Background Note: Global Exhibition on Services Importance of Services

Importance of Services Sector to Indian Economy

India has emerged as the fastest growing major economy in the world and in the view of global analysts, India’s leading position in economic growth is likely to continue for the next two-three decade. Needless to say, one of the major forces or key drivers of this growth is the Services Sector, which has been dubbed as the ‘sector of the current millennium’.

The Government of India has initiated a number of schemes for different services like promoting digitalization, tourism and shipping related policies. These coupled with policies like GST and FDI liberalization have brightened the growth prospects for the services sector.

According to Economic Survey (Volume II), the services sector remains the key driver of India’s economic growth, contributing almost 62 per cent of its gross value added growth in 2016-17. The services sector has achieved growth of 7.7 per cent in 2016 and continues to be higher than the other two sectors, agriculture and industry and nearly at the top among the 15 major economies.

Services sector is also a large employer of skilled workforce, accounting for 28.6 per cent of total employment in India.

Globally, among top 15 nations, in the period 2001-15, the highest increase in services share to GVA was recorded by China (8.9 pp), followed by Spain (8.1 pp) India (7.6 pp) and Russia (7.6 pp). However, during the period 2010-15, the highest compound annual growth rate (CAGR) was achieved by India at 8.5 per cent, closely followed by China at 8.4 per cent.

In 2015 as in 2014, services GVA growth rate (at constant prices), was 2.6 per cent for the world, while for India it was the highest both in 2014 and 2015 at 10.2 per cent and 9.0 per cent followed by China at 7.9 per cent and 8.3 per cent respectively.

Services Sector’s Contribution to State Economy

According to Economic Survey (Volume II), among 32 States/UTs, the services sector is the dominant sector contributing more than half of the gross state value added (GSVA) in 16 states and UTs and more than 40 per cent in all states. The major services in most of the states are trade, hotels and restaurants, followed by real estate, ownership of dwellings and business services. Chandigarh is at the top in terms of share of services GSVA at 88.4 per cent, while Jharkhand is at the top in terms of services GSVA growth at 16.4 per cent.

Foreign Direct Investment in India’s Services Sector

The combined FDI share of the top 10 service sectors such as financial and non-financial services, falling under the Department of Industrial Policy & Promotion (DIPP)’s services sector definition, is 55.3 per cent of the cumulative FDI equity inflows during the period April 2000 - March 2017 and 60.7 per cent of FDI equity inflows during 2016-17. If the shares of another five services or service-related sectors like retail trading, agriculture services, education, ports and air transport are included, then the total share of FDI equity inflows to the services sector would increase to 57.4 per cent and 62.4 per cent respectively for the above two periods. There has been a significant growth in FDI equity inflows in 2014-15 and 2015-16 to the services sector (67.3 per cent and 64.3 per cent for top 15 services). In 2016-17, the growth rate of FDI equity inflows to the services sector (top 15 services) grew by 1.5 per cent to US$ 27.2 billion.

India’s Services Trade - Export & Import

India’s services exports have emerged as a key engine of growth over the last fifteen years. India’s services exports increased from $52 billion in 2005 to $155 billion in 2015, with a share of 3.3% in global services exports. As per Economic Survey (Volume II) estimates, in 2016-17, services exports recorded a growth of 5.7 per cent with pick up in some major sectors like transportation, business services and financial services; and good growth in travel. With a significant rise in foreign tourist arrivals, travel receipts, accounting for more than 14.2 per cent of services exports, witnessed a growth of 9.3 per cent in 2016-17 compared to 4.6 per cent in t

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