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Economic Survey 2022: Recovery in services sector, but COVID-19 impacts contact-based services

While Gross Value Added (GVA) of services crossed the pre-pandemic level in the second quarter of 2021-22, quarterly GVA of subsector trade, hotels, transport, communication and services related to broadcasting below pre-pandemic level.

January 31, 2022 / 03:49 PM IST

The services sector witnessed recovery from the impact of the nationwide lockdown imposed during March-May 2020 and localised lockdowns during the second COVID wave in April-May 2021.

During the first half of 2021-22, the services sector grew by 10.8 percent. The Gross Value Added (GVA) of services crossed the pre-pandemic level in the second quarter of 2021-22.

As per the first advance estimates, GVA of the services sector is estimated to grow by 8.2 percent in 2021-22, said the Economic Survey that was presented by Finance Minister Nirmala Sitharaman on January 31, detailing the state of the economy ahead of the government's Budget for the fiscal year beginning April 1, 2022.

Although the spread of the Omicron variant brings in a degree of uncertainty for the near term, especially in segments that require human contact.

The subsector trade, hotels, transport, communication, and services related to broadcasting, which was the worst hit last year, grew by 18.4 percent year-on-year (YoY) in H1 2021-22. However, the quarterly GVA of this sub-sector is still below its pre-pandemic level.

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The Economic Survey noted that at the time of writing the survey, new restrictions were being introduced within the country and worldwide due to the Omicron variant, posing a fresh risk to the ongoing recovery, especially in contact intensive segments.

The services sector that had contracted by 8.4 percent YoY in 2020-21, the decline was driven by a sharp contraction of 18.2 percent YoY in the sub-sector trade, hotels, transport, communication, and services related to broadcasting. Owing to its contact-intensive nature, the services included in this sub-sector had to bear the maximum brunt of the disruptions caused by the prevailing pandemic.

While non-contact services such as information, communication, financial, professional, and business services have remained resilient, the impact has been much more severe on contact-based services such as tourism, retail trade, hotel, entertainment, and recreation, the Economic Survey said.

The sub-sector public administration, defence, and other services which include expenditure by the government on one hand and services such as health, education, recreation, on the other, contracted by 4.6 percent YoY in 2020-21. The relatively less contact intensive sub-sector financial, real estate, and professional services were the least impacted, with a marginal decline of 1.5 percent YoY in its GVA during 2020-21.

Sub-sectors trade, hotels, transport, communication and broadcasting services, financial, real estate and professional services, and public administration, defence, and other services are estimated to expand by 11.9 percent, 4 percent, and 10.7 percent respectively in 2021-22.

The services sector contributes over 50 percent to India’s gross domestic product (GDP). While the Covid-19 pandemic has had an adverse impact on most sectors of the economy, the services sector has been the worst affected as its’ share in India’s GVA declined from 55 percent in 2019-20 to 53 percent in 2021-22.

Pritha Jha, partner at Pioneer Legal, a law firm said that the economic survey highlights that the services sector has been the hardest hit by the pandemic, especially segments that involve human contact. "Yet, it (economic survey) estimates that this sector is estimated to grow by 8.2 percent this financial year following last year’s battering of more than 8 percent. So, it is unclear on what basis this is expected. Indications that the government may finally intervene and announce some much needed benefits? That remains to be seen," she said.



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Moneycontrol News
first published: Jan 31, 2022 02:48 pm
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