Chapter 10

Services Sector
Indias services sector that remained resilient even during and immediately after the global f inancial
crisis buckled under the pressure of continued global and domestic slowdown, resulting in sub-normal
growth in the last two years. However, early shoots of revival are visible in 2014-15 with signs of
improvement in world GDP growth and trade also ref lected in pick-up in some key services like IT,
aviation, transport logistics, and retail trading. Different indices and estimates also indicate an expansion
in Indias services business.
10.2 The services sector with an around 57 per cent contribution
to the gross domestic product (GDP), has made rapid strides in
the last few years and emerged as the largest and fastest-growing
sector of the economy. Besides being the dominant sector in Indias
GDP, it has also contributed substantially to foreign investment
flows, exports, and employment. Indias services sector covers a wide
variety of activities that have different features and dimensions.
Some services like IT and telecommunications are very sophisticated,
involving high technology and expertise, while some are simple
like those of barbers and plumbers. Some services like transport
have high linkages with the industrial sector and some like tourism
have high employment linkages. Some services like railways and
port fall under the def inition of infrastructure, while some like
construction fall under the def inition of industry. Thus there are
many borderline inclusions and exclusions. This chapter not only
focuses on different aspects of services but also covers many
important services.
SERVICES SECTOR : INTERNATIONAL COMPARISON
World Services GDP
10.3 There was a sudden pick-up in world services GDP in 2012
compared to 2011 with increase in growth from 2.7 per cent to
3.8 per cent (at constant prices) with a 65.9 per cent share in the
US$ 72.7 trillion world GDP (at current prices) in 2012. Like in
overall GDP, the US ranks f irst in services GDP also, with Japan
and China a distant second and third. Among the worlds top
15 countries in terms of GDP (at current prices), India ranked 10th
in terms of overall GDP and 12th in terms of services GDP in 2012.
However, India has the second fastest growing services sector with
174 ECONOMIC SURVEY 2013-14
174
its CAGR (compound annual growth rate) at 9.0 per cent, just
below Chinas 10.9 per cent, during the last 11-year period from
2001 to 2012. Russia at 5.4 per cent is a distant third. Though China
at 8.1 per cent followed by India at 7.2 per cent had the highest
growth rate in services in 2012 compared to 2011, there was a slight
deceleration over 2011 for both. On the contrary, the US services
sector grew by 6.5 per cent in 2012 which is more than three times
higher than in 2011. There was also a pick-up in services growth
in Japan and Russia. Among the top 15 countries in terms of services
GDP, only Chinas share in its total GDP at 44.6 per cent in 2012
is less than 50 per cent (Table 10.1).
Table 10.1 : Performance in Services: International Comparison
Country Rank Services growth rate Share of services Share of Services export growth
services
(per cent) in to total (per cent) CAGR
Overall Services Y-o-Y CAGR in GDP employment exports Y-o-Y 2001-13
GDP GDP 2001-12 in 2013
2001 2011 2012 2001 2011 2012 2001 2012 2001 2012 2013
1 US 1 1 2.9 1.9 6.5 2.1 77.2 78.9 79.2 75.0 81.2 29.5 -3.6 5.4 5.0 7.7
2 China 2 3 10.3 9.5 8.1 10.9 40.5 43.4 44.6 27.7 35.7 8.6 9.1 8.4 8.7 16.6
3 Japan 3 2 1.8 0.5 2.4 0.6 69.9 72.7 72.3 63.9 69.7 16.8 -6.9 0.0 1.0 7.0
4 Germany 4 4 2.5 2.8 1.4 1.2 69.0 68.5 66.6 64.6 70.2 16.5 5.6 -1.1 8.0 10.8
5 France 5 5 1.8 2.4 0.5 1.4 75.0 79.2 79.2 69.9 74.9 28.7 -0.5 -8.1 8.3 9.4
6 UK 6 6 2.7 1.5 1.4 2.1 73.3 77.9 78.8 73.8 78.9 34.9 -0.8 -1.5 0.6 7.8
7 Brazil 7 8 1.8 2.7 1.7 3.6 67.1 67.0 68.5 59.4 62.7 13.4 -2.7 4.6 -1.7 12.9
8 Russia 8 10 3.3 3.3 4.8 5.4 55.7 58.9 60.1 58.6 62.3 11.1 17.3 6.8 12.7 15.9
9 Italy 9 7 2.6 0.9 -1.5 0.4 69.9 73.3 73.8 63.1 68.5 17.5 2.1 -2.2 5.6 5.6
10 India 10 12 7.5 8.2 7.2 9.0 51.3 55.7 56.9 24.0 28.1 32.8 4.8 5.4 4.8 20.2
11 Canada 11 9 3.5 2.4 1.8 2.6 65.8 71.2 71.1 74.7 76.5 14.5 -3.6 -0.9 0.3 6.2
12 Australia 12 11 3.9 3.3 2.9 3.2 69.6 69.4 69.5 74.2 75.5 17.1 -8.9 2.7 -0.1 9.4
13 Spain 13 13 3.6 1.2 -0.3 2.5 64.8 70.9 71.6 62.0 74.9 31.4 6.0 -3.8 5.5 8.3
14 Mexico 14 14 -0.2 4.6 4.5 3.0 63.3 60.3 60.1 56.1 61.9 4.9 -7.5 3.6 21.3 4.0
15 South Korea 15 15 4.3 2.6 2.5 3.4 58.5 57.5 57.7 62.6 76.4 16.6 -4.9 17.3 1.3 11.8
World 2.8 2.7 3.8 2.6 68.9 65.9 65.9 39.1 44.0 19.8 0.1 2.2 5.5 9.9
Source : Computed from UN National Accounts Statistics for GDP, World Bank and ILO database for employment and
WTO database for Services Trade (accessed on 1 June 2014.)
Notes : Rank and share are based on current prices (2012); Growth rates are based on constant prices (US$); Construction
sector is excluded in services GDP; For employment data in 2012: 2011 data for China, Brazil and Mexico, 2010
for US, Japan, South Korea, 2009 for Russia and Australia, and 2008 for Canada given; Indias employment data
for 2001 is of 2000. For 2001 data of world employment share is of 2000.
World Services Employment
10.4 Services share in world GDP was 65.9 per cent. But its share
in employment was only 44.0 per cent in 2012. However, for the
top 15 countries (in terms of services GDP), except India and China,
the shares of both services GDP and services employment are high
and close to each other. In China, the shares of both services income
and services employment are low. In the Indian case the services
sector had a high share in income at 56.9 per cent in 2012 with
a lower share of 28.1 per cent in employment and the gap between
the two widening f rom 27.3 percentage points in 2001 to
28.8 percentage points in 2012.
World Services Trade
10.5 After growing robustly in the last 12 years from 2001 to 2013
with a CAGR of 9.9 per cent, world services export growth has
SERVICES SECTOR 175
175
been seeing a see-saw movement. It was at 0.1 per cent in 2001,
reached a high of 21.5 per cent in 2004, fell steeply to a negative
9.4 per cent in 2009, rebounded quickly to 9.8 per cent in 2010
and 12.2 per cent in 2011, but decelerated to 2.2 per cent in 2012.
