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Services sector remains the key driver of economic growth

Services sector remains the key driver of economic growth
Highlights

 In 2014, FDI in India at 34billion US$ increased by 22 per cent over 2013. There has been a significant growth in FDI inflows in 2014-15 and...

The services sector in India has remained the most vibrant sector in terms of contribution to national and state incomes, trade flows, FDI inflows, and employment. According to the Economic Survey 2015-16 tabled in Parliament today, the services sector contributed almost 66.1 per cent of its gross value added growth in 2015-16 becoming the important net foreign exchange earner and the most attractive sector for FDI (Foreign Direct Investment) inflows.

Despite the slowdown in the post crisis period (2010-14) India showed the fastest service sector growth with a CAGR (Compound Annual Growth Rate) of 8.6 per cent followed by China at 8.4 per cent. In 2014 India’s services sector growth at 10.3 per cent was noticeably higher than China at 8.0 per cent. As per the ILO (International Labour Organisation) report on “Global Employment and Social Outlook: Trends 2015” job creation in the coming years will be mainly in the service sector

FDI
In 2014, FDI in India at 34billion US$ increased by 22 per cent over 2013. There has been a significant growth in FDI inflows in 2014-15 and 2015-16(April – October) in general and in Services Sector in particular. In 2014-15, FDI inflows to the Services Sector grew by a whopping 70.4 per cent to 16.4 billion US$. This rising trend is continuing in the first seven months of 2015-16 with the FDI equity inflows in the services sector growing by 74.7 per cent to 14.8 billion US$. Significant FDI related liberalization has taken place in a number of sectors to ensure that India remains a increasingly attractive investment destination.

India’s Services Trade
Services exports have been a dynamic element of India’s trade and globalization in recent years. India’s services export grew from 16.8 billion US$ in 2001 to 155.6 billion US $ in 2014 which constitutes 7.5% of the GDP making the country the 8th largest services exporter in the world. The overall openness of the economy reflected by total trade including services as a percentage of GDP shows a higher degree of openness at 50 per cent in 2014-15 compared to 38 per cent in 2004-05.
India’s Services Import at 81.1 billion US$ grew by 3.3 per cent in 2014-15. The Government has taken policy initiatives to promote services exports which include the Service Export from India Scheme (SEIS) and organising Global Exhibition on Services (GES).

Tourism
Tourism is a major engine of economic growth, and a generator of employment of diverse kinds. According to Economic Survey India’s tourism growth which was 10.2 per cent in terms of foreign Tourist Arrival (FTA) and 9.7 per cent in terms of foreign exchange Earnings (FEE) in 2014 decelerated to 4.5 per cent in terms of FTAs and fell by 2.8 per cent in terms of FEEs in 2015.

The lower growth in FTAs and fall in FEEs in 2015 is due to negative or low growth in FTAs from high spending tourists originating from European countries like France, Germany and UK. However, domestic tourism continues to be an important contributor to the sector providing much needed resilience in 2014 it grew by 12.9 per cent.

The top five states in domestic tourist visits in 2014 are Tamil Nadu, Uttar Pradesh, Karnataka, Maharashtra and Andhra Pradesh. In 2014-15, Government has launched two schemes for thematic development of tourism; these are Swadesh Darshan and National Mission on Pilgrimage Rejuvenation and Spiritual Augmentation Drive (PRASAD). To promote medical tourism, the Government has launched India’s Healthcare Portal and Advantage Health Care India.

Shipping & Port Services
Around 95 per cent of India’s trade by volume and 68 per cent in terms of value are transported by sea. As per UNCTAD, India with 11.7 million twenty-foot equivalent units of container (TEUs) and a world share of 1.7 per cent, ranked ninth in 2014 among developing countries in terms of containership operations. A vision for coastal shipping tourism and regional development has been prepared with a view to increasing the share of the coastal/inland water-ways transport mode from 7 per cent to 10 per cent by 2019-20. The cargo traffic of India ports increased by 8.2 per cent to 1052.21 million tonnes in 2014-15. In India’s Maritime Agenda, the target for the year 2020 is 3130 million tonnes of port capacity with an investment of approximately Rs 2, 96,000/- crores.

IT-BPM Services
The IT-BPM sector has demonstrated flexibility and as per the Economic Survey is expected to touch an estimated share of 9.5 per cent of GDP and more than 45 per cent in total services export in 2015-16. E-commerce is expected to grow at 21.4 per cent in 2015-16 to reach 17 billion US$. India home to a new breed of young start ups has clearly evolved to become the third largest base of technology start ups in the world. Within one year the number of start ups has grown by 40 per cent creating 80,000-85,000 jobs in 2015. This emerging sector is set to get up a fillip with the Startup India programme.

R & D Services
As per the CSO’s (Central Statistical Organization) new method there is no separate head for R&D, it is a part of the professional scientific & technical activities including R&D which grew at 3.8 per cent and 25.5 respectively in 2013-14 and 2014-15. According to the Survey, India’s R&D globalisation and services market is set to almost double by 2020 to 38 billion US$.

Consultancy Services
According to the Survey Consultancy Services is emerging as one of the fastest growing service segments in India. Government has taken several initiatives like the Marketing Development Assistance and Market Access Initiative Scheme among others for capacity development of domestic consultants.

Real Estate and Housing
This sector constituted 8.0 per cent of the India’s GVA (Gross Value Added) in 2014-15 and grew by 9.1 per cent. The sector has grown at a CAGR of 8.1 per cent since 2011-12. However, the construction sector has witnessed a slowdown in last few years due to weakening of both domestic and global growth. The Government has announced plans to build six crore houses by the year 2022 under the Housing for All scheme.

Internal Trade
According to the Survey, Rs. 12, 31,073 crore trade and repair services sector, with a 10.7 per cent share in GVA, grew by 10.8 per cent in 2014-15. India’s retail market is expected to grow to 1.3 trillion US$ by 2020 making India the world’s fastest growing major developing market. The E-commerce market in India is expected to reach 16 billion US$ by the end of 2015 on the back of growing internet population and increased online shoppers.

Media and Entertainment Services
According to the Economic Survey, the industry has recorded unprecedented growth over the last two decades making it one of the fastest growing industries in India. It is projected to grow at a CAGR of 13.9 per cent to reach 1964 billion rupees by 2019. Digital advertising and gaming, which grew by 44.5 per cent and 22.4 per cent respectively in 2014, are projected to drive the growth of this sector in the coming years.

Postal Services
India Posts is the largest Postal network in world. Towards financial inclusion, the number of post office savings bank (POSB) accounts has increased from 30.86 crore to 33.97 crore and total deposits in POSB accounts and cash certificate to Rs. 6.53 lakhs crore in the last one year. More than 80 lakh Sukanya Samridhi Yojna accounts have been opened. The IT Modernization Project of the Department of Posts, with a total outlay of Rs 4,909 crore, involves computerization and networking of all the post offices.

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