HSBC report highlights India’s services sector ascending the value chain

A paper from HSBC’s India chief economist, Pranjul Bhandari, suggests a base case of 6.5 percent GDP growth every year for the next 10 years. But if India can bring digitisation benefits to its old economy — agriculture, MSMEs, etc — then a 7.5 percent growth per year is possible, taking India to $8 trillion economy by 2032.

In an interview with CNBC-TV18, Bhandari shared insightful observations regarding India's services sector and its notable progress in climbing up the value chain. However, she also emphasised the significant challenges posed by the rising prevalence of Artificial Intelligence (AI).

She said, “During the pandemic, many companies realised frontend work can be done backend, but why not from a different country? And that is when a lot of the MNCs started putting, not just IT services, but also research and development, business support, and design work in India. So, in a way, the Indian services sector has gone up the value chain, and I think the benefits of that will linger.”

“However, AI is going to create some amount of challenge, or there will be a kind of productivity growth on the back of which profitability will come off for some of the companies providing IT services. But at the same time, it also opens new avenues, at least in the short run. For example, using generative AI, more for the BFSI sector, and so on. So in a way, our IT services sector will just have to be adaptive and nimble when new opportunities are arising and will have to move there to overcome the opportunities that are going to get lost,” added Bhandari.

While India's services sector has made significant strides, it faces a formidable challenge in the form of AI. Bhandari's observations shed light on the disruptive potential of AI, which can automate tasks and processes previously performed by human workers. As AI technologies continue to evolve, there is a growing concern that certain roles within the services sector may become redundant or require reskilling to remain relevant.

To address the challenge posed by AI, the IT services sector in India must embrace adaptability and nimbleness. Traditional IT service providers must be proactive in identifying areas where AI can augment their offerings rather than replace them entirely. By actively incorporating AI capabilities into their operations, companies can enhance their efficiency, deliver more value to clients, and tap into new opportunities arising from this disruptive technology.