It has again picked up to 5.5 per cent in 2013. Among the leading
exporters of services, India with a CAGR of 20.2 per cent had the
fastest growth followed by China at 16.6 per cent. In 2013, Indias
services export growth decelerated to 4.8 per cent f rom
5.4 per cent in 2012 while that of China improved slightly to
8.7 per cent from 8.4 per cent.
FDI in the World Services Sector
10.6 As per the United Nations Conference on Trade and
Development (UNCTAD) World Investment Report 2014, the global
foreign direct investment (FDI) flows in 2013 at US$ 1.45 trillion
grew by 9 per cent, showing an encouraging trend after a decline
in 2012. Developing economies maintained their lead in 2013
receiving US$ 778 billion, or 54 per cent of the total FDI flows.
UNCTAD projects that total FDI flows could rise to US$ 1.6 trillion
in 2014, US$ 1.7 trillion in 2015, and US$ 1.8 trillion in 2016, with
relatively larger increases in developed countries. Fragility in some
emerging markets and risks related to policy uncertainty and
regional instability may negatively affect the expected upturn in
FDI.
10.7 Services continued to account for the largest shares of
announced greenf ield projects and mergers and acquisition (M&A)
deals. In 2013, the value of FDI in greenf ield projects in the services
sector grew by 20 per cent to US$ 385 billion as compared to a
9 per cent growth in total value of FDI in greenf ield projects.
However, in cross-border M&A, the services sector declined by
7 per cent to US$ 155 billion in 2013 as compared to 5 per cent
growth in total FDI value in M&A.
INDIAS SERVICES SECTOR
10.8 Services in India are emerging as a prominent sector in
terms of contribution to national and states incomes, trade flows,
FDI inflows, and employment.
Services GDP
10.9 Services constitute a major portion of Indias GDP with a
57 per cent share in GDP at factor cost (at current prices) in
2013-14 an increase of 6 percentage points over 2000-01. Including
construction, the share is 64.8 per cent. The CAGR of services-
sector GDP at 8.5 per cent for the period 2000-01 to 2013-14 has
been higher than the 7.1 per cent CAGR of overall GDP during the
same period.
10.10 In 2013-14 the growth rate of the services sector at
6.8 per cent is marginally lower than in 2012-13. This is due to
deceleration in the growth rate of the combined category of trade,
hotels, and restaurants and transport, storage, and communications
to 3.0 per cent from 5.1 per cent in 2012-13, despite robust growth
of f inancing, insurance, real estate, and business services at
12.9 per cent. Construction, a borderline services inclusion
The growth of services-sector
GDP has been higher than
that of overall GDP during
2000-01 to 2013-14. Despite
deceleration, services GDP
growth at 6.8 per cent was
above the 4.7 per cent overall
GDP growth in 2013-14.
176 ECONOMIC SURVEY 2013-14
176
which has not been performing well since 2012-13, grew by only
1.6 per cent in 2013-14.
10.11 Sub-sector-wise, banking and insurance (11.8 per cent) and
real estate, ownership of dwelling, and business services (10.0 per
cent) were the best performers in terms of growth rate in 2012-
13 and the performance of railways (0.3 per cent) followed by
hotels and restaurants (0.5 per cent) was the lowest (Table 10.2).
Table 10.2 : Share and Growth of Indias Services Sector (at factor cost)
2000-01 2011-12
@
2012-13
*
2013-14
**
Trade, hotels, & restaurants 14.5 (5.2) 17.4 (1.2) 17.2 (4.5) 24.0 (3.0)
#
Trade 13.2 (5.0) 15.9 (1.0) 15.8 (4.8)
Hotels & restaurants 1.3 (7.0) 1.5 (3.8) 1.4 (0.5)
Transport, storage, & communication 7.6 (9.2) 7.3 (9.4) 7.5 (6.0)
Railways 1.1 (4.1) 0.7 (7.5) 0.8 (0.3)
Transport by other means 5.0 (7.7) 5.4 (8.6) 5.6 (6.6)
Storage 0.1 (6.1) 0.1 (2.9) 0.1 (8.6)
Communication 1.5(25.0) 1.1 (11.2) 1.1 (6.5)
Financing, insurance, real estate, & business services 14.1 (3.5) 16.5 (11.3) 17.2 (10.9) 18.5 (12.9)
Banking & insurance 5.4 (-2.4) 5.7 (12.9) 5.9 (11.8)
Real estate, ownership of dwellings, & business services 8.7 (7.5) 10.7 (9.9) 11.4 (10.0)
Community, social, & personal services 14.7 (4.6) 13.8 (4.9) 14.3 (5.3) 14.5 (5.6)
Public administration & defence 6.5 (1.9) 5.9 (4.2) 6.0 (3.4)
Other services 8.2 (7.0) 7.8 (5.4) 8.2 (6.8)
Construction 6.0 (6.1) 8.2(10.8) 8.1 (1.1) 7.8 (1.6)
Total services 51.0 (5.1) 54.9 (6.6) 56.3 (7.0) 57.0 (6.8)
Total services (including construction) 57.0 (5.2) 63.1 (7.1) 64.4 (6.2) 64.8 (6.2)
Total GDP 100.0 (4.1) 100.0 (6.7) 100.0 (4.5) 100.0 (4.7)
Source: Central Statistics Off ice (CSO).
Notes : Shares are in current prices and growth in constant prices; Figures in parentheses indicate growth rate;* f irst revised
estimates, @ second revised estimates, ** provisional estimate; # includes the combined share and growth of trade,
hotels, & restaurants and transport, storage, & communication for 2013-14.
State-wise Comparison of Services
10.12 State-wise comparison of services share in the gross state
domestic product (GSDP) of different states and union territories
(UTs) in 2012-13 shows that the services sector is the dominant
sector in most of the states of India (Figure 10.1). States and UTs
such as Chandigarh, Delhi, Kerala, Mizoram, West Bengal, Tamil
Nadu, Maharashtra, Nagaland, Tripura, and Karnataka have higher
than all-India shares. Chandigarh and Delhi are at the top with
an equal share of 86.9 per cent followed by Mizoram with 66.1 per
cent. The share of services in the GSDP of all the states/ UTs for
which data is available was more than 40 per cent except for
Arunachal Pradesh at 29.9 per cent and Sikkim at 30.6 per cent.
In 2012-13, Bihar had the highest services growth of 17.2 per cent
followed by Goa at 17.1 per cent. Arunachal Pradesh on the other
hand had the lowest services growth at 4.8 per cent followed by
Kerala at 5.5 per cent. Some states like Goa and Tripura have been
consistently showing double-digit growth in the services sector in
the last f ive years. The former is on account of growth in tourism
and the latter in banking and insurance.
FDI in the Indian Services Sector
10.13 The growth of the services sector is closely linked to FDI
inflows into this sector and the role of transnational f irms. In the
SERVICES SECTOR 177
177
context of FDI, the ambiguity in classifying the different activities
under the services sector continues. However, the combined FDI
share of f inancial and non-f inancial services, construction
development, telecommunications, computer hardware and software,
and hotels and tourism can be taken as a rough estimate of the
FDI share of services, though it could include some non-service
elements. This share is 45 per cent of the cumulative FDI equity
inflows during the period April 2000-March 2014. If construction,
the borderline inclusion, is excluded, then it falls to 34 per cent.
