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Services Industry Analysis

August, 2019

Services sector is the biggest one in India and contributes more than half of Gross Value Added (GVA). Services sector grew at a CAGR of 6.96 per cent to Rs 94.80 lakh crore (US$ 1,356.49 billion) in FY19 from Rs 59.18 lakh crore (US$ 846.84 billion) in FY12. Growth rate of financial, real estate and professional services was estimated at 12.71 per cent (in Rs terms) in FY19. Trade, hotels, transport, communication and services related to broadcasting are estimated to have recorded 11.63 per cent growth (in Rs terms) in FY19.

The sector also provides employment to a large share of Indian population. As of 2018, 34.49 per cent of India’s employed population was working in the services sector^.

Also, services exports comprise a major part of the total exports of India. Net export estimate from April to June 2019 in services is Rs 3.92 lakh crore (US$ 56.18 billion) and import is US$ 37.46 billion. India is ranked as the eighth largest exporter of commercial services globally in 2017.

Moreover, the sector is the largest recipient of FDI in India with inflows of Rs 5.18 lakh crore (US$ 74.14 billion) between April 2000 and March 2019.

The sector has continuously recorded strong growth. Nikkei India Services Purchasing Managers' Index (PMI) stood at 49.6 in June 2019 and increased to 53.8 in July 2019.

Sub-sectors that are performing well within the services sector are:

  • Aviation – India’s air passenger traffic doubled to 308.75 million in FY19 witnessing a growth of 12.64 per cent year-on-year. For FY20, passenger traffic reached to 84.54 million and 0.84 million tonnes for freight traffic.
  • Information technology-business process management (IT-BPM) –IT BPM industry revenues grew 8.38 per cent year-on-year to Rs 12.65 lakh crore (US$ 181 billion) in FY19E from US$ 167 billion in FY18.

The Government has undertaken various steps towards boosting growth of the services sector. The government introduced ‘Services Exports from India Scheme’ (SEIS) 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. Further, in the mid-term review of Foreign Trade Policy 2015-20, SEIS incentives to notified services were increased by 2 per cent. Also, the Government of India has identified 12 sectors under the Champion Services Sectors Initiative which is aimed at formulating cross-cutting action plans to promote their growth.

Notes: P – Provisional, E-Estimate, H1 2018-19 – April-September 2018, ^International Labour Organisation Estimates

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