1. Overview of India's Services Sector
India's services sector has not only outperformed other sectors of the Indian economy but has also played an important role in India's integration with world trade and capital markets. While it has been largely driven by external demand (exports of skill-based services), for sustained growth, it must also be driven by internal demand. A more broad-based growth within services is required to ensure balanced, equitable and employment-oriented growth, with backward and forward linkages to the rest of the economy. Further infrastructural and regulatory reforms and FDI liberalization in services can help diversify sources of growth and provide momentum.
2. India and Global Services
The services sector faced challenges during the Great Recession among developed economies. However, 2017 saw a strong signal of recovery. Key features of the services sector at global and India levels are:
- Global Ranking: India's ranking improved from 14th position in 2006 to 7th position in 2016, among the world's 15 largest economies in terms of overall GDP.
- GVA Growth Rate: In 2016, services GVA (Gross Value Added) growth rate (at constant prices) was highest in India at 7.8% (followed by China at 7.4%).
- Employment Contribution: As per ILO estimates, among the top 15 economies, the services sector accounted for more than two-thirds of total employment in 2016 in most of them, except India and China. India's share was 30.6%, being the lowest.
- Services Export Growth: Services export growth, for both World and India, which had dipped to negative territory in 2015, recovered to positive territory in 2016 (4.3% for India while it was 9.9% for China and 18.4% for Russia).
3. Services Performance of India (Major Features)
- Dominant Sector: Out of 32 States and UTs, services is the dominant sector, contributing over 50% of the gross state value added (GSVA) in 15 states and UTs.
- Major Services: The major services in most of the states are trade, hotels and restaurants, followed by real estate, ownership of dwellings and business services.
- GSVA Growth Dispersion: The GSVAs show wide variation in terms of share and growth of services. Delhi and Chandigarh are at the top with over 80% share, while Sikkim is at the bottom with 31.7% share.
- State-wise Growth: In terms of services GSVA growth, Bihar is at the top and Uttar Pradesh at the bottom with 14.5% and 7.0% growth respectively in 2016-17.
4. Value Added Points (Research-based)
A. Key Drivers of Services Sector Growth:
- IT and IT-enabled Services (ITeS): This has been a major growth engine, driven by skilled workforce, cost-effectiveness, and global demand for digital services, software development, and BPO.
- Liberalization and Reforms: Economic reforms of 1991, particularly opening up to FDI in various service sectors, provided significant impetus.
- Domestic Demand: Rising disposable incomes, urbanization, and changing consumer preferences have fueled growth in sectors like retail, healthcare, education, and financial services.
- Infrastructure Development: Improvement in physical and digital infrastructure (telecom, internet penetration) has facilitated the expansion of service delivery.
- Government Initiatives: Programs like Digital India, Skill India, and Make in India (which also focuses on services components) have supported the sector.
B. Challenges Faced by the Services Sector:
- Informalization: A significant portion of the services sector, particularly in trade, construction, and domestic services, remains unorganized, leading to low wages, poor working conditions, and lack of social security.
- Jobless Growth Concerns: While the sector contributes significantly to GDP, its ability to generate large-scale employment, especially for low-skilled workers, is often debated, leading to concerns of "jobless growth" in some sub-sectors.
- Global Competition and Protectionism: Increasing global competition and protectionist tendencies in major economies (e.g., visa restrictions for IT professionals) pose challenges for India's services exports.
- Skill Mismatch: Despite a large workforce, a significant skill gap exists between industry requirements and available talent, particularly in emerging technologies.
- Quality and Regulation: Maintaining quality standards and effective regulation in diverse service sectors (e.g., healthcare, education, legal) remains a challenge.
- Sustainability of Services-led Growth: Over-reliance on services for economic growth without strong support from manufacturing and agriculture can lead to imbalances.
C. Future Prospects and Government Initiatives:
- Focus on Domestic Demand: Policies aim to boost domestic consumption and investment in services.
- Infrastructure Push: Continued investment in digital infrastructure (5G rollout, BharatNet) and physical infrastructure (transport, logistics) will enhance service delivery.
- Skill Development: Emphasis on reskilling and upskilling the workforce to meet the demands of emerging technologies (AI, IoT, blockchain) and high-value services.
- "Services Export from India Scheme (SEIS)": Aims to incentivize service exports to make India's services more competitive.
- National Logistics Policy (2022): Aims to reduce logistics costs, which will benefit various services linked to trade and transport.
- Promotion of Tourism and Hospitality: Dedicated efforts to boost tourism, including medical tourism, which is a significant service export.
- Digital Public Infrastructure (DPI): India's robust DPI (e.g., UPI, Aadhaar) provides a strong foundation for digital service delivery and innovation.
Conclusion
India's services sector has been a primary driver of economic growth and global integration. While it has demonstrated robust performance and resilience, addressing challenges like employment generation, skill gaps, and ensuring balanced sectoral growth through continued reforms and targeted policies will be crucial for its sustained and inclusive development in the coming years.