The f ive services sectors are also the sectors attracting the highest
cumulative FDI inflows to the economy with f inancial and non-
f inancial services topping the list at US$ 39.5 billion during the
period April 2000-March 2014. This is followed by other service
sectors like construction development (US$ 23.3 billion),
telecommunications (US$ 14.2 billion), and computer software and
hardware (US$ 12.8 billion). If the shares of some other services or
service-related sectors like trading (2.4 per cent), information and
broadcasting (1.7 per cent), construction (infrastructure) activities
(1.2), consultancy services (1.1 per cent), hospital and diagnostic
centres (1.1 per cent), ports (0.8 per cent), agriculture services (0.8
per cent), education (0.4 per cent), air transport including air
freight (0.2 per cent), and retail trading (0.1 per cent) are included
then the total share of cumulative FDI inflows (2000-01 to 2013-
14) to the services sector would increase to 54.7 per cent. In 2013-
14, FDI inflows to the services sector (top f ive sectors including
construction) declined sharply by 37.6 per cent to US$ 6.4 billion
compared to an overall growth in FDI inflows at 6.1 per cent. As
a result the share of the top f ive services in total FDI fell to nearly
one-sixth (Table 10.3).
Source : Computed from CSO data.
Notes : Shares at current prices, growth rate at constant (2004-05) prices.
Figure 10.1 : Share and Growth of the Services Sector in 2012-13
178 ECONOMIC SURVEY 2013-14
178
Table 10.3 : Services Attracting Highest FDI Inflows
Value (in US $ million) Percent Growth rate
Ranks Sector 2011-12 2012-13 2013-14 Cumulative age to 2012-13 2013-14
inflows total
(Apr. 2000-
Mar. 2014)
1 Services sector(financial & 5216 4833 2225 39460 18 -7.3 -4.0
non-financial)
2 Construction development # 3141 1332 1226 23306 11 -57.6 -8.0
3 Telecommunications * 1997 304 1307 14163 7 -84.8 29.9
4 Computer software & hardware 796 486 1126 12817 6 -38.9 31.7
5 Hotels & tourism 993 3259 486 7118 3 228.2 -85.1
Total top five services 12143 10214 6370 96864 45 -15.9 -37.6
Total FDI inflows 46556 34298 36396 217581 100 -26.3 6. 1
Source: Based on Department of Industrial Policy and Promotion (DIPP) data.
Notes : # indicates township, housing, built-up infrastructure and * indicates radio paging, cellular mobile, basic telephone
services.
Indias Services Exports
10.14 Indias share in world services exports, which increased from
0.6 per cent in 1990 to 1.1 per cent in 2000 and further to 3.3 per
cent in 2013, has been increasing faster than its share in world
merchandise exports. While the growth rate of services exports of
India has been higher than that of the world for all the years
since 1996 (except 2009), in 2013 this has been reversed
(Figure 10.2).
10.15 While exports of software services, accounting for 46 per
cent of Indias total services exports, decelerated to 5.4 per cent in
2013-14 from 5.9 per cent in 2012-13, travel, accounting for a nearly
12 per cent share, witnessed negative growth of 0.4 per cent.
However, moving in tandem with global exports of f inancial
services, Indias exports of f inancial services registered a high growth
of 34.4 per cent in 2013-14.
Indias Services Employment
10.16 The pattern of the sectoral share of employment has
changed over the last two decades (Figure 10.3) with the share of
agriculture falling from 64.8 per cent in 1993-4 to 48.9 per cent
in 2011-12 and of industry rising from 15.6 per cent to 24.3 per cent.
The share of the services sector in employment has gone up in the
same period from 19.7 per cent to 26.8 per cent.
Figure 10.2 : Export Growth of
Commercial Services: India and World
Source: Computed from WTO database accessed on 1 June 2014.
SERVICES SECTOR 179
179
Indias Services Inflation
10.17 Inflation in the services sector is not captured in the usual
inflation indicators like the wholesale price index (WPI) and only
partially covered in the consumer price index (CPI) where items
like medical care, education, recreation and amusement, transport
and communication, and housing are included. Recently some
efforts were made to strengthen the collection of services data in
India and services price indices (SPI) have been developed on
experimental basis for railways, postal, telecom, and banking sectors.
Railways SPIs include only freight and passenger services as they
account for 99 per cent of the traff ic revenue earnings with the
ratio between freight and passenger earnings at 68.4: 31.6 in the
base year. Banking SPIs include both direct services for which banks
charge fees, commissions, brokerage, etc., and intermediation
services. Postal SPIs are based on data of the Department of Posts
and exclude courier services, making them less relevant. Telecom
SPIs have been developed only for cellular services on the basis of
the Performance Indicators Report of the Telecom Regulatory
Authority of India (TRAI). Though these indices are at a
preliminary stage, they indicate a fall in inflation in telecom and
banking services from 2009-10 and 2010-11 onwards respectively; a
Figure 10.3 : Sectoral Share of
Employment (UPSS)
Source: Based on Inputs of Ministry of Labour and Employment which uses
National Sample Survey Off ice (NSSO) data from different rounds.
Note: UPSS- Usual Principal Subsidiary Status.
Figure 10.4 : Sevices Price Indices
Source: Based on Inputs from the DIPP.
Note: * Provisional; For 2013-14: Data for railways is up to January 2014, for
postal up to June 2013, and telecom up to Dec. 2013.
180 ECONOMIC SURVEY 2013-14
180
steep rise in inflation for railway services from 2011-12; and a very
mild inflation for postal services from 2008-09. (Figure 10.4)
MAJOR SERVICES : OVERALL PERFORMANCE
10.18 Some available indicators of the different services in India
for 2013-14 show reasonably good performance of tourism; a pick-
up in telecom and aviation after the fall in 2012-13; and poor
performance of shipping and railways due to the slowdown in trade
and industrial activity (Table 10.4). Estimates of the Centre for
Monitoring Indian Economy (CMIE), derived from limited f irm-
level data, show subdued performance of sectors such as transport
logistics, aviation, hotels, and telecom in 2012-13. Some sectors like
transport logistics and retail trading are estimated to have
performed well in 2013-14. In the coming year most of the sectors
are projected to perform better. As per Markit-HSBCs Services PMI
(Purchasing Managers Index), Indias services sector expanded for
the f irst time in nearly a year during May on a rebound in new
business orders, with the index rising to 50.2 in May from 48.5 in
April and pointing to the f irst expansion of output in 11 months. A
reading above 50 shows that the sector is expanding, while a
reading below 50 shows that output in the sector is contracting.
