Service Sector

Service Sector

Context:

The service sector dominated new business registrations, accounting for about 72% of new business registrations in April 2024.

More on News:

• 65% of the 1.7 million active companies are in services, up from 61% in March 2015.
• Within the services sector, the highest number of new registrations falls in the category of community, personal and social services, which covers a broad range of businesses including schools and coaching centres, hospitals, diagnostic centres, clinics, fitness centres and professional associations.
• Manufacturing accounted for 15% of the new business registrations as per the Ministry of Corporate Affairs.
• The representation of women among those qualifying to be directors is the highest in the age group of 31-45 years.

Reason for growth in service sector: 

• Technological Advancements: Led to rapid development of IT/ITeS, BPO, Financial services like Industrial Revolution 4.0, AI, Machine learning.
  • Initiatives like National Broadband mission, BharatNet making rural areas also towards service sectors.

• Policies and initiatives: The Government has introduced schemes such as the Startup India initiative, which aims to promote entrepreneurship and innovation in the sector.
• Tourism and Hospitality Boom: Increased domestic and international travel has boosted the hospitality sector, contributing around 7.6% to India’s GDP in FY 2023.
  • Medical tourism is emerging as a significant player with a growing number of international patients seeking affordable and high-quality healthcare services in the country. 
    • The India medical tourism market size is expected to reach USD 7.69 billion in 2024 and grow at a CAGR of 13.23% to reach USD 14.31 billion by 2029.

Current Status:

• The services sector accounts for 54.86% of India’s GVA of 266.78 lakh crore Indian rupees.
• Employment in services (% of total employment) in India is at 31.02 % in 2022, according to the World Bank.
• Out of 8.12 million jobs in FY23, service sector companies in IT, banking, and finance accounted for almost half of the new jobs generated
• India‘s IT and business services market is projected to reach US$ 19.93 billion by 2025.

Sectors in Indian Economy: 

• Primary Sector: Agriculture, Livestock, Forestry & Fishing and Mining & Quarrying
• Secondary Sector: Manufacturing, Electricity, Gas, Water supply & Other Utility Services and Construction
• Tertiary Sector: Trade, Hotels, Transport, Communication and Services related to Broadcasting, Financial, Real Estate & Professional Services and Public Administration, Defence & Other Services

About Service Sector: 

• Also known as the tertiary sector. It provides various services to the public and is the largest and fastest industrial sector in India.
• Examples of the Service Sector:
  • Retail and Wholesale Trade: This includes selling products to consumers (retail) and distributing products to retailers (wholesale).
  • Hospitality and Tourism: Services related to hotels, restaurants, travel agencies, and tourism destinations.
  • Finance and Banking: Services provided by banks, insurance companies, investment firms, and other financial institutions.
  • Healthcare: Medical services, hospitals, clinics, and healthcare professionals.
  • Education: Educational institutions, teachers, and educational support services.
  • Information Technology and Software: Software development, IT consulting, and tech support.
  • Professional Services: Legal, accounting, consulting, and other professional services.
  • Government Services: Public administration, law enforcement, and regulatory agencies.

Significance of Service sector in the Indian economy:

• Contribution to Exports:  India’s services exports grew by 11.4% to USD 345 billion in 2023, despite global economic uncertainties.
• Contribution in Start-ups and Patents: Start-ups in India have grown remarkably over the last few years, most of which belonged to the Services Sector. 
  • Fintech startups cumulatively raised $3.02 Bn in 2023.

• Highest FDI inflows: The service sector receives the highest FDI in India as per the World Investment Report 2022 of UNCTAD.

Challenges faced by the service sector in India:

• Low employment potential of the service sector: Despite being the major contributor towards the overall economic growth of the country, the service sector offers only around 30% of employment. 
• Uneven growth of different sub-sectors: The services sector is mainly dominated by IT-BPM and Financial services, while other sub-sectors such as Tourism, Transportation, and Communication have registered lower growth.
• Market access barriers: Imposed by other countries in the form of lack of market access to India’s service exports, restrictions on free movement of Indian professionals, Visa restrictions, withdrawal of GSP benefits etc.
• Free Trade Agreement: India has not effectively leveraged its competitive edge in the services sector to enhance exports to Free Trade Agreement (FTA) partner countries, as suggested by the Surjit Bhalla Committee on Trade and Policy.
• Skilled Labour Shortages: Despite India’s substantial output of graduates and skilled professionals.
  •  There is a mismatch between the skills possessed by the workforce and the specific requirements of certain service sectors.

Government Initiatives:

• Production Linked Incentive (PLI) scheme: Aims to boost the manufacturing of telecom and networking products in India. 
  • It will help in reducing India’s dependence on other countries for the import of telecom and networking products. 
• 100% FDI in sectors like Health, Aviation, and Tourism is permitted.
• Centre has formulated ‘Action Plan for Champion Sectors in Services’ to give focused attention to 12 identified Champion Services Sectors, namely, Information Technology & Information Technology enabled Services, Tourism & Hospitality Services, Medical Value Travel, Transport & Logistics Services.
• National Digital communications policy, 2018 aims to provide broadband connectivity along with investments and jobs in the digital communication sector.

Way Forward: 

• There is a need for more promotional activities abroad including showcasing India as a major quality services provider at competitive rates. 
• A “Services from India” initiative on the line of “Make in India” is needed to strengthen our services sector and also make it a major export sector.
• There is also a need to make the Services Export Promotion Council (SEPC) more active through networking with the Indian missions abroad and the India Trade Promotion Organisation (ITPO).