India’s services sector has undergone rapid growth in the past decade, becoming a key driver of the nation’s economic development. The Economic Survey 2017-18 shows that this sector contributed a significant 54.17% to India’s Gross Value Added (GVA), accounting for 72.5% of the GVA growth in that period and employing 28.6% of the total population. India’s net services exports reached US$ 77,562.89 million in 2017-18, marking a 14.98% year-on-year growth.
Learning Outcomes
- Understand the significance of India’s services sector in GVA and employment.
- Identify major components and international comparisons of the services sector.
- Gain insights into key subsectors such as tourism, transport, business services, and recent government initiatives.
- Analyze challenges and growth prospects of India’s service-led economy.
India’s services sector encompasses a broad range of activities, such as trade, hotels, transport, storage, communication, finance, real estate, business services, community, and social services. As a whole, the sector was expected to grow at 8.3% in 2017-18.
In 2014, the global GDP of US $74 trillion had a 66% share of services, similar to 2001 levels. However, over the last 13 years, there was a 2.7% decline in this share.
In developed countries, the services sector typically has a higher share in both income and employment. However, this gap is less pronounced compared to developing nations like India and China.
India’s services sector has consistently driven national income, trade flows, FDI, and employment. It has also outpaced global growth rates, contributing stability to the economy.
Key Service Sector Growth Rates:
| Year | Total Services Growth | Trade, Repair, Hotels | Financial Services | Construction |
|---|---|---|---|---|
| 2015-16 | 9.7% | 10.5% | 6.8% | 5.0% |
| 2016-17 | 7.7% | – | 5.7% | 1.7% |
FDI in services has been a vital component of India’s economic framework. Despite ambiguities in classification, the combined FDI in the top 10 service sectors (e.g., financial, telecommunications, construction, hotels, and IT) constituted 56.6% of cumulative FDI inflows from April 2000 to October 2017 and 65.8% during 2017-18 (April-October).
The Indian services sector accounts for 55.2% of GVA and has seen initiatives like digitization, e-Visas, infrastructure for logistics, Start-Up India, and housing schemes. Below is a breakdown of key sub-sectors:
India’s tourism sector has shown robust performance with Foreign Tourist Arrivals (FTAs) growing by 15.6% to 10.2 million in 2017. Government initiatives include:
Tourism serves as a major economic growth engine, generating employment and foreign exchange. World Travel and Tourism Council (WTTC) data in 2014 indicated the sector’s total contribution to global GDP was US $7.6 trillion.
Shipping and ports play a significant role in trade:
Includes computer-related services, R&D, accounting, and legal services. The IT-BPM industry grew 8.1% in 2016-17, reaching US $139.9 billion.
With FDI inflow of US $257 million in the first half of 2017, reforms like the Pradhan Mantri Awas Yojana (PMAY) and the Real Estate (Regulation and Development) Act, 2016 aim to promote growth.
Important Note: The Credit Linked Subsidy Scheme (CLSS) under PMAY extends to the Middle Income Group (MIG), boosting real estate development and accessibility.
India’s R&D services grew 41.1% in 2015-16. Despite a 1% GDP expenditure on R&D, the country ranks 60th on the Global Innovation Index (GII) 2017.
India’s satellite launch services have seen growth, with 254 satellites launched by March 2017. Foreign exchange earnings from satellite launches increased to ₹394 crore in 2016-17.
India has the world’s second-largest telephone network. 12th Plan targets include 1200 million connections and 175 million broadband connections by 2017.
India’s share in global service exports rose from 1.2% in 2000 to 3.2% in 2013. In 2016, services trade grew by 11.39%.
The immediate challenge lies in growth revival. While software and telecom services lead, sectors like tourism, medical tourism, shipping, and logistics offer immense potential.
Multi-Column Table: Comparison of Growth in Major Services
Service Sector Growth in 2015-16 Growth in 2016-17 Total Services 9.7% 7.7% Trade, Repair, Hotels 10.5% – Financial Services 6.8% 5.7% Construction 5.0% 1.7%
Key Concept: The Real Estate (Regulation and Development) Act, 2016 ensures transparency, accountability, and higher growth across the real estate value chain, mandating disclosures and registrations.
MCQ with 4 Options
Which Indian service sector saw the highest growth in 2016-17?
- Financial Services
- IT-BPM Industry
- Construction
- Trade, Repair, Hotels and Restaurants
Correct Answer: 2. IT-BPM Industry