The services sector is not only the dominant sector in India’s GDP, but has also attracted significant foreign investment flows, contributed significantly to exports as well as provided large-scale employment. India’s services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction.
Services sector is the biggest one in India and contributes more than half of Gross Value Added (GVA). Services sector GVA at current basic prices has grown at a CAGR of 6.25 per cent between FY12-FY19* to reach US$ 1,294.41 billion.
The sector also provides employment to a large share of Indian population. As of 2018, 34.49 per cent of India’s employed population was working in the services sector.
Also, services exports comprise a major part of the total exports of India. Net Services exports from India stood at US$ 38.95 billion in H1 2018-19 (P). India ranked as the eighth largest exporter of commercial services globally in 2017.
Moreover, the sector is the largest recipient of FDI in India with inflows of US$ 70.91 billion between April 2000 and December 2018.
The sector has continuously recorded strong growth. The Nikkei India Services Purchasing Managers’ Index (PMI) stood at 52.0 in March 2019, indicating an expansion.
Sub-sectors that are performing well within the services sector are:
Aviation – India’s air passenger traffic doubled to 117.18 million in 2017 from 59.87 million in 2011. It stood at 316.51 million during April 2018 -February 2019.
Information technology-business process management (IT-BPM) –IT BPM industry revenues grew 8.38 per cent year-on-year to US$ 181 billion in FY19E from US$ 167 billion in FY18.
The Government has undertaken various steps towards boosting growth of the services sector. The government introduced ‘Services Exports from India Scheme’ (SEIS) aimed at promoting export of services from India by providing duty scrip credit for eligible exports. Under this scheme, a reward of 3 to 5 per cent of net foreign exchange earned is given for Mode 1 and Mode 2 services. Further, in the mid-term review of Foreign Trade Policy 2015-20, SEIS incentives to notified services were increased by 2 per cent. Also, the Government of India has identified 12 sectors under the Champion Services Sectors Initiative which is aimed at formulating cross-cutting action plans to promote their growth.
Some of the developments and major investments by companies in the services sector in the recent past are as follows:
Leisure and business travel and tourism spending are expected to increase to US$ 234.4 billion and US$ 12.9 billion in 2018, respectively.
India’s earnings from medical tourism could exceed US$ 9 billion by 2020.
Indian healthcare companies are entering into merger and acquisitions with domestic and foreign companies to drive growth and gain new markets.
The Government of India recognises the importance of promoting growth in services sectors and provides several incentives in wide variety of sectors such as health care, tourism, education, engineering, communications, transportation, information technology, banking, finance, management, among others.
The Government of India has adopted a few initiatives in the recent past. Some of these are as follows:
Under the Mid-Term Review of Foreign Trade Policy (2015-20), the Central Government increased incentives provided under Services Exports from India Scheme (SEIS) by two per cent.
Government of India is working to remove many trade barriers to services and tabled a draft legal text on Trade Facilitation in Services to the WTO in 2017.
Following are the achievements of the government in the past four years:
India’s rank jumped to 24 in 2018 from 137 in 2014 on World Bank’s Ease of doing business – “Getting Electricity” ranking.
Five times more growth in major ports’ traffic between 2014-18, compared to 2010-14.
Six-fold increase in Government spending on telecommunications infrastructure and services in the country – from Rs 9,900 crores (US$ 1.41 billion) during 2009-14 to Rs 60,000 crores (US$ 8.55 billion) (actual + planned) during 2014-19.
A total of 11 projects worth Rs 824.80 crore (US$ 127.98 million) were sanctioned under the Swadesh Darshan scheme.
Highest ever revenue was generated by Indian IT firms at US$ 167 billion in 2017-18.