Table 10.4 : Performance of Indias Services Sector : Some Indicators
Sector Indicators Unit Period
2009-10 2010-11 2011-12 2012-13 2013-14
Aviation Airline passengers (domestic and Million 77.4 88.9 99.6 97.7 103.3
international)
*
Telecom Telecom connections (wireline and lakh 6212. 8 8463. 3 9513. 5 8980. 2 9330. 2
wireless)
b
Tourism Foreign tourist arrivals
a
Million 5.17 5.78 6.31 6.58 6.97
Foreign exchange earnings from US $ million 11136 14193 16564 17737 18133
tourist arrivals
a
Shipping Gross tonnage of Indian shipping
b
Million GT 9.69 10.45 11.06 10.45 10.49
No. of ships
b
Numbers 1003 1071 1122 1158 1213
Ports Port traffic Million tonnes 850.0 885.5 911.7 933.7 980.5
Railways Freight traffic by railways
c
Million tonnes 887.8 921.7 969.1 1008. 1 1050. 2
Net tonne kilometres of railways
c
Million 600548 625723 667607 691658 651869
Storage Storage capacity Lakh MT 106.0 103.5 100.3 102.3 105.6
No. of warehouses Numbers 487 479 468 469 471
Sources: TRAI, Ministry of Tourism, Ministry of Shipping, Ministry of Railways, Directorate General of Civil Aviation
(DGCA), Central Warehousing Corporation.
Notes:
a
calendar years, for example 2009-10 for 2009;
b
As on 31 March of ensuing financial year;
c
data from 2009-
10 to 2012-13 is on carried basis, while that for 2013-14 is on originating basis; * foreign airlines included for
international passengers; GTgross tonnage; MTmetric tonnes.
MAJOR SERVICES: SECTOR-WISE PERFORMANCE
10.19 Some of the important commercial services for India based
on their signif icance in terms of GDP, employment, exports, and
future prospects, have been dealt with in detail in this section.
Some important services covered in other chapters have been
excluded to avoid duplication.
Tourism, including Hotels and Restaurants
10.20 According to the World Travel and Tourism Council, the
US$ 6.6 trillion World Travel and Tourism sector contributed 9 per
cent of global GDP in 2012 and generated over 260 million jobs
(1 in 11 of the worlds total jobs). There has been a revival in world
SERVICES SECTOR 181
181
tourism growth with international tourist arrivals worldwide
growing from 4.1 per cent in 2012 to 5.0 per cent in 2013 as
per the United Nations World Tourism Organization (UNWTO)
data.
10.21 According to World Travel and Tourism Council estimates,
the tourism sector in India contributed around 6.6 per cent of
Indias GDP in 2012 and supported 39.5 million jobs, which is 7.7
per cent of its total employment. The sector is projected to grow
at an annual average rate of 7.9 per cent from 2013 to 2023. Indias
share in world inbound tourist arrivals increased from 0.4 per cent
in 1997 to 0.63 per cent in 2013, with a 6.9 per cent CAGR, which
is much higher than the 3.9 per cent CAGR for the world during
the same period. The size of domestic tourism has also already
crossed an estimated 1.1 billion annual travel visits.
10.22 After a poor performance in 2009 owing to the 2008 global
f inancial crisis, foreign tourist arrivals (FTA) to India and foreign
exchange earnings (FEE) in dollar terms quickly rebounded in 2010.
However, with the slowdown particularly in the EU, both FTAs
and FEEs in dollar terms decelerated, though in 2013 there was a
pick-up in growth in the former. While FEEs in rupee terms are
a reflection of the exchange rate movements, what is cause for
concern is the steep deceleration in FEEs in dollar terms, while
the deceleration in FTAs was relatively less (Table 10.5). This
indicates a relatively higher inflow of back-packers vis--vis high-
spending tourists.
10.23 India has not tapped the full potential of its tourism sector.
A World Economic Forum 2013 study of tourism competitiveness,
rated India at a low of 65 among 140 countries. On its three pillars
of competitiveness, India was ranked 21 on tourism natural resources,
67 on ease of business environment, but an abysmal 110 on its
regulatory framework for tourism and travel, showing Indias
inability to convert its comparative natural and economic
advantages into competitive advantages for the tourism Industry.
Some Transport-related Services
Shipping
10.24 Shipping is an important indicator of both commodity and
services trade of any country. It plays an important role in the
Indian economy with around 95 per cent of its trade by volume
and 68 per cent in terms of value being transported by sea. As on
31 March 2014, India had a fleet strength of 1213 ships with gross
tonnage (GT) of 10.49 million, with the public-sector Shipping
Corporation of India having the largest share of 31.30 per cent. Of
this, 367 ships with 9.31 million GT cater to Indias overseas trade
and the rest to coastal trade. Despite having one of the largest
merchant shipping fleets among developing countries, among the
35 flags of registration with the largest registered dead weight
tonnage (DWT), India ranks 18th with a share of only 0.9 per cent
in total world DWT as on 1 January 2014 according to the ISL
Shipping Statistics and Market Review. Leaving aside flags of
convenience, Hong Kong has the highest DWT, with a share of
8.6 per cent, while Chinas share is 4.4 per cent. In 2012 as per
Table 10.5 : Indias Tourism
Performance
Growth rate (per cent)
Y-o-Y
Indicators 2009 2010 2011 2012 2013
FTAs -2.2 11.8 9. 2 4. 3 5. 9
(Numbers)
FEEs -5.9 27.5 16.7 7. 1 2. 2
(in US $)
FEEs 4. 7 20.8 19.6 21.8 12.0
(in Rs)
Source: Ministry of Tourism.
India has not tapped the full
potential of its tourism sector
and has not been able to
convert its comparative natural
and economic advantages into
competitive advantages.
182 ECONOMIC SURVEY 2013-14
182
UNCTAD, India with 9.8 million twenty foot equivalent units of
container (TEUs) and with a world share of 1.6 per cent was ranked
eighth among developing countries in terms of container ship
operations.
10.25 India continues to be a leading ship-breaking destination
in the world. India topped the list of ship-recycling countries in
2013 with a world share of 27.9 per cent, scrapping 341 ships of
12.46 million DWT as per the ISL Shipping Statistics and Market
Review. India is also a major supplier of seafarers. Ranked third
with a 7.5 per cent share in 2010, it supplied 46,497 off icers to the
global shipping industry. While the shipping sector has been
plagued by economic hardships since 2008, the year 2013 was even
more of a challenge for Indian shipping companies which
continued to face cash flow problems on account of very low
charter hire and freight rates in all segments of shipping, as did
their international peers. Cash flow problems emanating from the
low of the shipping cycle were further compounded by the
downturn in the Indian economy. With high domestic interest
rates, purchase of new ships went on the back burner. The Baltic
Dry Index, the barometer of merchandise trade as well as
shipping services, which had peaked at 11,793 on 20 May 2008,
has been in the red ever since, reaching a new low of 982 on
13 May 2014.
10.26 There has also been a sharp decline in the share of Indian
ships in the carriage of Indias overseas trade from about 40 per
cent in the late 1980s to 9.1 per cent in 2012-13 with a 16.3 per cent
share in Indias oil imports. As per a National Council of Applied
Economic Research (NCAER) study, a 5 per cent increase in the
national shipping tonnage saves or earns an additional 17 per cent
of the freight bill. With a total freight bill of around US$ 79.2
billion in 2012-13 and given the fact that 90 per cent of Indias
import and export cargo is carried by foreign shipping companies,
India as a nation is estimated to have paid a total freight bill of
US$ 71.3 billion which is a net forex outgo.
