Services
The growth in the services sector in India is expected to be around 5.6 per cent in FY 15.

We have been sourcing services and components out of India since 1998. On an average, we have grown the sourcing volume by about 10 per cent per year…

Wilfried Aulbur
Managing Director and CEO, Mercedes-Benz India

Service Sector in India

Updated: August, 2014

Introduction

Also known as the tertiary sector, the development of a country's services sector is an indicator of its economic development. India's services sector is a vital component of its economy, as it presently accounts for around 60 per cent of its gross domestic product (GDP). It has matured considerably during the last few years and has been globally recognised for its high growth and development.

The growth in the services sector in India is expected to be around 5.6 per cent in FY 15 owing, particularly, to the growth in the IT sector. The services sector in India comprises a wide range of activities, including trading, transportation, communication, financial, real estate and business services, and community, social and personal services.

The HSBC's Services Purchasing Managers' Index (PMI) touched a 17 month high at 54.4 points in June 2014 as compared to 50.2 points in May 2014. Also, services expanded 6.7 per cent in FY 14, according to data from the Central Statistical Office.

Market size

The services sector in India attracts the highest foreign domestic investment (FDI) equity inflows, accounting for about 17.96 per cent of the total equity inflows. In the period April 2000 - June 2014, the services sector in India attracted FDI inflows amounting to about US$ 40,197.21 million, according to data released by Department of Industrial Policy and Promotion (DIPP).

According to International Data Corporation (IDC), the total mobile services market revenue in India will reach US$ 29.8 billion by 2014 and is expected to touch US$ 37 billion in 2017 with a compound annual growth rate(CAGR) of 5.2 percent.

Manufacturing and services sectors in India expanded at a faster pace than China during June while emerging market output registered the strongest upturn in business activity since March quarter of 2013, as per an HSBC survey.

India's logistics sector is valued at US$ 110 billion and is projected to touch US$ 200 billion by 2020. The sector will double its growth in seven years from the present growth rate of 15 per cent, as per Mr KV Mahidhar, Head, CII Institute of Logistics.

Legal process outsourcing firms see new opportunities in Europe, a market that is expected to grow to US$ 8.56 billion in 2020 from US$ 1.39 billion at the end of 2013.

Investments

The Indian services sector has seen some major investments in the recent past, from foreign as well as private Indian corporates. Some of the major developments and investments in this sector are as follows:

  • Employees' Provident Fund Organisation (EPFO) has launched an online registration facility for employers, a move that will help firms get provident fund (PF) code within a day. Applicants can also track the status of their application through the website.
  • Fosroc, an international company in construction solutions space, plans to set up its fourth plant in West Bengal along with its already existing three plants, one each in Karnataka, Uttarakhand and Gujarat. Its products include cement and concrete technology as well as chemicals for water and fireproofing and finishing.
  • Uber has introduced its affordable line of UberX cabs across three cities in India. These cabs are priced about 25-40 per cent cheaper than its flagship Uber Blacks. India is the second biggest market in terms of cities covered for Uber, which is presently valued at US$ 18 billion.
  • Adfactors, India's largest public relations (PR) firm and The Holmes Report's 'Asia-Pacific Financial Consultancy of the Year' in 2013, has set up its Sri Lanka office in Colombo. This is Adfactors PR's third office in Asia outside India, after Dubai and Singapore. The new company, Adfactors Public Relations Lanka (Pvt) Ltd, will offer its suite of communications services to Sri Lanka-based businesses - both domestic and international.
  • BlackBerry plans to launch a healthcare service that will integrate thousands of medical devices to enable early detection of illnesses, in partnership with healthcare technology firm NantHealth as it looks beyond smartphones in the Indian market.
  • Within months of launching its one-day delivery service, online retail site Amazon.in has launched same-day delivery in Mumbai. The website has also launched a pickup service in Delhi and Mumbai, where customers could pick up their orders from In&Out stores situated at filling stations of Bharat Petroleum Corporation Limited (BPCL).

Government Initiatives

India plans to double India's exports of goods and services by the end of 12th Five Year Plan period, over the level achieved at the end of the 11th Five Year Plan period. The long-term objective is to double India's share in global trade by the end of 2020 through adoption of appropriate strategies.

Strong and consistent emphasis on self-reliance in its economic development programmes over the years by the Government of India has also enabled India to build up a big and versatile cadre of professionals. They now have expertise and skills across a vast and wide-ranging spectrum of disciplines,such health care, tourism, education, engineering, communications, transportation, information technology, banking, finance, management, among others.

A sizeable part of this workforce of professionals makes up the country's growing consultancy sector, which is offering its accumulated experience and expertise at home and abroad.

The government of India has adopted a few initiatives in the recent past. Some of these are as follows:

  • India has joined hands with Bangladesh and is expected to begin coastal shipping services from October 2014, as part of the proposed agreement between the two nations to open sea routes to promote bilateral trade. This bilateral trade agreement is valued at around US$ 6 billion.
  • India's government cloud infrastructure, Meghraj, went live recently. The government cloud (g-cloud) now offers infrastructure, platform, storage, and software as a service for the Indian public sector. The g-cloud will allow the Indian government to handle unprecedented technology infrastructure requirements sustainably as it digitizes more departments.

Road Ahead

The Indian banking sector has the potential to become the fifth largest banking sector globally by 2020 and the third largest by 2025.

India also has the potential to build a US$ 100 billion software product industry by 2025 riding on its IT services market, according to Indian Software Product Industry Roundtable (iSPIRT).

Further, the healthcare services industry is also set to grow and touch the US$ 2 billion mark by 2015, while the insurance sector in India is projected to touch US$ 350-400 billion by 2020.

Exchange Rate Used: INR 1 = US$ 0.0165 as on August 26, 2014

References: Media Reports, Press Releases, DIPP publication, Press Information Bureau, Indian budget publication

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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