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May, 2012

Brief Overview

The services sector has been a key force driving growth in the Indian economy for more than a decade. The economy has successfully managed to pass through the turbulent years of the recent global economic crisis primarily due to the vitality of this sector in the domestic economy and its prominent role in India's external economic interactions.

Key Segments

The services sector in India comprises a wide range of activities from the most sophisticated information technology (IT) to simple and basic services provided by the unorganised sector, such as the services of the barber and plumber. According to National Accounts classification, the sector incorporates trade, hotels, and restaurants; transport, storage, and communication; financing, insurance, real estate, and business services; and community, social, and personal services.

The share of services in India's GDP at factor cost (at current prices) increased from 33.5 per cent in 1950-1 to 55.1 per cent in 2010-11 and to 56.3 per cent in 2011-12 as per Advance Estimates (AE).

Market Size

India's services sector rose at its fastest pace in three months in May 2012 on account of new work and firms being optimistic about the business outlook in the months ahead. "May data pointed to a marked increase in Indian service sector activity, as signalled by a rise in the headline HSBC Business Activity Index from 52.8 in April to a three-month high of 54.7," the survey showed.

Increasing income levels of the Indian population have resulted in a higher proportion of income being spent on services. A burgeoning educated, middle class population with higher disposable income and higher spending on value added services like communications, entertainment, hospitality and healthcare is taking the Indian Service industries to high levels of sustained growth.

The Indian IT services industry is expected to reach US$ 100 billion in revenues in 2012, with exports contributing to about US$ 69 billion. The industry contributes to India's GDP by around 7.5 per cent and employs close to 2.8 million employees, with an additional 2,30,000 employees expected to be added in fiscal 2012. The indirect employment created in the economy is expected to be four to five times that of the direct employment generated. Taken together, the IT services industry in India is one of the biggest employment creators in the country and has put the country on the global map.