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Services Industry Analysis

February, 2018

Services sector is the biggest one in India and contributes more than half of Gross Value Added (GVA). As of 2016-17, 28.6 per cent of the Indian population was employed in this sector. The sector is a major contributor to the country’s FDI Inflows. In 2016-17, share of services sector in total FDI inflows was 60.7 per cent. FDI inflows to the sector during April 2000-December 2017 stood at US$ 64.097 billion. Nikkei India Services Purchasing Managers’ Index (PMI) increased to 51.7 in January 2018 from 48.5 in November 2017.

Services exports comprise a major part of the total exports of India. Net services exports from India stood at US$ 67.5 billion in 2016-17. Also, India is the export hub for software services. It has a 55 per cent share in the US$ 178 billion global sourcing market.

Sub-sectors that are performing well in FY18 are:

  • Aviation – India’s air passenger traffic doubled to 117.18 million in 2017 from 59.87 million in 2011.
  • Tourism – Foreign Exchange Earnings from tourism rose 20.8 per cent year-on-year to US$ 27.7 billion in 2017.
  • Information technology-business process management (IT-BPM) – Software exports are expected to grow 7-8 per cent and the domestic market is expected to expand by 10-11 per cent*.

The Government introduced ‘Services Exports from India Scheme’ (SIES) aimed at promoting export of services from India by providing duty scrip credit for eligible exports. Under this scheme, a reward of 3 to 5 per cent of net foreign exchange earned is given for Mode 1 and Mode 2 services. In the mid-term review of Foreign Trade Policy 2015-20, SEIS incentives to notified services were increased by 2 per cent.

Note: * According to NASSCOM

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