Services Sector in India

Introduction

The services sector is not only the dominant sector in India’s GDP, but has also attracted significant foreign investment flows, contributed significantly to exports as well as 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.

Market Size

The services sector is the key driver of India’s economic growth. The sector is estimated to contribute around 54.0 per cent of India’s Gross Value Added in 2017-18 and employed 28.6 per cent of the total population. Net Services exports from India grew 14.98 per cent year-on-year to US$ 77,562.89 million in 2017-18P.

Nikkei India Services Purchasing Managers' Index (PMI) stood at 49.60 in May 2018. During the same month, business sentiments of service providers were recorded to be at their strongest levels since January 2015.

As per Ministry of Statistics and Programme Implementation’s second advance estimates of National Income 2017-18, services sector GVA is expected to grow to US$ 1,266.10 million in FY18.

Investments

The top 10 categories of Indian services sector attracted FDI equity inflows in the period April 2000-December 2017, amounting to about US$ 22,095.51 billion according to the Department of Industrial Policy and Promotion (DIPP).

Some of the developments and major investments by companies in the services sector in the recent past are as follows:

• The domestic and foreign logistic companies are optimistic about prospects in the logistics sector in India, and are actively making investments plans to improve earnings and streamline operations.
• Leisure and business travel and tourism spending are expected to increase to Rs 14,127.1 billion (US$ 216.9 billion) and Rs 806.4 billion (US$ 12.4 billion) in 2018, respectively.
• Market share of private banks in advances is expected to increase from 27.7 per cent in 2017-18 to nearly 35 per cent in 2019-20.^

Government Initiatives

The Government of India recognises the importance of promoting growth in services sectors and provides several incentives in wide variety of sectors such as health care, tourism, education, engineering, communications, transportation, information technology, banking, finance, management, among others.

Prime Minister Narendra Modi has stated that India's priority will be to work towards trade facilitation agreement (TFA) for services, which is expected to help in the smooth movement of professionals.

The Government of India has adopted a few initiatives in the recent past. Some of these are as follows:

• Under the Mid-Term Review of Foreign Trade Policy (2015-20), the Central Government increased incentives provided under Services Exports from India Scheme (SEIS) by two per cent.
• Government of India is working to remove many trade barriers to services and tabled a draft legal text on Trade Facilitation in Services to the WTO in 2017.

Road Ahead

Services sector growth is governed by both domestic and global factors. The Indian facilities management market is expected to grow at 17 per cent CAGR between 2015 and 2020 and surpass the US$19 billion mark supported by booming real estate, retail, and hospitality sectors.

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.

Exchange Rate Used: INR 1 = US$ 0.015 as of March 30, 2018

References: Media Reports, Press Releases, DIPP publication, Press Information Bureau,

Note: P - Provisional, ^As per Motilal Oswal

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.