Economy Survey: Service sector likely to see 9.6% growth

The Survey presented by the Union Finance Minister, Pranab Mukherjee in the Parliament today states that the Indian economy remains the second fastest growing in the services growth with 8.9% rate, behind China (10.5%). An international comparison of the services sector shows that India compares well even with the developed countries in the top 12 countries with highest overall GDP.

The two broad services categories, namely trade, hotels, transport, and communication; and financing, insurance, real estate, and business services have performed well with growth of 11% and 10.6% respectively in 2010-11 (AE).

Only community, social and personal services have registered a low growth of 5.7% due to base effect of fiscal stimulus in the previous two years, thus contributing to the slight deceleration in growth of the sector. The construction sector, a borderline service inclusion, grew at a moderate 8%. Among the four broad categories of services, in terms of shares, financing, insurance, real estate, and business services; and trade, hotels, and restaurants are the largest groups accounting for 16.7% and 16.3% respectively of the national GDP in 2009-10.

The Survey says that in terms of exports, India is also moving towards a services led export growth. In the first half of 2010-1, services exports growth was 27.4% despite a dip due to the global crisis which was more due to fall in the share of merchandise trade to GDP. The growth rate in 2010-11 is expected to be 19.5 per cent for IT – BPO services, 18.5 % for exports and 22.8% for domestic IT related services.

The contribution of the services sector to the Indian economy has been 55.2%  in GDP and has been growing by 10% annually. In terms of employment, although the primary sector is the dominant employer followed by the services sector, the share of the services sector has been increasing over the years.

The global economic and financial crisis had a dampening effect on the cross border FDI floors. The Survey says that in order to maintain the level of FDI into the sector, the major challenge is to retain India’s competitiveness in this sector.

Making in roads into some traditional areas such as tourism and shipping and making forays into globally traded services such as financial services, health care, education and accountancy etc. are the other challenges that needs to be overcome.