Current Trends in Service Sector in india

Important Notable Points from Services Chapter in Economic Survey 2015-16 are as follows:

General Trends

• Service sector contributes one-third of global GVA, half of global employment, one-fifth of global trade and around half of global FDI flows.
• Currently, United States is world’s largest service provider, followed by China and Japan at second and third position. In terms of services GVA, India is 10th largest economy.
• Global service sector has grown by 3.0% between 2001-08 {pre-crisis period} and 2.5% after that {post-crisis period}. However, India showed the fastest service sector growth with a CAGR of 8.6 per cent during 2008-14. In 2014 India’s service sector grew at 10.3 per cent was noticeably higher than that of China at 8.0 per cent.
• In 21 states and union territories, Service Sector is a dominant economic sector contributing more than half of the gross state domestic product (GSDP). In all states except Sikkim and Arunachal Pradesh, Service Sector contributes more than 40% of the GSDP. This proves that India is truly a service economy.
• Delhi is India’s top service provide state followed by Maharashtra.
• In 2014-15, while total FDI equity inflows grew by 27.3%, FDI equity inflows to the services sector grew by a whopping 70.4%.
• The share of India’s services exports in global services exports at 3.2% in 2014 is nearly double its share of merchandise exports in global merchandise exports at 1.7%.

Tourism including Medical Tourism

• Maximum numbers of tourists to India come from France and United States.
• India has a very small tourism industry. India’s share in International tourism receipts (ITR) is only 0.7%. In terms of ITRs, India’s share is 1.6%, which is lower than that of China at 4.6%. However, the growth in tourism has been in double digits in recent years. Resilience to tourism industry in India is provide by its domestic sector.
• The Government of India has introduced e-TV (E-Tourist Visa) facility for the citizens of 113 countries at 16 air ports. The government has also launched revision of visa fee on principle of reciprocity.
• To promote medical tourism in the country, government has launched India’s Healthcare Portal and Advantage Health Care India.

Shipping Sector

• Transportation by sea shares 95% of India’s trade by volume and 68% by value.
• India has a large merchant shipping fleet but share in world dead weight tonnage is only 0.9% {July 2015}.
• The shipping sector has been in trouble in recent years due to lack of demand; aging of shipping fleet etc. Both global and Indian services and merchandise trade growth has been in negative territory in 2015.
• Among the measures to grow Indian tonnage, the following are worth note:
  • Making fuel tax free for all Indian flag coastal vessels engaged in container trade
  • Giving income tax benefit to Indian seafarers working on Indian ships, thereby making the cost of personnel more competitive
  • Removing obstacles in the smooth implementation of the India Controlled Tonnage (ICT) scheme which allows Indian companies to directly own ships in foreign flags
  • Easing many procedural compliance issues like ship registration, procuring chartering permission and payment of chartering fees online.
• India also continues to be a leading ship-breaking destination. However, the ship-breaking sector is in turmoil with the average scrap price for tankers and bulkers. Import of cheap Chinese steel billets is one of the reasons for this, owing to falling demand for scrap ships. Further, the International Maritime Organization’s (IMO)Hong Kong Convention on Recycling in 2009 to regulate the entire practice of ship recycling. The convention will require Indian ship breaking yards to create facilities. Though, India has not yet signed the convention, there has already been voluntary compliance by some Indian yards to ensure that business is not lost, though it is hurting their bottom lines.
• The other measures include:
  • development of coastal shipping as an end-to-end supply chain
  • integration of inland water transport (IWT) and coastal route
  • development of regional centres to generate cargo for coastal traffic
  • development of the domestic cruise industry and promotion of lighthouse tourism.

Various actions are being taken to develop IWT infrastructure, particularly the implementation of the Jal Marg Vikas Project.

^^Jal Marg Vikas Project

National Waterway-1 (NW-1) is a waterway passing through Uttar Pradesh, Bihar, Jharkhand and West Bengal, potentially serving the major cities of Haldia, Howrah, Kolkata, Bhagalpur, Patna, Ghazipur, Varanasi, Allahabad and their industrial hinterlands including several industries located along the Ganga basin. The ‘Jal Marg Vikas’ (National Waterway-1) project, which envisages developing a fairway between 1,620 km Allahabad and Haldia stretch, has taken off with a $3.5 million funding from the World Bank.

Port Services

• The cargo traffic of Indian ports increased by 8.2 per cent in 2014-15, with traffic at non-major ports increasing at a faster rate than at major ports.
• In India’s Maritime Agenda, the target for the year 2020 is 3130 million tonnes of port capacity with an investment of approximately Rs.2.96 Lakh Crore. More than 50 per cent of this capacity is to be created in the non-major ports.
• Some of the initiatives by the government in port services are deepening draft to 18 metres to handle large and modern vessels, establishing dry ports and providing financial assistance to procure pollution response equipment.

