Economic Survey Vol.2 Ch.9: Services Sector

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SERVICES SECTOR PERFORMANCE: AN OVERVIEW

  • Gross Value Added (GVA) – Services sector accounts for 55 % of the total size of the economy and Gross Value Added (GVA) growth, two-thirds of total FDI inflows into India and about 38 % of total exports. However, with a 34% share in employment, it does not generate jobs in proportion to its share in GVA.
  • Sector-wise growth: Growth of financial services, real estate, professional services, trade, hotels, transport and communication &broadcasting services decelerated whereas public administration, defence & other services witnessed acceleration.
  • The trend in exports – According to WTO data, India’s share in world’s commercial services exports have risen steadily over the past decade to reach 3.5 % in 2018, twice the share in world’s merchandise exports at 1.7 %. Domination in Export – Software services > business services > travel services. Software services accounting for almost 40 % of total exports.
  • Global Share– According to the WTO, India is among the world’s top 10 exporters and importers of commercial services, ranking 8 in exports and 10 in imports in 2017.
  • Domination in import – Business > Travel > Transportation
  • High Education imports: India persistently runs a trade deficit in education services with education imports, reaching about US$ 3 billion in 2018-19.
  • Trade balance: In 2018-19, Our Services exports were worth USD 208 bn while services imports were wroth USD 126 bn. SO the trade balance is of approx USD 82 bn, which is an increase from USD 78 bn in 2017-18. FDI equity inflows into the services sector accounted for more than 60 % of the total FDI equity inflows into India.
  • As per the UN National Accounts Statistics data, India has the 2nd fastest growing services sector after China. India also ranks 2nd after the UK in terms of services share in exports.
  • Contribution of states – Chandigarh and Delhi stands out with a particularly high share of services in GSVA of more than 80 % while Sikkim’s share remains the lowest at 26.8 %.
  • Service Exports from India Scheme (SEIS)- which covers the export of business services, education services, health services, tourism and travel-related services, etc.
  • Champion Services Sector Scheme – Government has created a dedicated fund of Rs 5,000 crore for financing sectoral initiatives under this scheme.
  • Schemes and policies – Government has taken many initiatives such as Start-up India, Insolvency and Bankruptcy Code, Digital India, National Intellectual Property Rights (IPR) policy, etc

Tourism sector: The sector witnessed a strong performance from 2015 to 2017, with high growth in foreign tourist arrivals. However, foreign tourist arrivals growth (Year on Year) has decelerated since then.

  • Slow global growth: Growth in international tourist arrivals globally also slowed from 7.1 % in 2017 to 5.4 % in 2018.
  • India’s Share in International Tourist Arrivals (ITAs): India ranked 22nd in the world in terms of ITAs in 2018, improving from the 26th position in 2017. India now accounts for 1.24 % of the world’s international tourist arrivals and 5 % of Asia & Pacific’s international tourist arrivals.
  • Country profile of tourists: Foreign tourists from the top 10 countries visiting India – Bangladesh, USA, UK, Sri Lanka, Canada, Australia, Malaysia, China, Germany and Russia – accounted for 65 % of the total foreign tourist arrival in India. Majority of them (62.4%) visited India for leisure, holiday and recreation.
  • Preferred Destinations: Top five states attracting foreign tourists are Tamil Nadu, Maharashtra, Uttar Pradesh, Delhi and Rajasthan, accounting for about 67 % of the total foreign tourist visits.
  • E-Visa scheme to encourage foreign tourists: The e-Visa scheme is now available for 169 countries with valid entry through 28 designated airports and 5 designated seaports. With this, foreign tourist arrivals to India on e-visas have increased from 4.45 lakh in 2015 to 23.69 lakh in 2018.

IT-BPM Services: The sector contributes significantly to the economy via employment growth and value addition. It constitutes the sectors IT Services, Business Process Management (BPM), Hardware and Software Products and Engineering Services.

  • IT Services dominant: IT services constituted 51 % share of the IT-BPM sector in 2018-19. Out of the IT services, digital revenues grew (Year on Year) more than 30 %. 
  • Export driven: A significant part (about 83 %) of the IT-BPM industry (excluding hardware) continues to be export-driven.
  • Decreased revenue growth: During 2018-19, the revenue growth for the IT-BPM sector (excluding hardware) softened to 6.8 % from 8.2 % in 2017-18.
  • IT-BPM export composition: USA accounts for the bulk of exports which is 62 % of total ITBPM exports (excluding hardware) in 2018- 19. This is followed by the UK with 17 % of the total exports.
  • Policy initiatives in the sector: A number of policy initiatives have been undertaken to drive innovation and technology adoption in the IT-BPM sector, including Start-up India, National Software Product Policy, and removal of issues related to Angel Tax.

Port and Shipping Services: India has 13 major ports and about 200 minor ports. Growth in overall port traffic witnessed an acceleration between 2013-14 and 2016- 17 but has decelerated since 2017-18

  • Port Capacity: The total cargo capacity of Indian ports stood at 1,452 Million Tonnes Per Annum (MTPA) at the end of FY18.
  • Share in the world’s fleet: India has a 0.9 % share in world fleet as on January 2019.
  • Most important ports: Ports such as Paradip, Chennai, Vishakhapatnam, Deendayal (Kandla) and JNPT had the highest cargo capacities
  • Halving of turnaround time: The turnaround time of ships, which is a key indicator of the efficiency of the ports sector, has been on a continuous decline, almost halving between 2010-11 and 2018-19 to 2.48 days. (But there is the scope of improvement as median ship turnaround time globally is 0.97 days)

Space Sector: India’s space programme has grown exponentially since its modest beginnings. It includes launch vehicle development, satellite technologies, telecommunication, navigation etc.

  • Low spending vis-à-vis global players: India spent about US$ 1.5 billion on space programmes in 2018. But it still lags behind that of the major players such as the USA and China, which spent about 13 times and 7 times more than India respectively.
  • High success rate: India has launched around 5-7 satellites per year in recent years with no failures, barring one in 2017.

Key areas of focus-

  • Satellite Communication: INSAT/GSAT satellite system acts as the backbone to address the needs for telecommunication, broadcasting and satellite-based broadband infrastructure.
  • Earth Observation: It is done through space-based information for weather forecasting, disaster management, national resource mapping and governance.
  • Satellite-aided Navigation: It includes both GAGAN and NavIC. GAGAN augments GPS coverage of the region to improve accuracy and integrity for civil aviation. Whereas, NavIC is a regional navigation system for Position, Navigation and Timing (PNT) Services.

Attracting Private Investment: In the light of the growing number of satellite and launch vehicle missions and application programmes, several areas have been identified for the participation of the private sector. Such as the production of PSLV, satellite integration and assembly, production of composite materials and propellants and creating testing and evaluation systems for avionics. 



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