10.27 Even the existing Indian fleet is ageing, with the average
age of the Indian fleet increasing from 15 years in 1999 to 18.1 years
as on 31 March 2014 (43.85 per cent of the fleet is over 20 years
and 10.66 per cent in the 16-20 age group). Therefore there is
urgent need to increase Indias shipping fleet to make it at least
capable of carrying Indias trade volumes.
Port Services
10.28 The performance of shipping services and merchandise trade
is closely related to the eff iciency of ports. The total capacity of
Indian ports has reached approximately 1425 million tonnes as on
31 March 2014. During 2013-14 total traff ic handled at all ports at
980.49 million tonnes grew by 5.02 per cent over the previous year.
The cargo throughput of major ports grew at 1.78 per cent while
the non-major ports registered a growth of 9.57 per cent.
10.29 The Government of India has taken policy initiatives to
enhance private investment in ports. New tariff guidelines have been
introduced with greater flexibility to public-private partnership
Given that the share of Indian
ships in Indias overseas trade
has declined sharply from 40
per cent in the late 1980s to
9.1 per cent in 2012-13 and the
existing f leet is also ageing,
there is urgent need to
increase Indias shipping fleet.
SERVICES SECTOR 183
183
(PPP) operators to f ix tariff based on market conditions. The
security clearance guidelines for PPP bidders have been streamlined
and new guidelines for leasing port lands have been announced.
These measures have resulted in substantial investment of around
` 20,709.93 crore in port projects during 2013-14. The three ports-
related performance indicators showed considerable improvement
in 2013-14. The average turnaround time fell to 2.25 days in 2013-
14 from 2.58 days in 2012-13. Similarly, average pre-berthing
detention time fell from 0.51 day in 2012-13 to 0.29 day in 2013-14.
The average output per ship berth day improved by 6.13 per cent
to 12,509 in 2013-14. The improvement in turnaround time and pre-
berthing detention time could be owing partly to mechanization
and systemic improvements in ports and partly to lower volume
handled in some ports on account of global downturn. However,
the improvement in average output per ship berth day in 2013-14
indicates that the performance parameters of Indian ports are also
improving (Table 10.6).
Table 10.6 : Some Performance Indicators of Ports in India
Indicators Value Change in
1990-91 2000-01 2010-11 2011-12 2012-13 2013-14 2013-14
over 2012-13
Average turnaround time (days) 8.10 4.24 5.29 4.44 2.58 2.25 -0.33
Average pre-berthing detention time (days) 2.16 1.19 2.32 0.46 0.51 0.29 -0.22
Average output per ship berth day 3372 6961 9140 13073 11786 12509 723. 00
(in tonnes)
Source : Based on Ministry of Shipping data.
Storage Services
10.30 According to CSO estimates, storage services grew by 8.6
per cent in 2012-13 as compared to 2.9 per cent the previous year.
Storage services are an integral part of both inbound and outbound
logistics as the goods produced have to be stored in different
geographical locations before shipping/ dispatch as per demand/
order inf lows. In India, the most important component of
warehousing is storage for agricultural inputs and produce such as
foodgrains, oilseeds, pulses, cotton, fertilizers, and manure. Other
components include industrial warehousing for industrial raw
materials and f inished goods, infrastructure for supporting import
and export trade like inland container depots (ICD)/ container
freight stations (CFS), cargo terminals of the integrated check
posts (ICPs), and special warehouses for perishable goods (cold and
temperature-controlled storage).
10.31 The Central Warehousing Corporation (CWC) has added 3.21
lakh MT additional storage capacity in 2013-14 as against 2.02 lakh
MT during 2012-13. At state level, the 17 State Warehousing
Corporations (SWC) meet the storage requirements and
complement the work of the CWC. As on 30 April 2014 these SWCs
were operating a network of 1687 warehouses with an aggregate
storage capacity of 268.3 lakh MT.
10.32 Major policy initiatives taken recently by the government in
this sector include construction of godowns under the 7-years/
10-years guarantee scheme of the Government of India, most of them
184 ECONOMIC SURVEY 2013-14
184
being managed by the CWC or SWCs; up to 100 per cent FDI in the
construction of warehousing infrastructure; and construction of
warehouses under the Grameen Bhandaran Yojana of the National
Bank for Agriculture and Rural Development (NABARD) and the
Rastriya Krishi Vikas Yojana. In 2007-08, the government enacted the
Warehousing (Development & Regulation) Act 2007 to make the
warehouse receipt fully negotiable. Recently the government took
another major initiative for construction of additional warehousing
capacity in the country under its Private Entrepreneurs Guarantee
(PEG) Scheme. For boosting the warehousing sector, tax benef it
under Section 35 AD of the Income Tax Act 1961 is also being made
available where the assessee is allowed a deduction of 150 per cent of
the capital expenditure (except cost of land) for setting up and
operation of cold chain facility or warehousing facility for storage of
agricultural produce.
Some Business Services
10.33 Major business services include computer-related services,
research and development (R&D), accounting services, legal services,
and renting of machinery. The dynamic business services with
a share of 5.6 per cent in Indias GDP grew by 14.1 per cent in
2012-13.
IT and ITeS
10.34 The information technology-information technology-
enabled services (IT-ITeS) industry has become one of the
signif icant growth catalysts for India. India continues to maintain
a leadership position in global sourcing, accounting for above 55
per cent of the total global sourcing market (excluding engineering
services and R&D) in 2013 as compared to 52 per cent in 2012. The
ITbusiness process management (BPM) sector (excluding
hardware) is estimated to have grown by 10.3 per cent, reaching
US$ 105 billion in 2013-14. Of this, exports with a major share of
81.9 per cent grew by 13.0 per cent while domestic revenues fell by
1.0 per cent in dollar terms. Domestic revenue is estimated to have
increased by 9.63 per cent in rupee terms. In 2014-15 higher growth
is expected in both exports and domestic revenues (Table 10.7).
10.35 A gradual revival in consumer conf idence leading to return
of discretionary spending and increased demand from the US and
Europe is helping drive exports. India continues to lead in cost
competitiveness. Flat entry-level salaries, f lattening employee
pyramid, and fast career growth are helping India stay seven-eight
Table 10.7 : Overall Growth Performance of the IT-BPM Sector
Value Growth rate
( in US$ billion ) ( per cent)
2008-09 2010-11 2012-13 2013-14E 2014-15 P 2012-13 2013-14E 2014-15 P
IT-BPM service 59.9 76.3 95.2 105. 0 118-123 8.6 10.3 12
Revenues
Exports 47.1 59.0 76.1 86.0 97-100 10. 6 13.0 13-15
Domestic 12.8 17.3 19.2 19.0 21-23 1. 1 -1.0 9-12
Employment 2. 2 2. 5 3. 0 3. 1 6. 9 5. 6
( in million)
Source : NASSCOM.
Note : EEstimate, PProjections (revenue is excluding hardware services).
SERVICES SECTOR 185
185
times cheaper than source locations and 30 per cent cheaper than
the next nearest low-cost country. However, challenges around
protectionism, increased competition, currency volatility, wage
inflation, and inconsistent levels of customer conf idence have to
be addressed.
