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Service Sector in India

June, 2014


The services sector is a vital component of the Indian economy. The sector, which accounts for around 60 per cent of the country’s gross domestic product (GDP), has emerged as one of the largest and fastest-growing sectors not just in the country but in the global landscape; subsequently, its contribution towards global output and employment has been substantial.

The share of services in India’s GDP at factor cost (at current prices) rose from 33.3 per cent (1950–1951) to 56.5 per cent in 2012–13, as per advance estimates. During FY 2014–15, the sector is projected to grow at a healthy 5.6 per cent, according to National Council of Applied Economic Research (NCAER).

This 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.

Market Size

The HSBC Markit Services Purchasing Managers’ Index (PMI), which measures business activity from a survey of more than 400 companies including banks and hospitals, stood at 48.5 points in April 2014 as against 47.5 during the previous month.

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

India's total export of software services and IT-enabled services during 2012–13 was estimated to be Rs 3.41 trillion (US$ 56.74 billion), registering a growth of 37 per cent over the previous year, according to a report by Reserve Bank of India (RBI).


The services sector in India received foreign direct investment (FDI) worth US$ 39,416.86 million during the period April 2000–February 2014, as per data released by Department of Industrial Policy and Promotion (DIPP).

Indian insurance companies will spend Rs 12,100 crore (US$ 2.01 billion) on IT products and services in 2014, a 12 per cent increase over the previous year, according to Gartner Inc.

Some of the major investments and developments in Indian services sector are as follows:

Indian Angel Network (IAN) along with tyre-maker Michelin has started a logistics initiative with the objective of making movement of produce from farms to markets a more efficient exercise. The initiative, known as Farm to Market Logistics (F2ML), is an incubator under the management of IAN and supported by Michelin. The initiative will attempt to make the food supply chain produce less waste through better practices, behaviours and solutions.

Within months after launching its one-day delivery service, Amazon.in launched same-day delivery in Mumbai in March, 2014. Earlier in the month, the website had 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).

Canara Bank has given its support to Biocon Foundation and Orissa Trust of Technical Education (OTTET) for a public–private partnership (PPP) with the Odisha government to deliver an e-healthcare programme for the rural communities in the state. Under this partnership, Biocon Foundation and OTTET will establish an electronic diagnostic facility, an e-Health Centre which will be managed by local young entrepreneurs, at all Primary Health Centres (PHC) in the state.

Business process outsourcer Hinduja Global Solutions (HGS) has established a new centre in New Jersey, USA, thereby increasing its presence in the country to 10 locations. The company, which has more than 2,200 personnel in the US, would offer core services like medical claim resolution for governmental as well as commercial payers, medical coding, insurance eligibility and authorisation and data analytics, among other services, from the Princeton facility. "HGS EBOS actively supports several clients in the US healthcare industry in improving their financial health through revenue cycle management services. The new centre will augment these efforts with a stronger onsite presence and delivery of value-added services," as per Mr Partha DeSarkar, CEO, HGS.

India’s GSM operators added 4.14 million rural subscribers in January, 2014, a 1.5 per cent increase from the previous month, thereby taking the total to 285.35 million. Vodafone India added the maximum rural subscribers of 1.31 million, increasing its total to 87.43 million during the month under review, as per data by Cellular Operators Association of India (COAI), the body for GSM operators.

Hitachi has acquired Prizm Payment Services – a leading provider of payment services using ATMs and point-of-sales (POS) systems to banks and financial institutions in the country. The Japanese company has also entered into share transfer agreements with Prizm shareholders, including Sequoia Capital, Winvest Holdings (India) and Axis Bank.

Government Initiatives

The Government of India will establish a joint task force for the services sector along with the industry to prepare an action plan for the development of the services sector and enhance services exports, according to Mr Anand Sharma, Commerce and Industry Minister, India. “We have to have a forum to address the varied needs of the sector and to identify training and other needs of each vertical,” as per Mr Sharma.

The Ministry of External Affairs together with CSC e-Governance Services India Ltd will soon launch passport related services through the vast network of over 100,000 Common Services Centres (CSCs) across rural India. This initiative could help bridge the digital divide in India. Under the Passport Seva, the Ministry of External affairs has made it compulsory to fill the complete form online, which includes payment of applicable fee as well as scheduling of appointment for passport-related services.

Road Ahead

The country’s banking industry would be the world's third largest in asset size by 2025, as per a report by the Boston Consulting Group (BCG) India, prepared in collaboration with a leading industry organisation and Indian Banks Associations (IBA).

Also, Life Insurance Council, the industry body of life insurers in India, projects a compound annual growth rate (CAGR) of 12–15 per cent over the next few years for the segment, with India’s insurable population projected to touch 750 million by FY 2020.

India is today one of the leading destinations for high-end diagnostic services, with significant capital investment for advanced diagnostic facilities. Also, modern Indian medical service consumers are more conscious with regard to their healthcare upkeep. “India is not just a great emerging power, in medicine it is a well-established leader, and we have a lot to learn from this success,” according to Mr Alexander Kadakin, Russian Ambassador to India.

Exchange Rate Used: INR 1 = US$ 0.0166 as on May 6, 2014

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