The current situation in India is that the growth rate of services has overtaken both agriculture and industry and
is now more than 50% of GDP. The services sector has the highest growth rate and is the least volatile sector.
Growth is particularly marked in public services, IT and financial services. In some areas the growth rate of the
services sector is 40-50% due to increased use of mobile technologies.
India therefore has a services-oriented economy. It hasn’t followed traditional growth models (as in China) in
that it has skipped the manufacturing stage and has jumped straight from the agricultural stage to services.
Growth in the services sector will support growth in the agricultural and industrial sectors, although growth in manufacturing, which causes pollution is not so desirable in terms of job creation and increased prosperity.
As India’s population grows so too does the number of dependents in the lower and higher age groups. For the economy to grow it has to invest. Currently the public sector invests more than it saves. The household sector saves in surplus, but this is not increasing so it cannot
continue to support private and public sectors. There is a massive need to spend on health and education,
particularly the education of women, in order to reduce the birth rate. In South India the number of women in the
population outnumbers men, so the development of the south of India will depend on the education of women.
In the next two decades (a ‘growth window’ for India which may not come again because the working population to total population ratio increases up to mid
2030s) it will be important for India to absorb the growing labour force if the services sector is to play an important role. India is in a strong position to do this
since it has a history of using English for communication, which in turn supports global trade and finance. Only the
services sector can have a major impact on poverty. Improvements in agriculture are not having an effect on
poverty. To address poverty there is a need to move people from bad sectors to good sectors or from unemployment to employment. This is happening with
growth in human skills intensive sectors such as hotels, restaurants and IT, but there are geographical, labour
unions and human skills restrictions on labour movement.
The key question raised at the conference was – Can services lead the economy?
For example, can services, such as IT, be taken to rural areas? This has been done in Andhra Pradesh, where the
people have been educated through TV and IT with resulting reductions in infant mortality, poverty and fertility rates. So it seems that services could lead the
economy, but there needs to be greater equality between the different States and a better gender balance. There is also the need for additional fiscal capacity, tax reforms to fund education, reduction in government debt and the revenue account must be kept in balance. Progress is
good but still initial conditions for growth have not yet been achieved.
Introduction
The services sector with an around 57 per cent contribution to the gross domestic product (GDP), has made rapid strides in the last few years and emerged as the largest and fastest-growing sector of the economy. Besides being the dominant sector in India’s GDP, it has also contributed substantially to foreign investment flows, exports, and employment. India’s services sector covers a wide variety of activities that have different features and dimensions.
They include trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, &
business services, community, social and personal services and services associated with construction. Services in India are emerging as a prominent sector in terms of contribution to national and states’ incomes, trade flows, foreign direct investment (FDI) inflows, and employment. The compound annual growth rate (CAGR) of services
sector GDP was 8.5 per cent for the period 2000-01 to 2013-14.
As per the survey, in India, the growth of services-sector gross domestic product (GDP) has been higher than that of
overall GDP between the FY01- FY14. Services constitute a major portion of India’s GDP with a 57 per cent share in
GDP at factor cost (at current prices) in 2013-14, an increase of 6 per cent points over 2000-01. The shift from primary and secondary activities to tertiary activities by the citizens of a country indicates that it is on the path of progress. The growth in the services sector can be attributed mostly to the emergence of the Indian
Information Technology (IT) and IT enabled Services (ITeS) sectors as well as e-commerce.
Market Size
The services sector in India comprises a wide range of activities such as transportation, logistics, financial,
business process outsourcing services, healthcare, trading, and consultancies, among many others. The HSBC India Services PMI stood at 51.1 in November
2014 – a reading above 50 signals expansion. According to the data provided by International Data Corporation (IDC), the total mobile services market revenue
in India is expected to touch US$ 37 billion in 2017 growing at a compound annual growth rate (CAGR) of 5.2 percent.
The growth in the ITeS sector has resulted in increasing competition between the different brands in the e- commerce sector. As a result, it is expected that the e- commerce sector will generate close to 150,000 jobs within the next 2-3 years.
The logistics sector in India which was valued at US$ 101 billion in 2013 is expected to grow by 10 per cent per
annum to reach US$ 136 billion by 2016, according to Mr R Dinesh, Chairman, CII Institute of Logistics Advisory
Council and Joint Managing Director, TVS Sons Ltd. Investments The Indian services sector has attracted the highest amount of FDI equity inflows in the period April 2000-December 2014, amounting to about US$ 41,755.46 million which is
about 18 per cent of the total foreign inflows, 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:
Zomato has acquired Cibando, one of Italy’s largest restaurant search services. With this acquisition, the company has a presence in 20 countries. Zomato further
aims to widen its international presence by entering 15 more countries in 2015.