10.36 This sector is also a big employment generator with direct
employment in the IT services and business process outsourcing
(BPO)/ITeS segment projected to grow by 5.6 per cent, reaching
3.1 million in 2013-14 with over 166,000 jobs being added during
the year (of which 30 per cent are for women). Indirect job creation
is projected at 10.0 million. The National Policy on Information
Technology (NPIT) envisages revenues of the IT and ITeS industry
expanding from US$ 100 billion in 2011-12 to US$ 300 billion by
2020 and exports from US$ 69 billion in 2011-12 to US$ 200 billion
by 2020.
R & D Services
10.37 Among business services, R & D occupies second position in
Indias GDP. Its growth has been consistently high at near 20 per
cent in the last few years; in 2012-13 growth has been at 20.8 per
cent. The US$ 1.6 trillion global gross expenditure on R&D (GERD)
in PPP (purchasing power parity) terms for 2014 projected by
Battelle and R&D magazine is a more than US$ 50 billion increase
over the previous year. In this enormous activity, Indias share is
around 3 per cent with GERD projected at US$ 44 billion, which
is around f ive times lower than that of China.
10.38 According to the Global Competitiveness Report 2013-14,
Indias capacity for innovation has been lower than that of other
BRICS countries (Brazil, Russia, India, China, and South Africa)
except Russia (Table 10.8). Though India scores better than China,
Brazil, and Russia on quality of scientif ic research institutions, the
research undertaken in such institutions is not percolating down
for commercial usage. This is exhibited through its poor score on
universityindustry collaboration on R&D as compared to some
other BRICS nations like China and South Africa. Though India
scores better than all BRICS nations on availability of scientists
and engineers, owing to its large population, the country has one
Table 10.8 : Global Competitiveness Index: R & D Innovation
Country Capacity for Quality of Company University Availability PCT patents
innovation scientific spending on Industry of scientists granted/
research R&D collaboration and million
institutions on R&D engineers population
Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank
India 4. 0 41 4. 5 37 3. 6 39 4. 0 47 5. 0 15 1. 4 64
China 4. 2 30 4. 3 41 4. 2 22 4. 4 33 4. 5 44 9. 2 36
South Africa 4. 1 33 4. 8 35 3. 5 43 4. 5 29 3. 5 108 6. 2 42
Brazil 4. 0 36 4. 3 42 3. 6 37 4. 0 49 3. 4 112 2. 9 51
Russia 3. 5 64 3. 7 65 3. 1 69 3. 6 64 3. 8 90 6. 1 43
South Korea 4. 5 22 4. 9 24 4. 6 20 4. 7 26 4. 6 33 183.4 9
UK 5. 2 8 6. 2 3 4. 7 12 5. 6 5 4. 8 23 90.6 18
USA 5. 6 5 6. 0 5 5. 4 5 5. 7 3 5. 3 6 141.1 12
Source: Global Competitiveness Report 2013-14, World Economic Forum.
Note: PCTPatent Cooperation Treaty.
186 ECONOMIC SURVEY 2013-14
186
of the lowest ratios of scientists and engineers per million people.
Part of this shortage is attributed to lack of quality higher education
institutions. Even with a large population base, India is projected
to have 25 per cent shortage of engineers in the country by 2025.
In terms of patents granted per million population, India fares
badly compared to other BRICS countries. In terms of company
spending on R & D also India is far below China.
Legal Services
10.39 Legal services have been growing at a steady rate of 8.2 per
cent in each of the years from 2005-06 to 2012-13. India is ranked
40, with a score of 4.7, in terms of judicial independence by the
Global Competitiveness Report 2013-14, an improvement from 45th
rank in 2012-13. As regards eff iciency of the legal framework in
settling disputes, India is ranked 62nd, with a score of 3.8, a decline
of three positions from 59th rank a year before. India is ranked
48th when it comes to the eff iciency of the legal framework in
challenging regulations, with a score of 3.8, an improvement from
52nd position in the previous year.
10.40 The National Legal Services Authority (NALSA) constituted
under the Legal Services Authorities Act 1987 monitors and
evaluates implementation of legal aid programmes and lays down
policies and principles for making legal services available under
the Act. To familiarize law students of the country with the
problems faced by the masses ignorant about their rights and
remedies under the law, the Legal Services Clinic in University,
Law Colleges and other Institutions scheme was started in 2013.
During 201314 more than 22.23 lakh persons have benef ited
through legal aid services in the country. Out of them, about 29,000
persons belong to the scheduled castes, 24,844 to the scheduled
tribes, more than 58,883 are women, and 8,134 are children. During
this period, more than 1,13,838 Lok Adalats have been organized
which settled more than 90.14 lakh cases including 1.17 lakh motor
accident claim cases.
Real Estate Services and Housing
10.41 Real Estate and ownership of dwellings with a share of 5.9
per cent in Indias GDP, grew by 5.6 per cent in 2012-13. Real estate
in particular, grew by 26.1 per cent. Housing activities have both
forward and backward linkages which not only contribute to capital
formation, generation of employment, and income opportunities
but also to economic growth. Estimates show that every rupee
invested in housing and construction adds 78 paise to the GDP.
10.42 House prices have skyrocketed over the years in many cities
and towns as per the National Housing Banks RESIDEX index of
residential prices in India across cities. As compared to 2007 (base
year), the prices of residential properties during the period 2007-
2013 have witnessed increases in 24 cities with the maximum
increase in Chennai (230 per cent) followed by Pune (135 per cent),
Bhopal (123 per cent), and Mumbai (122 per cent). Only two cities
have witnessed decline in prices with the maximum decrease
observed in Kochi (-15 per cent) followed by Hyderabad (-7 per
cent). During 2013, out of 20 cities, 13 witnessed increase in prices
Indias capacity for innovation
has been lower than that of
other BRICS countries except
Russia.
SERVICES SECTOR 187
187
over 2012 with the maximum increase observed in Jaipur (21 per
cent) followed by Bhubaneswar (17 per cent ), 7 saw decline in
prices over the previous year, with the maximum fall witnessed in
Ludhiana (-16 per cent ) followed by Vijayawada (-13 per cent).
10.43 A major policy concern for India is the widening gap
between demand and supply of housing units and inadequate
housing f inance solutions. Nearly 30 per cent of the countrys
population lives in cities and urban areas and this f igure is projected
to reach 50 per cent in 2030. The present urban housing shortage
is 18.78 million units of which 95.6 per cent is in economically
weaker sections (EWS) / low income group (LIG) segments and
requires huge f inancial investment. A number of incentives/
initiatives are being taken for promoting affordable housing such
as allowing external commercial borrowing (ECB) for low cost
affordable housing projects. In the Union Budget 2013-14, for
housing loans up to ` 25 lakh taken for the f irst home in FY 2013-
14, an additional deduction of interest of up to ` 1,00,000 was
given for the assessment year 2014-15. An Urban Housing Fund
with a corpus of ` 2000 crore was also announced. Accordingly,
the National Housing Bank (NHB) has formulated a new ref inance
scheme for channelizing funds into the urban housing sector. The
scheme seeks to augment resources and improve credit availability
for meeting the housing needs of people in lower income segments
residing in urban areas. Till 31 March 2014, the NHB had disbursed
` 441.15 crore under this scheme to various primary lending
institutions (PLIs). In order to overcome the constraints faced
during the pilot phase of implementation of the Interest Subsidy
Scheme for Housing the Urban Poor (ISHUP), the government
has designed a Revised Interest Subsidy Scheme, renamed the Rajiv
RinnYojana (RRY), as an additional instrument for addressing the
housing needs of EWS/LIG segments in urban areas. Under the
RRY, the amount of loan has been revised upwards to ` 5.0 lakh
for EWS and ` 8.0 lakh for LIG benef iciaries with an interest
subsidy up to a maximum of ` 5.0 lakh for both categories.
