SERVICE SECTOR IN INDIA

SERVICE SECTOR IN INDIA

• Ranging from communications to transport, finance, education, tourism, the services sector has become the backbone of the global economy and the most dynamic component of international trade.
• The services accounts for around 55 per cent of total size of the economy, about 38 per cent of total exports and two-thirds of total FDI inflows into India.
• Services sector has been the largest recipient of FDI in India with inflow of US$ 83.14 billion between April 2000 and June 2020.
• NITI Aayog in partnership with the Institute of Competitiveness released the Export Preparedness Index (EPI) report 2020- India’s merchandise exports have witnessed growth from USD 275.9 billion in 2016-17 to USD 331.0 billion in 2019-20.

COMPOSITION OF SERVICE SECTOR: Trade, hotels and restaurants, Transport, storage and communication, Financing, Insurance, Real Estate and Business Services, Community, Social and Personal services, Environmental services- Sewage services, sanitation etc., Educational services. Tourism and travel-related services, Financial services, Recreational, cultural, and sporting services, Health-related and social services.

JURISDICTION OF SERVICE SECTOR:

Union List – Telecommunications, postal, broadcasting, financial services (including insurance and banking), national highways, mining services.
State List- Healthcare and related services, real estate services, retail, services incidental to agriculture, hunting, and forestry.
Concurrent List- Professional services, education, printing and publishing, electricity.

 

SERVICE SECTOR PERFORMANCE:

 

TOURISM SECTOR
• In FY20, 39 million jobs (8.0% of the total employment in the country) were created in the tourism sector in India.
• With the liberalization of the visa regime with the e-Visa scheme, foreign tourist arrivals to India on e-visas have increased from 4.45 lakh in 2015 to 23.69 lakh in 2018 and stood at 21.75 lakh in January-October 2019, recording nearly 21 per cent year-on-year growth.
• Schemes like Swadesh Darshan, National Mission on Pilgrimage Rejuvenation and Spiritual Heritage Augmentation Drive (PRASHAD), tourist circuits are undertaking the development or maintenance of heritage sites.
• Better flight connectivity to tourist destinations through the timely implementation of the Regional Connectivity Scheme – UDAN Scheme is helping the tourism grow.

 

IT-BPM SERVICES
• The Indian IT-BPM Industry has an industry size of about US$ 177 billion in March 2019.
• Policy initiatives like Start-up India, National Software Product Policy and removal of issues related to Angel Tax have given a boost to the sector.
• The Indian start-up ecosystem is now the third largest in the world with 24 unicorns.
• Pradhan Mantri Digital Saksharta Abhiyan (PMGDISHA), Digital India Mission, Public Procurement (Preference to Make in India) Order 2017 which requires govt departments to buy India-made desktops and computer parts- All of them directly and indirectly increased the demand of computer hardware and software.

 

PORT AND SHIPPING SERVICES-
• The turnaround time of ships, which is a key indicator of efficiency of the ports sector, has been on a continuous decline, almost halving between 2010-11 and 2018-19, from 4.67 days to 2.48 days.
• In FY20, major ports in India handled 704.82 million tonnes of cargo traffic.
• Government initiatives:
 PROJECT UNNATI- was launched by the Ministry of shipping in 2014.It is a port transformation project focusing on 12 major ports.
 Foreign Direct Investment (FDI) of up to 100% under the automatic route for port and harbour construction and maintenance projects is allowed by the government.

 

TELECOM SERVICES
• India is one of the biggest consumers of data worldwide. According to TRAI, average wireless data usage per wireless data subscriber was 11 GB per month in FY 2020.It is expected to reach to 18 GB by 2024.

 

PHARMACEUTICALS
• India ranks 3rd worldwide for pharmaceutical production by volume and 14th by value.

 

RESEARCH AND DEVELOPMENT SERVICES
• At rank 48, India stands among the top 50 countries in the Global Innovation Index 2020.
• India’s gross expenditure in R&D was forecast to reach US$ 96.50 billion in 2020.
• By 2022, R&D expenditure is targeted to reach at least 2 per cent of the country’s GDP.

GLOBAL INNOVATION INDEX, 2020 Co-published by Cornell University, INSEAD, and the World Intellectual Property Organization. India improved by four spot and is now at 48th position.

R&D STATISTICS AND INDICATORS, 2019-20 Report brought out by the Department of Science and Technology (DST). According to that:
• According to WIPO, India’s Patent Office stands at the 7th position among the top 10 Patent Filing Offices in the world.
• Women participation in R&D projects has increased significantly from 13% in 2000-01 to 24% in 2016-17.

TRANSPORT SERVICES-
• The Government of India has allocated Rs. 111 lakh crores under the National Infrastructure Pipeline for FY 2019-25.
• The Roads sector is expected to account for 18% capital expenditure over FY 2019-25
• Indian Railways plans to run on 100 per cent electricity by 2024 and become a net-zero emission network by 2030.

