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, 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.

Market Size

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^#. GVA at basic prices at current prices in the second quarter of 2020-21 is estimated at Rs. 42.80 lakh crore (US$ 580.80 billion), against Rs. 44.66 lakh crore (US$ 633.57 billion) in the second quarter of 2019-20, showing a contraction of 4.2%. According to RBI, in February 2021, service exports stood at US$ 21.17 billion, while imports stood at US$ 10.61 billion.

The India Services Business Activity Index/Nikkei/IHS Markit Services Purchasing Managers' Index fell to 54 in April 2021, from 54.6 in March 2021, due to pandemic-induced constraints in business activities and weakened sentiments towards growth prospects.

Industry developments

Some of the developments in the services sector in the recent past are as follows:

• The services* category in India attracted cumulative foreign direct investment (FDI) worth US$ 85.86 billion between April 2000 and December 2020. The services category ranked 1st in FDI inflow as per data released by the Department for Promotion of Industry and Internal Trade (DPIIT).
• In April 2021, the Ministry of Education (MoE) and University Grants Commission (UGC) started a series of online interactions with stakeholders to streamline forms and processes to reduce compliance burden in the higher education sector, as a follow-up to the government’s focus on ease of doing business to enable ease of living for stakeholders.
• On March 17, 2021, the Health Ministry’s eSanjeevani telemedicine services crossed 3 million (30 lakh) teleconsultations since its launch, enabling patient-to-doctor consultations from the confines of their home and doctor-to-doctor consultations.
• In April 2021, Elon Musk’s SpaceX has started accepting pre-orders for the beta version of its Starlink satellite internet service in India for a fully refundable deposit of US$ 99. Currently, the Department of Telecommunications (DoT) is screening the move and more developments will be unveiled soon.
• In December 2020, a cohort of six health-tech start-ups—AarogyaAI, BrainSightAI, Fluid AI, InMed Prognostics, Wellthy Therapeutics, and Onward Assist—have been selected by the India Edison Accelerator, fuelled by GE Healthcare. India Edison Accelerator, the company's first start-up partnership programme focused on Indian mentors, creates strategic partners to co-develop healthcare solutions.
• The Indian healthcare industry is expected to shift digitally enabled remote consultations via teleconsultation. The telemedicine market in India is expected to increase at a CAGR of 31% from 2020 to 2025.
• In December 2020, Gamma Skills Automation Training introduced a unique robotics & automation career launch programme for engineers, an ‘Industry 4.0 Hands-on Skill Learning Centre’ located at IMT Manesar, Gurgaon in Haryana.
• In December 2020, the 'IGnITE’ programme was initiated by Siemens, BMZ and MSDE to encourage high-quality training and technical education. 'IGnITE' aims to develop highly trained technicians, with an emphasis on getting them ready for the industry and future, based on the German Dual Vocational Educational Training (DVET) model. By 2024, this programme aims to upskill ~40,000 employees.
• In October 2020, Bharti Airtel entered cloud communications market with the launch of business-centric ‘Airtel IQ’.

Government Initiatives

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:

• Under Union Budget 2021-22, the government allocated Rs. 7,000 crore (US$ 963.97 million) to the BharatNet programme to boost digital connectivity across India.
• FDI limit for insurance companies has been raised from 49% to 74% and 100% for insurance intermediates.
• In May 2021, the Ministry of Commerce and Industry announced that India received an FDI inflow of US$ 81.72 billion, the highest FDI during FY 2020-21.
• In March 2021, the central government infused Rs. 14,500 crore (US$ 1.99 billion) capital in Central Bank of India, Indian Overseas Bank, Bank of India and UCO Bank through non-interest bearing bonds.
• On January 15, 2021, the third phase of Pradhan Mantri Kaushal Vikas Yojana (PMKVY) was launched in 600 districts with 300+ skill courses. Spearheaded by the Ministry of Skill Development and Entrepreneurship, the third phase will focus on new-age and COVID-related skills. PMKVY 3.0 aims to train eight lakh candidates.
• In January 2021, the Department of Telecom, Government of India, signed an MoU with the Ministry of Communications, Government of Japan, to strengthen cooperation in the areas of 5G technologies, telecom security and submarine optical fibre cable system.
• On November 4, 2020, the Union Cabinet, chaired by the Prime Minister, Mr. Narendra Modi, approved to sign a memorandum of understanding (MoU) between the Ministry of Communication and Information Technology and the Department of Digital, Culture, Media and Sports (DCMS) of United Kingdom Government to cooperate in the field of telecommunications/information and communication technologies (ICTs).
• In October 2020, the government selected Hughes Communications India to connect 5,000 village panchayats in border and naxal-affected states and island territories with satellite broadband under BharatNet project by March 2021.
• In September 2020, the government announced that it may infuse Rs. 200 billion (US$ 2.72 billion) in public sector banks through recapitalisation of bonds
• In the next five years, the Ministry of Electronics and Information Technology is working to increase the contribution of the digital economy to 20% of GDP. The government is working to build cloud-based infrastructure for collaborative networks that can be used for the creation of innovative solutions by AI entrepreneurs and startups.
• On Independence Day 2020, Prime Minister Mr. Narendra Modi announced the National Digital Health Mission (NDHM) to provide a unique health ID to every Indian and revolutionise the healthcare industry by making it easily accessible to everyone in the country. The policy draft is under ‘public consultation’ until September 21, 2020.
• In September 2020, the Government of Tamil Nadu announced a new electronics & hardware manufacturing policy aligned with the old policy to increase the state's electronics output to US$ 100 billion by 2025. Under the policy, it aims to meet the requirement for incremental human resource by upskilling and training >100,000 people by 2024.
• Government of India has launched the National Broadband Mission with an aim to provide Broadband access to all villages by 2022.

Road Ahead

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 April 2021 is Rs. 1 = US$ 0.01334

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

Note: P - Provisional, ^# As per second advance estimates, *- Services sector includes Financial, Banking, Insurance, Non-Financial / Business, Outsourcing, R&D, Courier, Tech Testing and Analysis, Other

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