Services Industry Analysis

Services sector is the biggest in India and contributes more than half of Gross Value Added (GVA). As per the second advance estimates for GVA, services sector shares reached 55.39 per cent in FY20. Services sector GVA grew at a CAGR of 1.45 per cent to US$ 1,064.8 billion in FY20 from US$ 1,005 billion in FY16. The sector provides employment to a large share of Indian population.

Services export comprise a major part of the total export from India. Net export estimate in FY20 in services stood at US$ 214.14 billion, while import was at US$ 131.41 billion in FY20.

Moreover, services sector is the largest recipient of FDI (Foreign Direct Investment) in India with inflow of US$ 80.67 billion between April 2000 and December 2019.

Nikkei India Services Purchasing Managers' Index (PMI) stood at 49.3 in March 2020, indicating an expansion in the sector.

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 y-o-y. Passenger and freight traffic reached 323.47 million and 3.12 million tonnes, respectively, during FY20 (till February 2020).

Information technology-business process management (IT-BPM) – IT-BPM industry revenue was estimated at around US$ 191 billion in FY20 with a growth rate of 7.7 per cent. The domestic revenue of the IT industry is estimated at US$ 44 billion and export revenue is estimated at US$ 147 billion in FY20.

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 three to five 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 two per cent. Also, the government has identified 12 sectors under the Champion Services Sectors Initiative, aimed at formulating cross-cutting action plans to promote their growth.

Note: P – Provisional, E-Estimate, ^International Labour Organisation Estimates