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Economic Survey: Service sector contributes nearly 66.1% of GDP

26 February 2016

The service sector in India has remained the most vibrant sector in terms of contribution to national and state incomes, trade flows, FDI inflows, and employment, according to the Economic Survey 2015-16.

Service sector, which contributed almost 66.1 per cent of the gross value addition in the economy in 2015-16, also remains the most important net foreign exchange earner and the most attractive sector for foreign direct investment (FDI) inflows, says the survey.

Despite the slowdown in the post crisis period (2010-14) India showed the fastest service sector growth with a CAGR (Compound Annual Growth Rate) of 8.6 per cent, followed by China at 8.4 per cent.

In 2014, India's service sector growth at 10.3 per cent was noticeably higher than that of China at 8.0 per cent. As per the International Labour Organisation (ILO) report on ''Global Employment and Social Outlook: Trends 2015,'' job creation in the coming years will be mainly in the service sector.

FDI: In 2014, FDI in India grew by 22 per cent to $34 billion over 2013 levels.  The year also saw significant growth in FDI inflows in 2014-15 and 2015-16 (April–October) in general and in service sector in particular.

In 2014-15, FDI inflows to the service sector grew by a whopping 70.4 per cent to $16.4 billion. This rising trend is continuing in the first seven months of 2015-16 with the FDI equity inflows in the services sector growing by 74.7 per  cent to $14.8 billion. Significant FDI related liberalisation has taken place in a number of sectors to ensure that India remains a increasingly attractive investment destination, the survey noted.

Service sector exports have been a dynamic element of India's trade and globalisation in recent years. India's services export grew from $16.8 billion in 2001 to $155.6 billion in 2014, which constitutes 7.5 per cent of GDP, making the country the eighth largest service exporter in the world, the Survey noted.

The overall openness of the economy reflected by total trade including services as a percentage of GDP, shows a higher degree of openness at 50 per cent in 2014-15 compared to 38 per cent in 2004-05.

India's service sector imports stood at $81.1 billion, growing by 3.3 per cent in 2014-15 .

The Survey notes that the government has taken policy initiatives to promote services exports which include the Service Export from India Scheme (SEIS) and organizing Global Exhibition on Services (GES).

Tourism is a major engine of economic growth, and a generator of employment of diverse kinds.  According to the Economic Survey, India's tourism growth which was 10.2 per cent in terms of foreign tourist arrival (FTA) and 9.7 per cent in terms of foreign exchange earnings (FEE) in 2014 it decelerated to 4.5 per cent in terms of FTAs and fell by 2.8 per cent in terms of FEEs in 2015.

The lower growth in FTAs and fall in FEEs in 2015 is due to negative or low growth in FTAs from high spending tourists originating from European countries like France, Germany and UK. However, domestic tourism continues to be an important contributor to the sector providing much needed resilience. In 2014, it grew by 12.9 per cent.

The top five states in domestic tourist visits in 2014 are Tamil Nadu, Uttar Pradesh, Karnataka, Maharashtra and Andhra Pradesh. In 2014-15, the government launched two schemes for thematic development of tourism. These include Swadesh Darshan and National Mission on Pilgrimage Rejuvenation and Spiritual Augmentation Drive (PRASAD).  To promote medical tourism, the Government has launched India's Healthcare Portal and Advantage Health Care India.

Shipping and port services
Around 95 per cent of India's trade by volume and 68 per cent of the country's exports in terms of value is transported by sea. As per UNCTAD, India with 11.7 million twenty-foot equivalent units of container (TEUs) and a  world share of 1.7 per cent, ranked ninth in 2014 among developing countries in terms of containership operations.

The government has prepared a vision for coastal shipping tourism and regional development with a view to increasing the share of the coastal / inland waterways transport mode from 7 per cent to 10 per cent by 2019-20.  The cargo traffic of Indian ports increased by 8.2 per cent to 1,052.21 million tonnes in 2014-15.  The target for the year 2020 is 3,130 million tonnes of port capacity with an investment of approximately Rs2,96,000 crore.

IT-BPM services
The IT-BPM sector has demonstrated flexibility and as per the Economic Survey is expected to touch an estimated share of 9.5 per cent of GDP and more than 45 per cent in total services export in 2015-16. E-commerce is expected to grow at 21.4 per cent in 2015-16 to reach $17 billion.

India, home to a new breed of young startups, has clearly evolved to become the third largest base of technology start ups in the world. Within one year the number of startups have grown by 40 per cent creating 80,000-85,000 jobs in 2015. This emerging sector is set to get a fillip with the Startup India programme.

R&D services
As per the Central Statistical Organisation (CSO) new method for accounting for R&D as there is no separate head for R&D - it is a part of the professional scientific and technical activities, including R&D which grew at 3.8per cent and 25.5 respectively in 2013-14 and 2014-15.  According to the Survey, India's R&D globalisation and services market is set to almost double by 2020 to $38 billion.

Consultancy services
According to the Survey, consultancy services is emerging as one of the fastest growing service segments in India. Government has taken several initiatives like Marketing Development Assistance and Market Access Initiative Scheme among others for capacity development of domestic consultants.

Real estate and housing
This sector constituted 8.0 per cent of the India's gross value added (GVA) in 2014-15 and grew by 9.1 per cent. The sector has grown at a CAGR of 8.1 per cent since 2011-12. However, the construction sector has witnessed a slowdown in last few years due to weakening of both domestic and global growth. The government has announced plans to build 60 million houses by the year 2022 under the Housing for All scheme.

Domestic trade
According to the Survey, Rs12,31,073 crore trade and repair services sector, with a 10.7 per cent share in GVA, grew by 10.8 per cent in 2014-15. India's retail market is expected to grow to $1.3 trillion by 2020, making India the world's fastest growing major developing market.

The e-commerce market in India is expected to reach $16 billion by the end of 2015 on the back of growing internet population and increased online shoppers.

Media and entertainment
According to the Economic Survey, the industry has recorded unprecedented growth over the last two decades making it one of the fastest growing industries in India. It is projected to grow at a CAGR of 13.9 per cent to reach Rs196,400 crore by 2019.  Digital advertising and gaming, which grew by 44.5 per cent and 22.4 per cent, respectively, in 2014, are projected to drive the growth of this sector in the coming years.

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