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Services Industry Analysis

March, 2019

Services sector is the biggest one in India and contributes more than half of Gross Value Added (GVA). Services sector GVA at current basic prices has grown at a CAGR of 6.25 per cent between FY12-FY19* to reach US$ 1,294.41 billion.

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 Services exports from India stood at US$ 38.95 billion in H1 2018-19 (P). India 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 US$ 70.91 billion between April 2000 and December 2018.

The sector has continuously recorded strong growth. The Nikkei India Services Purchasing Managers' Index (PMI) stood at 52.5 in February 2019, indicating an expansion.

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

  • Aviation – India’s air passenger traffic doubled to 117.18 million in 2017 from 59.87 million in 2011. It stood at 316.51 million during April 2018 -February 2019.
  • Information technology-business process management (IT-BPM) –IT BPM industry revenues grew 8.38 per cent year-on-year to 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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