IT –BPM Services

• The Indian IT-BPM { Information Technology – Business process management ) industry consists of IT services, which constitute the largest segment with a share of around 52%, followed by BPM with share of around 20%, software products, engineering research and development (ER&D) and product development, which together account for around 19% share, and hardware with around 10% share.
• The industry currently employs more than 3.7 million people and is India’s largest private sector employer.
• The technology industry is facing problems with multiple disruptive digital technologies. It is also being negatively impacted by the alarming trend of increased protectionism and resulting barriers to free movement of skill and data. Total revenue (exports plus domestic) of the IT-BPM sector for 2015-16 including hardware is expected grow at 8.3% over the previous year.

Research and Development Services

• The R&D sector contributes 1.4 per cent of GDP (old method). However, according to the Global Competitiveness Report 2015-16, India’s capacity for innovation has been lower than that of many countries like the USA, the UK, South Korea, and even South Africa.
• In terms of patents granted per million population, India fares badly compared to other BRICS countries. In terms of company spending on R&D also, India ranks below China and other countries.
• Only in terms of availability of scientists and engineers, does India score better or is equal to other BRICS countries.
• Measures by the government to promote R&D include
  • The weighted tax deduction of 200 per cent for R&D expenditure and announcement for establishment of the Atal Innovation Mission (AIM) within NITI aayog.
  • Self Employment and Talent Utilization (SETU) programme
  • IMPRINT (Impacting Research Innovation and Technology.

Consultancy Services

• Consultancy services are emerging as one of the fastest growing service segments in India, cutting across different sectors with some overlapping.
• A large number of consultancy firms and individual consultants are operating in India at various levels across the sectors.
• Though there are huge opportunities for the growth of the Indian consulting industry, there are some key inhibitors like low brand equity, inadequate international experience of Indian consultants working abroad, lack of local presence, lack of strategic tie-ups, low competency image, lack of market intelligence on consulting opportunities abroad and lack of a strong competency framework of consultants that improves quality in delivery of consulting assignments.
• Addressing these issues may help in increasing the global market share of the Indian consultancy Industry.

Real Estate and Housing

• Real estate and ownership of dwelling is an important contributor to the Indian economy. It constituted 8.0 per cent of India’s GVA in 2014-15 and grew by 9.1 per cent.
• It also generates significant income and employment owing to large forward and backward linkages through creation of demand in the input sectors and real estate services.
• The sector has grown at a CAGR of 8.1 per cent since 2011-12. However, the construction sector has witnessed a significant slowdown in last few years. The slowdown in sales in the housing sector has resulted in a sharp increase in the inventory of unsold housing units, especially in the northern and western regions.
• Despite weak sales and rising inventory, the housing prices in many cities and towns have increased in 2015. High level of debt investment, while providing interim relief to the sector, poses a high refinancing risk if the housing sales continue to remain weak.

Internal Trade

• Internal trade refers to the movement of goods and services across different geographical regions in the country. It includes self-employed and persons engaged in both wholesale and retail trade.
• Presently internal trade is governed by a diversity of controls, multiple organizations and a plethora of laws and this has resulted in a fragmented market, hindering the free flow of goods within the country, higher transportation costs and in general a lower level of efficiency and productivity.
• Unfettered flow of goods and services is an essential pre-requisite for building a common market that will promote growth, trade across regions and also enable specialization and higher levels of economic efficiency.

Media and Entertainment Services

• The industry has recorded unprecedented growth over the last two decades, making it one of the fastest growing industries in India.
• 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.
• The Government of India has embarked on an ambitious exercise to digitize its cable network in four phases, leading to a complete switch off of analog TV services by 31 December 2016. In order to achieve universal digitalization by 2017, the government is implementing the Broadcasting Infrastructure Network Development Scheme. This is a 12th plan scheme for modernization and upgradation of Prasar Bharati – the public broadcaster.
• India is world’s biggest producer of films, with more than 1000 films each year in all languages. During 2015-16 (April-December), the government has accorded permission for 25 foreign productions to shoot films in India. It has recently accorded administrative approval for setting up of the Film Facilitation Office (FFO) with a view to promoting and facilitating film shootings by foreign filmmakers in India.
• In order to address the issue of skilling in the animation, gaming and visual effects sector, the government is in the process of setting up a National Centre of Excellence in Animation, Gaming and Visual Effects (NCOE).

Postal Services

• Out of 1.55 lakh post offices, 1.39 lakh are in rural areas and the remaining in urban areas.
• The Department of Posts plays a crucial role in disbursing wages to Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) beneficiaries.
• Towards financial inclusion, the number of post office savings bank (POSB) accounts has increased from 30.86 crore to 33.97 crore.
• More than 80 lakh Sukanya Samriddhi Yojna accounts have been opened with a cumulative investment of more than Rs.2,900 crore since the launch of the scheme on 22 January 2015.

Aviation services

• The prospects for Indian aviation services have improved following the fall in prices of aviation fuel, which accounts for nearly 40 per cent of the operating expenses of airlines in India; liberalization of FDI policies in civil aviation; and strong growth in passenger traffic which is expected to continue in the near future.