04 August 2022 – The Hindu

Service Sector in India

Context:

• In the fiscal year 2021–2022, India’s service exports surpassed their previous high by hitting USD 254.4 billion.
• The new record was set in 2021–2022, surpassing the previous high of USD 213.2 billion in 2019–2020.
• Additionally, service exports surpassed a record-high monthly high of USD 26.9 billion in March 2022.

Details:

• Transportation, computer and information services, other business services, and telecommunications will make up the majority of service exports between April and December 2021.
• In the fiscal year 2021–2022, India’s total exports (services and goods combined) totaled USD 676.2 billion, with both services and goods breaking previous export records.
• In 2019–20 and 2020–21, respectively, India exported goods worth USD 526.6 billion and USD 497.9 billion.
• In the fiscal years 2021–2022, India’s merchandise exports surpassed the USD 400 billion milestone and totaled USD 421.8 billion, increasing by 44.6 and 34.6 percent over the comparable fiscal years 2020–21 and 2019–20, respectively.

India’s service industry:

• Trade, lodging and dining, transportation, storage, and communication, financing, insurance, real estate, commercial services, community, social, and personal services, as well as services associated to construction, are all included in India’s services industry.

Sector Size:

• 53 percent of India’s Gross Value Added at current prices, which continues to be the country’s main driver of economic growth, was made up of the services sector in FY22 (until January 2022).
• India’s services sector GVA increased at a CAGR of 11.43 percent from Rs. 68.81 trillion (US$ 1,005.30 billion) in FY16 to Rs. 101.47 trillion (US$ 1,439.48 billion) in FY20.
• India’s market for IT and business services is expected to be worth US$19.93 billion by 2025.
• Services make up a sizable share of India’s total exports.
• From 54 in March 2022 to 54.7 in April 2022, the manufacturing purchasing managers index (PMI) for India climbed.

Issues that the Indian service sector must overcome:

Lack of Skilled Labor:

• Small and medium-sized firms in India use a lot of labour. Many capable workers migrate abroad in pursuit of jobs in countries with better salary and working circumstances.
• The scarcity of qualified workers hinders SME operations and productivity.
• Additionally, due to a lack of qualified labor, MSMEs in India are obliged to use untrained or inexperienced staff. Hiring these unskilled workers frequently causes a decline in the quality of the products produced by MSMEs as a result of their inability to meet national or international standards.

People Dependent:

• Indian service sectors are centered on people and rely heavily on communication with others.
• Numerous businesses have had to close temporarily or permanently as a result of the epidemic’s significant industry-wide impacts. However, a number of industries—including technology platforms, e-commerce companies, healthcare services, FMCG businesses, etc.—have seen increases in both demand and supply.

Taxation:

• Neither the federal nor the state governments have set aside any tax breaks or incentives specifically for this robust and swiftly growing service business sector.
• Nevertheless, both place a strong emphasis on creating a welcoming atmosphere, paying close attention to the financial challenges that the MSMEs and SME segments are facing as a result of growing input costs.

Infrastructure:

• Infrastructure amenities have historically been hard to come by, particularly in rural and semi-urban areas.
• The majority of small businesses are located in rural or semi-urban locations with limited access to banking institutions and other sources of funding like banking, insurance, and capital market goods. Additionally, it has slowed their rate of long-term growth.
• Lack of infrastructure results in increased expenses for business organizations, which therefore depend on the government for funding when building in these facilities.
• The government should provide incentives to encourage the private sector to develop infrastructure projects.

Market barriers:

• India has found it challenging to do commerce in products and services with its non-WTO partners due to several market entry barriers.
• The trade of products and services between India and its non-WTO partners has been constrained by a number of market access restrictions.
• Despite the fact that the US is one of India’s most important commercial partners, there are still several challenges.

These include:

• In the US, state governments typically oversee the licensing of skilled service providers.
• One example of the numerous forms of assistance given to the domestic shipping industry under the restrictive regime in the case of shipping services in the US is a minimum of 50% of government cargo for ships with a US registration.

