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Economic Survey 2016-17: Service Sector

Economic Affairs Service Sector
  • Published on: 20-Aug-17
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Economic Survey 2016-17: Service Sector
  • The services sector remains the key driver of India’s economic growth, contributing almost 62 per cent of its gross value added growth in 2016-17. However, the growth of this sector has moderated to 7.7 per cent in 2016-17 compared to 9.7 per cent achieved in the previous year, though it continues to be higher than the other two sectors and nearly at the top among the 15 major economies.
  • The services growth moderation is mainly due to deceleration in growth in two services categories- trade, hotels, transport, communication and services related to broadcasting (7.8 per cent), and financial, real estate & professional services (5.7 per cent). The share of services sector in total gross capital formation (GCF), at current prices has increased consistently over the last four years from 53.3 per cent in 2011-12 to 60.3 per cent in 2015-16.
  • There has been a significant growth in FDI equity inflows in 2014-15 and 2015-16 in general (27.3 per cent and 29.3 per cent) and to the services sector in particular (67.3 per cent and 64.3 per cent for top 15 services). However, in 2016-17, the growth rate of total FDI equity inflows moderated and FDI equity inflows to the services sector (top 15 services) declined.
  • India’s and world’s services export trend growth were almost flat in the pre-crisis period, while in the post-crisis period, the deceleration in trend growth of India’s services was sharper than world services export growth. In 2016-17, services exports recorded a positive growth of 5.7 per cent with pick up in some major sectors like transportation, business services and financial services; and good growth in travel. However, Software services exports, accounting for around 45.2 per cent of total services, declined though marginally by 0.7 per cent.
  • The performance of India’s Services Sector has been subdued in 2016-17 in line with the global trend. However, some services continue to be key drivers of India’s economic growth. There was reasonably good performance in telecom with increase in telecom connections reflecting the Jio effect, aviation particularly domestic travel, tourism related services particularly in terms of foreign exchange earnings, and even information technology-business process management (IT-BPM) despite fall in growth in computer software.
  • As per the Ministry of Tourism data, Foreign Tourist Arrivals (FTAs) during 2016 grew by 9.7 per cent and Foreign Exchange Earnings (FEEs) through Tourism, in US$ terms, grew by 8.8 per cent. Various initiatives have been taken by the Government to promote tourism sector of the country that include e-Visa for the citizens of 161 countries, promotion of India as a 365 days destination, launching of Multilingual Tourist Infoline, and Swachh Paryatan Mobile App.
  • As per NASSCOM, in 2016-17 India’s total revenue (exports plus domestic) of the IT-BPM sector including and excluding hardware is expected to touch US$154 billion and US $140 billion, with growths of 7.8 per cent and 8.1 per cent respectively. IT-BPM exports are expected to reach USD 117 billion, with a growth of 7.6 per cent. Meanwhile, the Government of India’s rapid adoption of technologies as a platform to delivery of government-to-government and government-to-citizen services is a tremendous push factor for the domestic IT-BPM market.
  • Real estate sector including ownership and dwellings accounted for 7.6 per cent share in India’s overall GVA in 2015-16. The growth of this sector decelerated in the last three years from 7.5 per cent in 2013-14 to 6.7 per cent in 2014-15 and further to 4.5 per cent in 2015-16. Despite the subdued demand, residential prices did not fall with the NHB RESIDEX, showing increase in prices in 33 cities out of 50 cities in 2016-17 Q4 over 2015-16 Q4.
  • Satellite mapping and launching services are two areas in which India is making a mark and has huge potential for the future. The foreign exchange earned by India from satellite mapping in the last five years was more than Rs 100 crores. Foreign exchange earnings of India from export of satellite launch services has increased noticeably in 2015-16 and 2016-17 and consequently India’s share in global satellite launch services revenue has also increased.
  • India’s services sector growth, which was highly resilient even during the global financial crisis, has been showing moderation in recent times. However, pick up is seen in recent months with some segments of the sector showing better performance.

By: Vishal
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