How the services sector is the key growth engine for India

It’s really no surprise to see that the service sector has outperformed other sectors with its exceptional performance in this year’s Economic Survey Report Card. Why?

Because, the sector has been on a roll for the past few years. Despite the slowdown post 2009, it showed the fastest growth of any sector with a compound annual growth rate of 8.6% followed by China at 8.4%. In 2014, its performance was even better. This time it was 10.3%, noticeably higher than China’s 8.0%.

Therefore, the recent 9.2% figure is somewhat a repeat of its performance in the past. It’s, therefore, once again the key driver of growth for the Indian economy.

What’s the mantra behind this consistent growth, you may ask.

FOREIGN DIRECT INVESTMENT
One, services is one of the most attractive sectors for foreign investment. It’s seen a whopping 70.4% growth in FDI equity inflow in fiscal year 2014-15, which ended March 31 2015. This rising trend, more importantly, has been continuing for the last seven months. It’s growing by 74.7%. Much of the credit goes to Narendra Modi’s decision to liberalize foreign investment policies in a number of sectors. The numbers are showing that India is increasingly becoming an attractive investment destination.

TRADE
Second, it’s always good for an economy to export more and import less. In 2004, India became the 8th largest services exporter in the world as its exports grew from US$ 16.8 billion to $155.6 billion in just three years’ time. Meanwhile, imports have shown only marginal increase. The recent figures suggest imports have risen by 3.3% in 2014-15. Once again, the government’s policy initiatives like the ‘Service Export from India Scheme’ (SEIS) and organizing ‘Global Exhibition on Services’ (GES) have helped a lot.

TOURISM
Third is Tourism. India’s tourism growth, which was 10.2% in terms of foreign tourist arrival and 9.7% in terms of foreign exchange earnings in 2014, decelerated to 4.5% and 2.8% respectively in 2015. This is due to negative or low growth in arrivals of high spending tourists from European countries like France, Germany, and the UK. However, domestic tourism is providing much needed resilience. In 2014 it grew by 12.9%, the same year when the government launched two schemes - Swadesh Darshan and National Mission on Pilgrimage Rejuvenation and Spiritual Augmentation Drive (PRASAD).

SHIPPING AND PORT SERVICES
Around 95% of India’s trade by volume and 68% in terms of value is transported by sea. The country is ninth among developing countries in terms of container ship operations. Now, the numbers - cargo traffic on India ports increased by 8.2% to 1052.21 million tonnes in 2014-15.

In India’s Maritime Agenda, the target for the year 2020 is 3130 million tonnes of port capacity.
The long term vision for coastal shipping tourism and regional development is to increase the share of the coastal/inland water-ways transport mode from 7% to 10% by 2019-20.

IT-BPM SERVICES
The IT-BPM sector has demonstrated flexibility in the Economic Survey. It can touch a share of 9.5% of GDP and more than 45% in total services export this year. E-commerce is playing a huge role here. It is expected to grow at 21.4% to reach US$17 billion.

Ever since Narendra Modi came to power, India has seen a sudden boom in the startup sector. A new breed of young start ups has clearly evolved to become the third largest base of technology start ups in the world. Within one year the number of startups has grown by 40% creating 80,000-85,000 jobs in 2015. And, the future is bright because this emerging sector is set to get a fillip with the government’s Startup India programme.

R&D SERVICES
There’s been a sudden jump in the growth of R&D services. Growth increased from 3.8% in 2013-14 to 25.5% in the next year. The Economic Survey says India’s R&D globalization and services market is further set to almost double by 2020 to US$ 38 billion.

CONSULTANCY SERVICES
Consultancy Services is one of the fastest growing service segments in India. And, Government has ‘Marketing Development Assistance Scheme’ and ‘Market Access Initiative Scheme’ going for this segment, among several others which are aimed for capacity development of domestic consultants.

REAL ESTATE AND HOUSING
This sector constituted 8.0% of India’s value of goods and services produced in 2014-15 and grew by 9.1%. It has shown impressive growth for the last few years, with a compound annual growth rate of 8.1% since 2011-12.

The construction sector, however, has witnessed a slowdown since the last few years owing to weakening of both domestic and global growth. The Government is trying to push for growth via plans like Housing For All Scheme - to build six crore houses by the year 2022!

MEDIA AND ENTERTAINMENT SERVICES
This industry recorded unprecedented growth over the last two decades making it one of the fastest growing industries in India.

It is projected to grow at an annual rate of 13.9% to reach Rs 1,964 billion by 2019. Digital advertising and gaming, which grew by 44.5% and 22.4% respectively in 2014, are projected to drive the growth of this sector in the coming years.

POSTAL SERVICES:
India Posts is the largest Postal network in world. It’s showing greater financial inclusion, as the number of post office savings bank accounts has increased from 30.86 to 33.97 crore and total deposits and cash certificate to Rs. 6.53 lakhs crore in the last one year.

More than 80 lakh Sukanya Samridhi Yojna accounts have been opened. The IT Modernization Project of the Department of Posts, with a total outlay of Rs. 4909 crore, involves computerization and networking of all the post offices.