Governmental Initiatives to Promote the Services Sector:

• 157 new medical schools have opened in order to expand the population’s access to affordable healthcare.
• Increasing the production of telecom and networking products in India under the PLI (production-linked incentive) scheme.
• Phase-II of the Mahatma Gandhi National Fellowship will enhance skill development and empower students in 2021.
• The PM Ayushman Bharat Health Infrastructure Mission was formed by the government in 2021 to enhance India’s crucial healthcare system during the ensuing four to five years.
• India and the UK discussed the possibility of a service-related FTA (Free Trade Agreement) at the 11th Economic and Financial Dialogue (EFD) in 2021.
• In 2021, India and Australia announced their collaboration in key cyber-enabled technologies, underlining the necessity of strengthening crucial information security infrastructure, such as 5G telecom networks.
• India’s overall digital connectivity will improve thanks to BharatNet.
• The FDI cap for insurance companies has grown from 49% to 74%, while it has climbed to 100% for insurance intermediaries.
• Pradhan The Mantri Kaushal Vikas Yojana (PMKVY) was launched in 600 districts and offers more than 300 skill training. Modern and COVID-related skills will be the focus of the third phase, which is being driven by the Ministry of Skill Development and Entrepreneurship. PMKVY 3.0 is meant for eight lakh candidates’ training.
• In 2021, the Department of Telecom of India and the Ministry of Communications of Japan signed a Memorandum of Understanding to expand their cooperation in the areas of 5G technology, telecom security, and submarine optical fiber cable networks.
• The Union Cabinet approved the signing of a Memorandum of Understanding (MoU) by the Ministry of Communication and Information Technology and the Department of Digital, Culture, Media, and Sports (DCMS) of the United Kingdom Government in 2020 to collaborate in the field of telecommunications/information and communication technologies (ICTs).
• As part of the BharatNet plan, the government selected Hughes Communications India to supply satellite internet to 5,000 village panchayats in bordering, Naxal-affected, and island regions in 2020.
• bond recapitalization to give public sector banks a cash boost
• By making healthcare more publicly available and providing each Indian with a unique health ID, the National Digital Health Mission (NDHM) seeks to modernize the healthcare industry.
• The National Broadband Mission seeks to connect every community to the internet by 2022.
• Program for Service Exports from India (SEIS): The SEIS Scheme offers benefits to service exporters for qualified service categories in the form of transferable Duty Credit Scrips as a fraction of Net Foreign Exchange obtained on the export of qualified services during a specific fiscal year.
• Regulations for Service Providers and Consumer Protection in E-Commerce by 2020.

THE HIGHLIGHTS OF THE ECONOMIC SURVEY FOR THE PERFORMANCE OF THE SERVICE SECTOR FOR 2021–2022 INCLUDE:

• According to the Economic Survey 2021–22, the services sector accounted for more than half of India’s GDP.
• In the first half of 2021–2022, the services industry grew overall by 10.8 percent YoY, according to the poll.

FDI in services:

• The Economic Survey indicates that FDI inflows into India’s services sector were the highest.
• During H1 2021-2022, the Services Sector attracted FDI equity inflows totaling $ 16.73 billion.
• Financial, Business, Outsourcing, R&D, Courier, Tech testing & Analysis, as well as Education sub-sector, experienced significant FDI inflows, the poll claims.

Exchange of Services at the Global Level:

• India dominated service exports to the rest of the globe, according to the Economic Survey.
• It maintained its position as one of the top ten exporters of services, with its percentage of worldwide commercial services exports increasing to 4.1 percent in 2020 from 3.4 percent in 2019.
• According to the Economic Survey, India’s exports of services were less negatively impacted by the Covid-19-caused global shutdown than its exports of products.
• According to the survey, despite COVID-19’s negative effects on the export of transportation services, there was a 22.8 percent increase in net service exports in the first quarter of 2021–2022, driven by double-digit growth in gross service exports and exports of business, software, and transportation services.