10.44 Institutional credit for housing investment is an important
factor. Though it is growing at a CAGR of about 18-20 per cent
per annum with mortgages as a percentage of GDP rising from 3.4
per cent in 2001 to 9 per cent in 2012-13, it is well below countries
like China, Thailand, and Malaysia. Procedural delays are another
major constraint in this sector. According to the World Banks
Doing Business 2014, India ranked 182nd in terms of construction
permits, requiring a total of 35 procedures to get permits as
compared to an average of 16 in South Asia and 13 in OECD
(Organisation for Economic Cooperation and Development)
countries. These issues need to be addressed to make housing not
only affordable but also easy to own.
TRADE
10.45 The trade sector includes wholesale and retail trade in all
commodities whether produced domestically, imported, or exported.
It covers activities of purchase and selling agents, brokers, and
auctioneers. The ` 14, 79,787 crore trade sector with a share of 15.8
per cent in GDP, grew by 4.8 per cent in 2012-13. A study in 2008
188 ECONOMIC SURVEY 2013-14
188
by the International Council for Research on International
Economic Relations (ICRIER) has estimated the employment in
retail trade at 35.1 million, constituting 7.3 per cent of the workforce
in the country. A large number of small and decentralized traders
dominate the Indian retail market. One estimate puts their number
at 1.3 crore.
10.46 As per the AT Kearneys Global Retail Development Index
(GRDI), India slipped to 14th rank in 2013 from 5th rank in 2012.
Its previous low ranking was sixth in the inaugural Index in 2002,
and it was in first place as recently as 2009. Same-store sales volume
growth slowed in 2012 across retail, particularly for lifestyle and
value-based formats. High operating costs, low bargaining power
with vendors, and heavy discounting to improve sales have affected
prof its and expansion plans. Real estate cost and space availability
also remain important issues. Many players are actively looking to
improve sales productivity, cut operating costs, and reduce store
size. However, the long-term fundamentals remain strong, in
particular with a large young and increasingly brand- and fashion-
conscious population. Retail growth of 14 to 15 per cent per year
is expected through 2015.
10.47 In 2012, the government allowed 100 per cent FDI in single-
brand retail for the f irst time. Several single-brand retailers entered
India in many sectors: apparel and beauty ( e.g. Brooks Brothers,
Kenneth Cole, Sephora, and Armani Junior), standalone boutiques
(e.g. Roberto Cavalli and Christian Louboutin), and food (e.g.
Starbucks and Dunkin Donuts). In multi-brand retail, the
government allowed 51 per cent FDI starting in early 2013 with
preconditions about investment, sourcing, store locations, and state
government approval. Online shopping is in the early stages, with
e-commerce sales at less than 1 per cent of total retail sales, but
growth is expected as more people access the Internet. Mobile
phones, electronic appliances, apparel, movies, music, and books
are the fastest-growing categories.
10.48 Both wholesale and retail trade within the country is
governed by many controls, multiple organizations, and a plethora
of orders. This has resulted in a fragmented market hindering the
free flow of goods within the economy, higher transportation cost,
and in general, a lower level of eff iciency and productivity.
Unfettered flow of goods and services is an essential pre-requisite
for building a common national market that will promote growth
and trade across regions and also enable specialization and higher
levels of economic eff iciency.
Media and Entertainment Services
10.49 The Indian media and entertainment industry comprises
various segments that include television, print, f ilms, radio, music,
animation, gaming and visual effects, and digital advertising. The
industry has recorded unprecedented growth over the last two
decades, making it one of the fastest growing industries in India.
According to a report by FICCI-KPMG, the Indian media and
entertainment industry grew by 11.8 per cent to ` 918 billion in
2013 from ` 821 billion in 2012 and is projected to grow at a CAGR
of 14.2 per cent to reach ` 1786 billion by 2018. Digital advertising
SERVICES SECTOR 189
189
and gaming, which grew by 38.7 per cent and 25.5 per cent
respectively in 2013, are projected to drive the growth of this sector
in the coming years.
10.50 India has one of the largest broadcasting industries in the
world with close to 161 million TV households. There are about
800 satellite television channels, 88 teleports, 245 FM radio channels,
and 170 community radio stations operating in India. The
Government of India has embarked on an ambitious exercise of
digitizing its cable network in four phases leading to complete
switch off of analog TV services by 31 December 2014. The f irst
two phases of cable TV digitization have been successfully
completed. In phase I, which was completed on 31 October 2012,
out of four metro cities, threeDelhi, Mumbai, and Kolkatahave
achieved full digitization. Chennai is yet to undergo full transition
owing to pending court cases. Phase II was concluded on 31 March
2013 in 36 cities (having population more than 10 lakh) spanning
14 states and 1 UT. Three crore set top boxes (STBs) were installed
in the f irst two phases. It is estimated that state governments
and the Government of India stand to gain signif icantly, as
transparency in the subscriber base through digitization would lead
to manifold increase in the tax collection. Preliminary data from
state governments shows that there is already two- to three-fold
increase in entertainment tax collection. There is also good
opportunity for local manufacturing of STBs, leading to employment
generation. Phase III, covering other urban areas and Phase IV the
rest of India, are slated for completion by 30 September 2014 and
31 December 2014 respectively. DTH (direct to home) in India is
also growing at a fast pace and as per the FICCI-KPMG Report
2014 it is growing at a rate of about one million per year. HITS
(headend in the sky) technology will play a key role in achieving
the goal of 100 per cent digital distribution in India. At present
2 HITS operators have been permitted to operate by the Government
of India.
10.51 The effect of digitization is being felt in the f ilm sector
as well. With about 95 per cent of Indias cinema screens already
digitized, the industry is poised for buoyant growth in the long
run. Piracy remains a challenge to the Indian f ilm industry.
The Government of India has approved an anti-piracy plan to
put an effective legal mechanism in place for combating piracy
and creating public awareness among all the stakeholders
through multimedia campaign in PPP mode. So far it has signed
co-production agreements with nine countries, namely the UK,
Italy, Brazil, Germany, France, New Zealand, Poland, Canada,
and Spain. The government has accorded permission to shoot
in India to 31 foreign production houses in 2013-14. In order to
preserve the rich heritage of multifaceted Indian cinema,
construction of the international standard National Museum
of Indian Cinema in Mumbai, an ambitious plan of the
Government of Indi a, i s under i mpl ementati on. The
construction of the f irst phase has been completed and it will
be opened for the general public shortly.
