Introduction

The Indian Service Sector forms an integral part of the country’s economy as it accounts for about 57 per cent of India’s gross domestic product (GDP) and forms the mainstay for social and economic growth and progress across all dimensions of the Indian society.

The categorization of the Indian Service sector is done under four broad categories, which are as follows –

1. Trade, hotels, and restaurants;
2. Transport, storage, and communication;
3. Financing, insurance, real estate, and business services; and
4. Community, social, and personal services.

Out of the above mentioned sub sectors, financing, insurance, real estate, and business services; and trade, hotels and restaurants form the largest shareholders that account for 16.7 per cent and 16.3 per cent respectively of the National Gross Domestic Product (GDP) during 2009-10. The other sub sectors such as community, social, and personal services category accounted for 14.4 per cent share, while transport, storage, and communication held a total of 7.8 per cent share in the GDP. The Construction sector which has been included as a borderline services sector holds a share of 8.2 per cent.

The contribution of the Services Sector has increased very rapidly in GDP of India for many foreign consumers have shown interest in the country's service exports. This is due to the fact that India has a large pool of highly skilled, low cost, and educated workers in the country. This has made sure that the services that are available in the country are of the best quality. The foreign companies seeing this have started outsourcing their work to India especially in the area of business services which includes business process outsourcing and information technology services. This has given a major boost to the Services Sector in India, which in its turn has made the sector contribute more to the India GDP.

Sector Indicators

The share of services in India’s GDP at factor cost (at current prices) has increased from 30.5 per cent in 1950-51 to 55.2 per cent during 2009-10. In case the construction sector is also included, then the service sector share to the national GDP increases to 63.4 per cent in 2009-10.The acceleration of the growth rate (compound annual growth rate (CAGR)) in the services sector at 10.3 per cent in 2004- 05 to 2009-10 is a major reason behind the overall growth rate (CAGR) of the Indian economy.

The services sector growth was significantly faster than the 6.6 per cent for the combined agriculture and industry sectors annual output growth during the same period. In 2009-10, services growth was 10.1 per cent and in 2010-11 (advance estimates—AE) it was 9.6 per cent.

FDI in Service Sector

It is difficult to measure the share of services in FDI inflows in the service sector as it is hard to segregate the activities between services and goods in sectors such as computer hardwareand software, telecommunications, and construction.

However, the four sectors combined (services [financial and nonfinancial], computer hardware and software, telecommunications, and housing and real estate), that mainly consist of services; in FDI equity inflows in April 2000–December 2010 is around 44 per cent. On inclusion of the construction industry into the service sector, the share rises to 51 per cent. The largest recipient of FDI equity inflows is the financial and non-financial services sector with a 21 per cent share. This is followed by the other two sectors, namely computer software and hardware, and telecommunications each with 8 percent share. Housing and real estate, and construction with 7 per cent share each.

Exports

India's service exports stood at US$ 34.34 billion for April-June 2011. The service exports receipts for the month of June 2011 were US$ 11.04 billion. The Indian economy aims to develop its service sector as an export oriented sector. During 2004-05 to 2008-09 as per the Balance of Payments data, merchandise and services exports grew by 22.2 and 25.3 per cent respectively.

Major Investments

Some of the investment commitments made by Indian service providers are discussed below:

• Mumbai-based Atlanta Infrastructure Development and Real Estate Company has already received an approval from Gujarat government for setting up a US$ 2 billion theme park in the state. The project has already been cleared by the Gujarat Industrial Development Board and Gujarat Tourism Board.
• Gujarat-based Neesa Leisure Ltd plans to open up a new line of budget class hotels under the Coral brand. The first of the six budget class properties to come up under this brand will be in Gandhinagar, while other locations include Dahej (Gujarat), Abu Road, Nasik, Lucknow and Raipur.
• The World Bank has agreed to offer a loan of US$ 975 million loan to the Government of India for setting up the Eastern Dedicated Freight Corridor. This Freight Corridor is targeted at improving the movement of raw materials and finished goods between the Northern and Eastern parts of India.
• The Institute of Public Enterprise, (IPE) in association with the U21Global (an online Graduate School that offers postgraduate programs) have signed a Memorandum of Understanding (MoU) to launch their new online, short-term Joint Executive Education Program in the eLearning mode.

Road Ahead

According to ‘India Information Technology Report Q1 2011’, released by Research and Markets, Indian market for IT services and products is predicted to rise from US$ 18.6 billion in 2011 to US$ 40.5 billion by the end of 2015. During the year 2011, government procurement is likely to increase considerably while prospects in healthcare, education, telecom and financial services would broaden further.

The Service sector in India holds enormous potential to accelerate the development of an economy and endorse overall well-being of the society. It offers countless commercial prospects to the investors and possesses the capacity to produce considerable employment opportunities in the economy as well as escalate the average per capita income. Thus, service sector is considered to be an integral part of the economy and includes various sub-sectors spread all across the country.

Exchange rate used: INR 1 = US$ 0.0191406 as on November 12, 2011

References: Press releases, media reports, Ministry of Finance