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Services

February, 2012

Introduction

India's services sector grew at its fastest pace in the six months ending January 2012 as new businesses prospered, continuing the previous two months’ positive trend into the new calendar year, a survey showed. The HSBC Business Activity Index, compiled by Markit and based on a survey of around 400 firms, increased to 58.0 in January 2012 from 54.2 in December 2011. The new business sub-index surged to 58.2 in January 2012 from 55.7 in December 2011.

With a steady rate of growth of 10 per cent annually, the Indian service sector contributed 55.2 per cent to GDP (Gross Domestic Product). With respect to employment in the country, the primary sector is a dominant contributor, closely followed by the service sector, the share of which has been on a gradual increase over the years.

Indicators/ Industry Dynamics

According to the advance estimates (AE) of the Economic Survey 2010-11, the growth rate of the service sector in India has been adjudged at 9.6 per cent. The Indian Service Sector registered 10.1 per cent growth during 2009-10 and is the second fastest growing sector with 8.9 per cent growth rate as stated by Union Finance Minister, Shri Pranab Mukherjee in a survey report. According to an international comparison across various countries, the Indian service sector compares well even with the developed countries in the top 12 countries with highest overall GDP.

Growth Trends

Under the various categories for the service sector, trade, hotels, transport, and communication; and financing, insurance, real estate, and business services have performed better with a growth rate of 11 per cent and 10.6 per cent respectively during 2010-11, while the construction sector, growth rate was adjudged at a moderate 8 per cent as per the advance estimates. Among the four broad categories of services, in terms of shares, financing, insurance, real estate, and business services; and trade, hotels, and restaurants are the largest groups accounting for 16.7 per cent and 16.3 per cent respectively of the national GDP during 2009-10.

Exports

According to a survey, the Indian export sector is moving towards a services led export industry. With a 27.4 per cent service export sector growth during the first half of 2010-2011, the growth rate of the same is expected to be 19.5 per cent for IT – BPO services, 18.5 per cent for exports and 22.8 per cent for domestic IT related services for the same period.

Major Investments

Some of the investment commitments made by Indian service sector are discussed below:

  • IBM has launched 'Centre of Excellence (CoE) for Smarter Commerce' at the India Software Lab, Bangalore, to offer solutions to automate and accelerate the purchasing, marketing, sales and customer service functions to organisations across India, South Asia and Asia Pacific. The Centre of Excellence will include technical experts selected from the B2B and commerce enterprise marketing management teams from the Lab.
  • With rapid increase of high net worth individuals (HNWI), India has emerged as an attractive market for wealth management. Ameriprise, the largest financial planning company of the US with over 2 million clients and managing assets worth US$ 600 billion through its mutual funds and life insurance companies will start its operation in India.
  • Mobile ad network, Vserv.mobi, a leading mobile ad network, mobile advertising and publishing network for mobile developers, publishers and advertisers is planning to target the global emerging markets for growth. The two-year-old start-up is set to establish an office in Singapore next month and with this, the Mumbai-based venture hopes to expand its reach in South East Asia. The rise in mobile penetration and mobile internet usage has spurred the growth of mobile advertising. Industry estimates put the total number of mobile phone subscriptions at over 5 billion and a Cisco study has estimated that 788 million people across the world will access internet solely through the mobile phone by 2015.
  • The Institute of Public Enterprise, (IPE) in association with the U21Global (an online Graduate School that offers postgraduate programs) have signed a MoU to launch their new online, short-term Joint Executive Education Program in the eLearning mode. Targeted at working executives, the partnership presents new opportunities to learners to upgrade their knowledge with global course content and online as well as face to face interactions with renowned international and Indian faculty. U21Global (U21G) is promoted by a consortium of international universities. Currently, it is in partnership with four universities — University of Birmingham, Melbourne, Nottingham and Virginia.
  • Global hospitality major Marriott is reckoning big on India and Asia for its growth and has made huge plans for the hospitality sector. The company continues to see strong growth in India and across Asia. With over 15 hotels across the country, the company is looking forward to setting up 40 additional hotels in Asia, out of which 8 hotels will be set up in India within the next few years. The company is keen to introduce new brands such as Ritz-Carlton hotel, Bengaluru, India which is scheduled to come up by the end of next year. This would provide a great support among domestic and international luxury travelers in the country.
  • Code division multiple access (CDMA) players Sistema and Tata Teleservices have taken on the global system for mobile communications(GSM) 3G challenge, announcing the launch of wireless broadband service on the CDMA evolution voice and data only (EVDO) Rev B platform. Russia's telecom firm Sistema, which offers CDMA-based mobile services in India under the brand name MTS, launched the faster version of its wireless broadband service MBlaze.

Road Ahead

Being one of the largest sectors in terms of gross revenue and foreign exchange earnings, the Indian Service sector stimulates growth and expansion in other economic sectors like agriculture, horticulture, poultry, handicrafts, transportation, construction, etc. as well as adds momentum to growth of service exports. It is a major contributor to the national integration process of the country as well as preserver of natural and cultural environments.

References: Press releases, media reports, Ministry of Finance