The private security services industry in India is expected to register a growth of over 20 per cent over the next few
years, doubling its market size to Rs 80,000 crore (US$ 12.94 billion) by 2020.
Snapdeal.com has acquired gifting recommendation
Introduction
The services sector with an around 57 per cent contribution to the gross domestic product (GDP), has made rapid strides in the last few years and emerged as the largest and fastest-growing sector of the economy. Besides being the dominant sector in India’s GDP, it has also contributed substantially to foreign investment flows, exports, and
employment. India’s services sector covers a wide variety of activities that have different features and dimensions.
They include trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, &
business services, community, social and personal services and services associated with construction. Services in India are emerging as a prominent sector in terms of contribution to national and states’ incomes, trade flows, foreign direct investment (FDI) inflows, and employment. The compound annual growth rate (CAGR) of services sector GDP was 8.5 per cent for the period 2000-01 to 2013-14.
As per the survey, in India, the growth of services-sector gross domestic product (GDP) has been higher than that of
overall GDP between the FY01- FY14. Services constitute a major portion of India’s GDP with a 57 per cent share in
GDP at factor cost (at current prices) in 2013-14, an increase of 6 per cent points over 2000-01. The shift from primary and secondary activities to tertiary activities by the citizens of a country indicates that it is on the path of progress. The growth in the services sector can be attributed mostly to the emergence of the Indian
Information Technology (IT) and IT enabled Services (ITeS) sectors as well as e-commerce.
Market Size
The services sector in India comprises a wide range of activities such as transportation, logistics, financial,
business process outsourcing services, healthcare, trading, and consultancies, among many others.
The HSBC India Services PMI stood at 51.1 in November 2014 – a reading above 50 signals expansion. According to the data provided by International Data
Corporation (IDC), the total mobile services market revenue in India is expected to touch US$ 37 billion in 2017 growing at a compound annual growth rate (CAGR) of 5.2 percent. The growth in the ITeS sector has resulted in increasing
competition between the different brands in the e- commerce sector. As a result, it is expected that the e- commerce sector will generate close to 150,000 jobs within
the next 2-3 years. The logistics sector in India which was valued at US$ 101
billion in 2013 is expected to grow by 10 per cent per annum to reach US$ 136 billion by 2016, according to Mr R
Dinesh, Chairman, CII Institute of Logistics Advisory Council and Joint Managing Director, TVS Sons Ltd.
Investments The Indian services sector has attracted the highest amount
of FDI equity inflows in the period April 2000-December 2014, amounting to about US$ 41,755.46 million which is
about 18 per cent of the total foreign inflows, 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:
Zomato has acquired Cibando, one of Italy’s largest restaurant search services. With this acquisition, the company has a presence in 20 countries. Zomato further
aims to widen its international presence by entering 15 more countries in 2015.
The private security services industry in India is expected to register a growth of over 20 per cent over the next few years, doubling its market size to Rs 80,000 crore (US$ 12.94 billion) by 2020.
Snapdeal.com has acquired gifting recommendation technology platform Wishpicker.com. The acquisition will
enable Snapdeal to further personalise user experience and drive conversions through intelligent recommendations.
The Government of India has awarded a contract worth Rs 1,370 crore (US$ 221.63 million) to Ricoh India Ltd and
Telecommunications Consultants India Ltd (TCIL) to modernise 129,000 post offices through automation.
Global online food delivery marketplace Foodpanda has Acquired TastyKhana in India. Now, Foodpanda will have a
selection from over 2,500 restaurants in 10 cities. Taxi service aggregator Ola plans to scale up operations to 100 cities from 19 currently. The company, which is looking at small towns for growth, also plans to invest in driver eco-system, such as training centres and technology
upgrade.