 

NATIONAL INVESTMENT AND INFRASTRUCTURE FUND (NIIF)-
• GOI set up NIIF as a fund of funds with ₹40,000 crore in 2015 as a Category-II Alternate Investment Fund.
• As an investment vehicle for funding commercially viable greenfield, brownfield and stalled infrastructure projects.
• This is different from the National Investment Fund (proceeds from disinvestment of Central Public Sector Enterprises were to be channelized).
• The GOI is investing 49% and the rest of the corpus is to be raised from third-party investors such as sovereign wealth funds, insurance and pension funds, endowments, etc.
• With the Centre’s significant stake, NIIF is considered India’s quasi-sovereign wealth fund.
• Across its three funds viz. Master Fund, Fund of Funds, and Strategic Opportunities Fund, it manages over USD 4.3 billion of capital.

 

PURCHASING MANAGERS INDEX (PMI)

  • It is an indicator of business activity, both in the manufacturing and services sectors.
  • It is calculated separately for the manufacturing and services sectors and then a composite index is also constructed.
  • The PMI summarizes whether market conditions as viewed by purchasing managers are expanding, neutral, or contracting.
  • The purpose of the PMI is to provide information about current and future business conditions to company decision-makers, analysts, and investors.
  • The headline PMI is a number from 0 to 100.
  • PMI above 50 à represents an expansion when compared to the previous month.
  • PMI under 50 à represents a contraction.
  • A reading at 50 à indicates no change.
  • PMI is compiled by IHS Markit for more than 40 economies worldwide.
  • It is different from the Index of Industrial Production (IIP), which also gauges the level of activity in the economy.
  • IIP covers the broader industrial sector compared to PMI.
  • However, PMI is more dynamic compared to a standard industrial production index.

 

 

LOGISTICS PERFORMANCE INDEX, 2018:

  • LPI is developed by the World Bank Group.
  • It is released every two years (Biennial Report).
  • India ranked 44th on the LPI in 2018.
  • The logistics performance (LPI) is the weighted average of the country’s scores on the six key dimensions:
  1. Efficiency of the clearance process
  2. Time taken for shipment to reach destination
  3. Ability to track and trace consignments
  4. Quality of trade and transport related infrastructure
  5. Ease of arranging competitively priced shipment
  6. Competence and quality of logistics services

POWER SERVICES-
• India is the third-largest producer and second-largest consumer of electricity in the world and had an installed power capacity of 3,74,199 MW as of November, 2020.

1.Total Installed Capacity (As on 30.11.2020) – Source : Central Electricity Authority (CEA)

Sector MW % of Total
Central Sector 93,927 25.1%
State Sector 103,617 27.7%
Private Sector 176,655 47.2%
Total 3,74,199

• Of this 3,74,199 MW, following is the breakup between different energy sources:

 

CHAMPION SERVICES SECTOR (CSS)

• CSS was identified to give attention to 12 identified Champion Services Sectors for realizing their potential.
• Champion service sectors include:

IT & ITES

Tourism and Hospitality Services

Communication Services

Medical Value Travel

Construction, and Related Engineering Services

Transport, and Logistics Services

Environment -al Services

Accounting and Finance Services

Financial Services,

Audio Visual Services

Education Services

Legal Services

• A fund of Rs. 5000 crores are proposed.
• Department of Industrial Policy and Promotion (DIPP) is the nodal department for the Champion Sectors in manufacturing and
• Department of Commerce would coordinate the proposed initiative for the Champion Sectors in Services.

 

TARGETS:

• The share of India’s services sector in global services exports is expected to increase from 3.3% to 4.2% for 2022.
• This scheme is expected to raise the share of services in GVA to 60% (67% including construction services) by the year 2022 from 53% for India in 2015-16.

 

START UP INDIA SCHEME

• A startup is defined as an entity that is:
 Headquartered in India,
 Was opened less than 10 years ago,
 Has an annual turnover less than RS. 100 cr
• Small Industries Development Bank of India (SIDBI), acts as the principal financial institution for this scheme.

 

START UP INDIA FUND/ FUNDS OF FUNDS FOR STARTUPS:

• It was launched in the year 2016 with the corpus of Rs.10,000 crore,
• SIDBI manages the fund.
• The government launched this fund to help startups get funding in early stages.
• The fund does not directly invest in startups, instead, it allocates money to venture capitalists (VC) funds, which are required to invest at least twice the amount of contributions received from the government.

 

WTO AND SERVICES

• The creation of the General Agreement on Trade in Services (GATS) was one of the landmark achievements of the Uruguay Round of trade negotiations.
• The GATS is a legally binding set of rules covering international trade in services.
• Negotiations is services under GATS are classified in 4 modes, interests of different countries depend upon this classification:

 

MODE 1

(CROSS BORDER SUPPLY)

• It includes cross border supply of services without movement of natural persons.

•Example- BPO, KPO

•It is in India’s interest to push for liberalization given its large human resource pool and competitive IT industry

MODE 2

(CONSUMPTION ABROAD)

•This mode covers supply of a service of one country to the service consumer of any other country. E.g. telecommunication

MODE 3

(COMMERCIAL PRESENCE)

• Legal presence in other country.

•This opens investments in another country.

It is in west’s interest to push for liberalization here.

There has been sustained pressure to open up higher education sector, insurance sector, Medical sector etc through this mode.

MODE 4 (PRESENCE OF NATURAL PERSONS)

•Movement of natural persons to provide services.E.g. Infosys sending its engineers to Australia. • It’s in India’s interest to push for liberalization.

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