Services Sector In India

In News 

• India’s services sector activity expanded at the second-fastest pace in more than a decade during November, driven by a sustained rise in new work and improvement in market conditions.

Service Sector in India

• The service sector is the largest and fastest-growing sector in India and has the highest labour productivity.
• 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.

• India has a significant presence in the services sector exports. It remained among the top ten trading countries in commercial services in 2019 accounting for 3.5 per cent of world services exports.
  • Share of the services sector accounted for 54% of the total GVA in FY21. 

Image Courtesy: indiabudget.gov

• Potential (Sub Sector-wise Details )
  • Tourism Sector: 
    • The tourism sector is a major engine of economic growth that contributes significantly in terms of GDP, foreign exchange earnings and employment. 
    • The tourism sector in India had been performing well with Foreign Tourist Arrivals (FTAs) growing at 14 per cent to 10.04 million and Foreign Exchange Earnings (FEEs) at 19.1 per cent to US$ 27.31 billion in 2017.
    • India ranked 23rd in the world in terms of international tourist arrivals in 2019, falling slightly from the 22nd position in 2018. 
    • The country accounts for 1.23 per cent of the world’s international tourist arrivals and 4.97 per cent of Asia & Pacific’s international tourist arrivals. 
    • India ranks 12th in the world and 7th in Asia & Pacific in terms of tourism foreign exchange earnings, accounting for over 2 per cent of the world’s tourism foreign exchange earnings.
  • Ports, Shipping and Waterways Services: 
    • Ports handle around 90 per cent of export-import cargo by volume and 70 per cent by value in India.

• The consistent growth of around 6 per cent was maintained in overall port traffic between 2015-16 and 2018-19. 

• Space: 
  • India’s space programme has grown exponentially in the past six decades, expanding from simple mapping services in the 1960s to many diversified uses including- design and development of a series of launch vehicles and related technologies, satellites and related technologies for earth observation, telecommunication & broadband, navigation, meteorology and space science, R&D in space sciences, & most recently, planetary exploration.

• India spent about US$ 1.8 billion on space programmes in 2019-20 and in June 2020, GOI opened up the Space sector enabling the participation of the Indian private sector in the entire gamut of space activities. 

• Logistics & Transportation 
  • India’s natural coastline and vast river network give it a competitive edge in providing transportation and logistics services, both domestically and internationally. 
• IT-BPM/ Fintech: 
  • The Indian IT-BPM industry has been the flag-bearer of India’s exports over the last 20 years. 

• Over the last decade, the industry grew by 102 per cent reaching US$ 190.5 billion in revenues in 2019-20. 
• Software & Engineering Services has witnessed a consistent growth each year, constituting a share of 21 per cent in the sector and US$ 40.2 billion in revenue in 2019-20. 

• Other services: 
  • Media & Entertainment (animation, gaming, dubbing), Education (online platforms such as MOOC), and Sports (IPL, IFL, Sports Management), Legal/ Paralegal services, Risk management and advisory functions, etc. are areas that can lead to an immense contribution of service industry in the Indian economy.

• FDI in Service Sector: 
  • India improved its position from 12th in 2018 to 9th in 2019 in the list of the world’s largest FDI recipients according to the latest World Investment Report 2020 by United Nations Conference on Trade and Development (UNCTAD). 
  • FDI into India recorded an almost 17 per cent jump during April-September 2020 over the corresponding period last year, despite the global slowdown, the COVID-19 pandemic, lockdown measures and supply chain disruptions. 

Challenges 

• Impact of the pandemic: 
  • India’s Services sector witnessed a significant setback during the COVID-19 pandemic mandated lockdown particularly sub-sectors such as tourism, aviation, and hospitality.  
• During the first half of the financial year 2020-21, the services sector contracted by almost 16 per cent. 
  • This decline was led by a sharp contraction in all sub-sectors particularly ‘Trade, hotels, transport, communication & services related to broadcasting.
• Impact of Demonetization: Demonetization, temporarily impacted the services sector as in the case of other sectors. 
• Employment in Services: Employment has not kept pace with the share of the sector in gross domestic product and has not produced the number or quality of jobs needed. 
• Lack of Policy: There is no policy leading to inclusive growth, and multiple, uncoordinated governing bodies adversely affect the growth of the sector. 
  • Many regulations are outdated, and there are restrictions and barriers to foreign direct investment.
• Domestic Regulations and Services Trade Restrictiveness 
• Market Access Barriers: There are many market access barriers in India’s trading partner countries. 
  • Some of them for major services include Visa issues in different countries for Professionals; licensing of professional service suppliers.