Government Initiatives Strong and consistent emphasis on self-reliance in its economic development programmes over the years by the Government of India has also enabled India to build up a big
and versatile cadre of professionals. They now have expertise and skills across a vast and wide-ranging spectrum of disciplines, such health care, tourism,
education, engineering, communications, transportation, information technology, banking, finance, management,
among others. The Government of India has adopted a few initiatives in the
recent past. Some of these are as follows:
The Government of India plans to take mobile network by December 2016 to nearly 10 per cent of Indian villages that
are still unconnected. The Reserve Bank of India (RBI) has allowed third-party
white label automated teller machines (ATM) to accept international cards, including international prepaid cards,
and has also allowed white label ATMs to tie up with any commercial bank for cash supply. The Government of India has launched tourist visa on arrival (TVoA) enabled by electronic travel authorisation
(ETA) to 43 countries. India and Japan held a Joint Working Group conference for
Comprehensive Cooperation Framework for Information and Communication Technologies (ICT). India also offered
Japan to manufacture ICT equipment in India. Citizens of India is expected to get a minimum of 2 megabits per second (MBPS) Wi-Fi speed at every
government owned service point such as railways stations, airports, bus stops, hospitals and all government departments that deal with the public on a daily basis.
Road Ahead
Services sector growth is governed by both domestic and global factors. The sector is expected to perform well in
FY16. Some improvement in global growth and recovery in industrial growth will drive the services sector to grow 7.4
per cent in FY16 (FY15: 7.3 per cent). The performance of trade, hotels and restaurants, and transport, storage and
communication sectors are expected to improve in FY16. Loss of growth momentum in commodity-producing sectors had adversely impacted transport and storage sectors over the past two years. The financing, insurance, real estate and business services sectors are also expected to continue their good run in FY16. The growth performance of the
community, social and personal services sector is directly linked with government expenditure and we believe that the
government will remain committed to fiscal consolidation in FY16.
Exchange Rate Used: INR 1 = US$ 0.016 as on February 26, 2015
References: Media Reports, Press Releases, DIPP publication, Press Information Bureau, Indian budget
publication platform Wishpicker.com. The acquisition will enable Snapdeal to further personalise user experience and
drive conversions through intelligent recommendations. The Government of India has awarded a contract worth Rs
1,370 crore (US$ 221.63 million) to Ricoh India Ltd and Telecommunications Consultants India Ltd (TCIL) to modernise 129,000 post offices through automation.
Global online food delivery marketplace Foodpanda has acquired TastyKhana in India. Now, Foodpanda will have a
selection from over 2,500 restaurants in 10 cities.
Taxi service aggregator Ola plans to scale up operations to 100 cities from 19 currently. The company, which is looking
at small towns for growth, also plans to invest in driver eco-system, such as training centres and technology
upgrade.
Government Initiatives
Strong and consistent emphasis on self-reliance in its economic development programmes over the years by the
Government of India has also enabled India to build up a big And versatile cadre of professionals. They now have
expertise and skills across a vast and wide-ranging spectrum of disciplines, such health care, tourism, education, engineering, communications, transportation, information technology, banking, finance, management,
among others. The Government of India has adopted a few initiatives in the
recent past. Some of these are as follows:
The Government of India plans to take mobile network by December 2016 to nearly 10 per cent of Indian villages that
are still unconnected. The Reserve Bank of India (RBI) has allowed third-party
white label automated teller machines (ATM) to accept international cards, including international prepaid cards,
and has also allowed white label ATMs to tie up with any commercial bank for cash supply.
The Government of India has launched tourist visa on arrival (TVoA) enabled by electronic travel authorisation (ETA) to 43 countries. India and Japan held a Joint Working Group conference for Comprehensive Cooperation Framework for Information and Communication Technologies (ICT). India also offered
Japan to manufacture ICT equipment in India.
Citizens of India is expected to get a minimum of 2 megabits per second (MBPS) Wi-Fi speed at every government owned service point such as railways stations, airports, bus stops, hospitals and all government departments that deal with the public on a daily basis.
Road Ahead Services sector growth is governed by both domestic and
global factors. The sector is expected to perform well in FY16. Some improvement in global growth and recovery in industrial growth will drive the services sector to grow 7.4 per cent in FY16 (FY15: 7.3 per cent). The performance of trade, hotels and restaurants, and transport, storage and communication sectors are expected to improve in FY16. Loss of growth momentum in commodity-producing sectors had adversely impacted transport and storage sectors over the past two years. The financing, insurance, real estate and business services sectors are also expected to continue their good run in FY16. The growth performance of the
community, social and personal services sector is directly linked with government expenditure and we believe that the
government will remain committed to fiscal consolidation in FY16.
Exchange Rate Used: INR 1 = US$ 0.016 as on February 26, 2015
References: Media Reports, Press Releases, DIPP publication, Press Information Bureau, Indian budget
publication
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