The services sector is not only the dominant sector in India’s GDP, but has also attracted significant foreign investment, has contributed significantly to export and has provided large-scale employment. India’s services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction.
The services sector is a key driver of India’s economic growth. The sector contributed 55.39% to India’s Gross Value Added at current price in FY20*. Services sector’s GVA grew at a CAGR of 1.45% to US$ 1,064.8 billion in FY20 from US$ 1,005 billion in FY16. According to RBI data, in April 2020, service exports stood at Rs 1,254.09 billion (US$ 17.06 billion) while imports stood at Rs 709.07 billion (US$ 9.65 billion).
Nikkei India Services Purchasing Managers' Index (PMI) stood at 41.8 in August 2020, reflecting the highest reading since March 2020 before the coronavirus pandemic accelerated; however, it is still below the neutral mark, indicating a fifth consecutive decline in business activity in the private sector.
Some of the developments by companies in the services sector in the recent past are as follows:
The Government of India recognises the importance of promoting growth in services sector and provides several incentives across a wide variety of sectors like health care, tourism, education, engineering, communications, transportation, information technology, banking, finance and management among others.
The Government of India has adopted few initiatives in the recent past, some of these are as follows:
Services sector growth is governed by domestic and global factors. The Indian facilities management market is expected to grow at 17% CAGR between 2015 and 2020 and surpass the US$ 19 billion mark supported by booming real estate, retail, and hospitality sectors.
By 2023, healthcare industry is expected to reach US$ 132 billion. India’s digital economy is estimated to reach US$ 1 trillion by 2025. By end of 2023, India’s IT and business services sector is expected to reach US$ 14.3 billion with 8% growth.
The implementation of the Goods and Services Tax (GST) has created a common national market and reduced the overall tax burden on goods. It is expected to reduce costs in the long run on account of availability of GST input credit, which will result in the reduction in prices of services.
Note: Conversion rate used for September 2020 is Rs 1 = US$ 0.01370
References: Media Reports, Press Releases, DPIIT publication, Press Information Bureau
Note: P - Provisional, * As per second advance estimates
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
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