Government Initiatives

• Structural reforms: The year 2020-21 witnessed many significant structural reforms. 
  • The space sector was opened up, telecom related regulations were removed from the IT-BPO sector, and consumer protection regulations were introduced for e-commerce.
• Health Sector:  In October 2021, the Prime Minister of India approved the establishment of 157 new medical colleges to boost the accessibility of affordable health treatments among citizens.
  • The Government of India has set up 1,50,000 Ayushman health and wellness centres to provide affordable treatment of diseases like cancer, diabetes etc and check-up at the primary level.
  • In October 2021, the PM Ayushman Bharat Health Infrastructure Mission was launched by the government, to strengthen the critical healthcare network across India in the next four to five years.
    • It aims to tackle this deficiency. The aim is to strengthen the critical healthcare network from village to block to the district to the regional and national level in the next 4-5 years.

• Production Linked Incentive (PLI) scheme: In October 2021, the government launched a production linked incentive (PLI) scheme to boost the manufacturing of telecom and networking products in India. 
  • It will help in reducing India’s dependence on other countries for the import of telecom and networking products.  

• Mahatma Gandhi National Fellowship: Union Minister for Education and Skill Development & Entrepreneurship launched phase II of the Mahatma Gandhi National Fellowship, a two-year-long fellowship conceived to create opportunities for young, dynamic individuals to contribute to enhancing skill development at the grassroots.
• PMKVY 3.0: The Ministry of Skill Development and Entrepreneurship (MSDE) launched the third phase of its flagship scheme PMKVY 3.0 in January 2021.
  • PMKVY 3.0 will be implemented in a more decentralised structure with greater responsibilities and support from States/UTs and Districts by incorporating the learnings from PMKVY 1.0 and PMKVY 2.0.
• National Broadband Mission: The government of India has launched the National Broadband Mission with an aim to provide Broadband access to all villages by 2022.
• BharatNet project. : The Department of Telecommunications (DoT) has started pre-bid meetings with various stakeholders to implement the public-private partnership model (PPP) for the BharatNet project.
• Real Estate: Some of the recent policy measures taken by the Government include Pradhan Mantri Awas Yojana (PMAY- Urban), Smart Cities Mission, Real Estate Investment Trust (REITs) and Infrastructure Investment Trusts (InvITs), relaxation of conditions to claim tax incentive for affordable housing projects, and the Benami Transactions (Prohibition) Amendment Act, 2016 and introducing Real Estate (Regulation & Development) Act, 2016 (RERA)
• International Collaboration:  In September 2021, India and the UK joined the 11th Economic and Financial Dialogue (EFD) to discuss the FTA (Free Trade Agreement) opportunities in services.
  • India and Australia agreed to broad-base cooperation in the spheres of the digital economy and cyber-enabled critical technologies, noting the need to strengthen the security of critical information infrastructure such as 5G telecom networks.
  • 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.

Way Forward 

• India should closely look into the development of the service industry, given the potential and need for sustained large scale investment. Investments typically have a long gestation period. 
  • However, once the infrastructure is created, linkages to the rest of the economy provide significant multiplier effects. 
• Reforms in Domestic regulations are important both for domestic production and export of services. 
  • However domestic regulations should not act or be used as restrictive trade barriers. 
• The market access restrictions need to be negotiated in the WTO and bilateral meetings. 
•  There is a need for further efforts to enhance both unskilled/semiskilled employment and skilled and quality employment in the services sector. 
  • The Skill India initiative could be further dovetailed for services sector employment

Source: TH