential to contribute 1.25% share in GDP in the long term, adding 90 million jobs in the non-farming parts of the economy.

However, leveraging this requires creating a conducive growth environment and aggressive deployment of appropriate skilling programmes, particularly in identified potential sectors. Sectors like FMCG, Pharma, technology/BPO, services, manufacturing and banking, financial services and insurance (BFSI) are expected to substantially enhance their gig workforce.

UPSKILLING IS KEY

A report by OECD titled Digital Transformation in the Age of COVID-19: Building Resilience and Bridging Divides, Digital Economy Outlook 2020 highlights that nations need to ensure widespread and trustworthy digital access and effective usage, & build a facilitative environment for digital innovation, which will correlate strongly with growth and resilience of their startup ecosystems. Going forward, preparing the workforce will be a key objective, as will be focus on online security and preventing the rise of digital monopolies.

For companies, digitisation has increased the emphasis on speed, efficiency and productivity, and a shift towards outcome-based business models. Barriers to entry are much lower today, so companies and individuals have to work harder to stay competitive. BPM operations, for instance, are now more about revenue generation as opposed to cost control. Traditional functions like customer service are increasingly being taken over by bots, and businesses will compete on their ability to deliver insights, knowledge and consulting expertise. Upskilling is no longer an option, but it’s an unavoidable necessity.