190 ECONOMIC SURVEY 2013-14
190
Box 10.1 : Services Sector Reforms: Some Major Issues and Big Ticket Sectors
Many issues both general and sector specif ic including domestic regulations hinder the growth prospects of the services
sector, which if addressed deftly could help the sector and lead to exponential gains for the economy.
General Issues:
Nodal agency and marketing: Despite having strong growth potential in various services sub-sectors, there is no single
nodal department or agency for services. An inter-ministerial committee for services has been set up under the Department
of Commerce. But services activities cover issues beyond trade and a more proactive approach and proper institutional
mechanism is needed to weed out unwanted regulations and tap the opportunities in the services sector in a coordinated
way. There is also need for promotional activities for service exports like setting up a portal for services, showcasing Indias
competence also in non-software services in trade exhibitions, and engaging dedicated brand ambassadors and experts.
Disinvestment: There is plenty of scope for disinvestment in services PSUs under both central and state governments.
Speeding up disinvestment in some services-sector PSUs could not only provide revenue for the government but also speed
up the growth of these services.
Credit related: The issues here include collateral free soft loans to support the sectors cash needs and possibility of
considering even export or business orders as collateral for credit-worthy service f irms.
Tax and Trade Policy related: These include use of net instead of gross foreign exchange criteria for export benef it
schemes, the issue of retrospective amendments of tax laws like amendment to the def inition of royalty to include payment
of any rights via any medium for use of computer software, tax administrative measures to tackle delay in refunds,
introducing VAT (value added tax) refund for foreign tourists, and addressing the issue of bank guarantees based on past
performance to avail of export promotion benef its in services.
Sector-wise issues:
Tourism and hospitality sector: Indias share in world tourist inflows was only 0.64 per cent in 2012 (rank 41), while that
of the USA was 6.47 per cent (rank 2) and China 5.57 per cent (rank 3). Indias share in world tourism expenditure is
relatively higher at 1.65 per cent (rank 16) implying that foreign tourists spend relatively more in India. Singapore, a small
country, attracted 11.10 million tourists in 2012, while a large country like India attracted only 6.97 million foreign tourists
during 2013. Some suggested measures include creating world class tourism infrastructure even by PPP; addressing multiple
taxation issues; skill and etiquettes training to cater to the needs of tourists; special focus on cleanliness at tourist sites
and safety of tourists; using the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) for creating
permanent assets like tourism infrastructure and facilities; organizing mini India cultural shows on a daily basis at
important tourist sites that will not only attract tourists but also generate employment for Indian artists; and implementing
urgently visa on arrival and E visa facilities at 9 airports to 180 countries barring 8 prior reference countries, a decision
on which has already been taken.
Port services: India does not have world class ports with the necessary draft. As a result, third-generation ships are not
able to enter the harbour and goods have to be offloaded outside in smaller ships, adding to costs. India has made great
strides in developing airport infrastructure and laying of metro lines. Its immediate focus should be on building world
class ports providing world class services that will also help the trade sector by reducing costs and turnaround time in
ports. There are also issues like the many port charges in India and the port charges in India being considerably higher
than in many developed countries.
Shipping, shipbuilding, and ship repairs: Given that the share of Indian ships in the carriage of Indias overseas cargo has
fallen sharply and Indian ships are ageing, there is urgent need to replace our ageing ships with new ones. While the time
is opportune for increasing our shipping f leet, with prices falling on account of global slowdown, a special f inancing
mechanism needs to be developed. This also brings to focus the importance of Indias shipbuilding industry which has
the capacity and expertise but is functioning below capacity. Government-owned shipyards like Visakhapatnam are facing
problems like declining orders. With the need to replace many of our old ships and a growing ship repairs business, special
attention can be given to utilizing Indias shipbuilding and repairs yards and further enhancing their capacity.
Railways: Indias FDI policy restricts FDI in rail transport, except in mass rapid transit systems. FDI and privatization in
the railways could be the next big ticket reforms. A proposal has been initiated by Indian Railways, for making suitable
changes in the existing FDI policy in order to allow FDI in railways, to foster creation of world class rail infrastructure.
The proposal envisages allowing FDI in all areas of the rail sector except railway operations. Even in railway operations,
FDI is proposed in PPP projects, for suburban corridors, high speed train systems, and dedicated freight lines. While
privatization of railways has been successful in some countries like Japan, it has failed in some others like the UK. So
this proposal needs to be examined carefully and quickly to allow privatization/ FDI in areas where it is feasible.
Source : Based on Dr H.A.C. Prasad, Dr R. Sathish, and Salam Shyamsunder Singh (2014), working paper 1/2014-DEA on
Emerging Global Economic Situation: Opportunities and Policy Issues for Services Sector and updates from
some ministries and institutions.
SERVICES SECTOR 191
191
Some services like software
and telecom were big ticket
items that gave India a brand
image in services. The time
has come to focus on some
other high potential big ticket
items that have high
manuf acturing-sector and
employment linkages.
There are signs of services-
sector revival in 2014-15. Some
quick reforms and removal of
barriers and obsolete regula-
tions could further help this
revival.
CHALLENGES AND OUTLOOK
Challenges
10.52 Indias growth story with a services-led growth has been
unique for a developing country. The immediate challenge in this
sector is revival of growth. While this could be achieved through
reforms and speeding up of the policy decision making, a targeted
approach with focus on big ticket services as mentioned in Box
10.1 could lead to a rebounding of services-sector growth for India.
Some services like software and telecom were big ticket items that
gave India a brand image in services. While further focus on these
services is needed to retain and further our lead, the time has come
to focus on some other high potential big ticket items that have
high manufacturing-sector and employment linkages (Box 10.1).
OUTLOOK
10.53 Indias services sector which was growing at a steady rate
of over 10 per cent since 2005-06 has shown subdued performance
in the last three years. The resilience of services growth witnessed
even during and in the aftermath of the 2008 global recession has
started waning, though services sector growth is still higher than
that of other sectors. While the slowdown in the manufacturing
and mining sectors directly affected some services like railways,
shipping, ports, and other related services on account of the strong
linkage effect, other services were affected by the income effect
with slowdown in growth of both global and domestic incomes.
10.54 There was also lacklustre performance of community and
social services, which had shown robust growth in 2008-09 and
2009-10 owing to the payment of arrears to government employees
as per the sixth pay commission recommendations resulting in
high growth in the public administration and defence category.
However, the good performance by some important sectors like
f inancing, insurance, real estate and other business services, and
community social and personal services other than public
administration and defence helped pull up services growth rate to
modest levels of 7 or near 7 per cent in the last three years.
10.55 Going forward, the year 2014-15 seems to augur well for the
services sector with expansion in business activity in India as also
indicated by some indices. There are also signs of revival in growth
of the aviation sector with the announcement of new players like
Air Asia and Tata-SIA Airline after a turbulent period of
withdrawals and losses by some airlines. Indications of revival in
world GDP and trade growth in general and of developed countries
in particular, could help in revival of the tourism and shipping
sectors. With a stable government in place and growing optimism
which could translate into investment and growth, some quick
reforms and removal of some barriers and obsolete regulations in
the services sector could help. The downside risk however is the
fragile global situation.