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Services Industry Analysis

October, 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, 31.45 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 estimated from April to August 2019 in services is US$ 93.82 billion and import is US$ 61.86 billion. India is ranked as the eighth largest exporter of commercial services globally in 2017.

Moreover, Services sector is the largest recipient of FDI in India with inflows of US$ 76.94 billion between April 2000 and June 2019.

The sector has continuously recorded strong growth. Nikkei India Services Purchasing Managers Index (PMI) 53.8 in July 2019, indicating an expansion but fall in September 2019 to 48.70.

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 and freight traffic during April-August 2019 reached 142.26 million and 1.42 million tonnes, respectively.

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,^International Labour Organisation Estimates

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