The services sector that accounts for 54 percent of India’s Gross Value Added (GVA), saw its growth moderating to 7.5 percent in 2018-19 from 8.1 percent in 2017-18, according to Chief Economic Adviser KV Subramanian's maiden Economic Survey 2018-19.
"This was due to a deceleration in the sub-sectors ‘trade, hotels, transport, communication & broadcasting services’ to 6.9 percent and ‘public administration and defence & others services’ to 8.6 percent in 2018-19," the document, tabled in Parliament on July 4 by Finance Minister Nirmala Sitharaman, said.
The moderation in the growth of the services sector was also reflected in some of the key high-frequency indicators. The year-on-year bank credit growth to services sector moderated significantly between September 2018 and February 2019, although it has partly recovered.
"The Nikkei India Services Purchasing Managers’ Index, which has been on a declining trend since November 2018, fell to a one-year low of 50.2 in May 2019. CPI Services inflation also started to cool down since December 2018," the Survey said.
However, growth financial services, real estate and professional services picked up to 7.4 percent in 2018-19 from 6.2 percent in 2017-18. "Despite the recent growth moderation, services sector growth continues to outperform agriculture and manufacturing sector growth, contributing more than 60 percent to total GVA growth," as per the survey.
Despite the recent growth moderation, services sector growth continued to outperform agriculture and manufacturing sector growth, and contributed more than 60 percent to total GVA growth.
In trade, services exports have slowed somewhat during April-December 2018 after witnessing a strong performance in 2017-18 (April-December), according to the Survey.
"By sub-sector, exports of transport services have maintained strong momentum during 2017-18 (April-December) and April-December, 2018, supported by strengthening merchandise trade activity, while exports of Computer & ICT (information and communication technology) services have continued to recover steadily," the Survey says.
According to the Survey, India received 10.6 million foreign tourists in 2018-19 compared to 10.4 million in 2017-18. "Travel receipts have slowed somewhat during April-December, 2018 after posting strong growth in 2017-18 (April-December), which is in line with the moderation in foreign tourist arrivals during this period," as per the document.
Services imports have slowed during April-December, 2018 from the previous year due to a deceleration in imports across all sectors. "The rising services trade surplus has helped finance nearly 50 percent of India’s trade deficit as of 2017-18 (April-December). However, the service trade surplus is largely driven by Computer & ICT services, and to some extent, travel services," the Survey said.
Foreign Direct Investment (FDI) equity inflows into the services sector accounted for more than 60 percent of the total FDI equity inflows into India, according to the Survey.
"During 2018-19, FDI equity inflows into services sector fell by US$696 million or 1.3 percent from the previous year to about US$28.26 billion, which is in line with the small decline witnessed in overall FDI inflows into India," the document said.
This decline was driven by weaker FDI inflows into sub-sectors such as telecom, consultancy services, air and sea transport, which offset the strong inflows witnessed in education, retail trading and information & broadcasting, according to the Survey.
The Economic Survey also said the tourism sector is a major engine of economic growth that contributes significantly in terms of GDP, foreign exchange earnings and employment.
"In India, the tourism sector had been performing well with Foreign Tourist Arrivals (FTAs) growing at 14 percent to 10.4 million and Foreign Exchange Earnings (FEEs) at 20.6 percent to US$28.7 billion in 2017-18. However, the sector witnessed a slowdown in 2018-19. The Foreign Tourist Arrivals (FTA) in 2018-19 stood at 10.6 million compared to 10.4 million in 2017-18," the document said.
The Indian IT-BPM industry grew by 8.4 percent in 2017-18 to $167 billion (excluding e-commerce but including hardware) from $154 billion in 2016-17, as per NASSCOM data.
"It is estimated to have reached US$181 billion in 2018-19. IT-BPM exports grew by 7.7 percent to US$126 billion in 2017-18 and is estimated at US$136 billion for 2018-19. E-commerce market is estimated at US$43 billion for FY 2018-19, at growth rate of 12 percent," the document says.
Technology has rapidly changed the profile of Indian media and entertainment sector, comprising mainly of television, print, radio, films, music, digital advertising, over the top (OTT-film and television content delivered over internet), visual effects (VFX) and gaming.
"As per the FICCI-EY Media and Entertainment Report 2019, the size of the Industry has increased from Rs 91,810 crore in 2013 to Rs 1,67,500 crore in 2018, a growth of 82.44 percent in the last 5 years. Audio-visual services have been identified by the government (2018) as one among the 12 Champion Services sectors for focused development so as to reap its full potential.”
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