By TIOL News Service

NEW DELHI, JAN 31, 2025: ACKNOWLEDGING the importance of the Service Sector, it has been termed as 'Old War Horse' in the Economic Survey 2024-25 tabled in the Parliament today by Union Minister of Finance and Corporate Affairs, Nirmala Sitharaman. 'The service sector has been fuelling growth both domestically and globally. In FY25 so far, services propped up GDP growth when manufacturing has been affected by dampening global merchandise trade. The critical role of services exports in strengthening India's external balance and the increasing 'servicification' of the industrial sector adds to its importance to the Indian Economy', highlights the Economic Survey 2024-25.

India's services sector has been the steadiest contributor to the Gross Value Added (GVA) in the economy. Its contribution to the total GVA at current prices has increased from 50.6% in FY14 to about 55% in FY25. The growth in the service sector, as measured by YoY change in the real GVA by services, has been above 6% in each year in the last decade, except for the Covid-19 pandemic that affected FY21. The average services growth rate before the pre-pandemic year was 8%. The average services growth in the post-pandemic Year, i.e. FY23 to FY25 has risen to 8.3%. The service sector also provides employment to approximately 30% of the workforce. Services also contribute indirectly to the GDP through the 'servicification' of manufacturing, i.e., increasing utilization of services in manufacturing production and post-production value addition.

India's share in global services exports has been steadily rising for the last two decades. This has helped compensate the impact of oscillation in the share of merchandise exports in global merchandise exports to some extent. India ranks seventh globally, representing a 4.3% share in the global services export.

Referring to the HSBC's India services PMI, the Economic Survey 2024-25 highlighted that the service sector remained in the expansionary zone for continuous 41 months since August 2021. The index remained above the 60 mark for the first five months of FY25. However, in September, the index witnessed a ten-month low, but it quickly rebounded in October. The recent data indicates demand buoyancy continued to drive new business inflows higher, which in turn supported output growth and prompted firms to recruit additional workers.

TRADE IN THE SERVICES

India remained amongst the top five major countries in terms of growth in services exports in FY25 (April-September). India's services export growth accelerated to 12.8% in April-November FY25 from 5.7% in FY24. Computer services and business services exports account for around 70% of India's services exports. In April-November FY25, services imports grew by 13.9%, in contrast to a decline of 2.9% during the same period in FY24.

SOURCES OF FINANCING: BANK CREDIT AND FDI

Total outstanding bank credit to services sector stands at 48.5 lakh crore rupees as of November 2024. The YoY growth in the credit to the services sector was recorded at 13%. Within the service sector, computer software and professional services recorded the highest YoY credit growth at 22.5% and 19.4% respectively.

FDI equity inflows stood at USD 29.8 billion in FY25 (April- September), while the services sector witnessed USD 5.7 billion inflow in the same period. In FY25 (April- September), insurance services received the highest FDI inflows of over 62%, followed by the financial sector, which received over 18% of the total FDI equity inflows to the services sector.

STRATEGY FOR SERVICE SECTOR

NITI Aayog working paper on "Identifying Potential Service Sub-Sectors: Insights from GVA, Exports, and Employment Data" studies the potential of services in transforming the Indian economy from various dimensions such as the contribution to output /value added, employment and exports. Based on the analysis of the performance of the various service sub-sectors on these key dimensions, the Survey classifies services into four categories, each with its own set of policy recommendations: defend, accelerate, transform, and untapped.

LOGISTICS AND PHYSICAL CONNECTIVITY BASED SERVICES

Indian Railways (IR) is the fourth largest network in the world. Passenger traffic of Indian Railways achieved a growth of 8 per cent over the previous year. Revenue earning freight in FY24, achieved a growth of 5.2 per cent, the survey said.

Road transport generates the highest GVA within transport services. During FY23, road transport accounted for 78 per cent of the total GVA of transport services. Enhancing user convenience on national highways is central to the growth of road transport. In this direction, the government has moved from traditional ways of tolling to digitised tolling by adopting FASTag. In a major step towards road safety, the government has formulated a comprehensive strategy to improve road safety standards on National Highways.

India is the fastest-growing aviation market globally. To accommodate the substantial growth in air traffic, Indian airlines have placed amongst the largest orders for aircraft globally.

Further, the Economic Survey 2024-25 highlights that, with 140 remote pilot training organisations, 18,862 remote pilot certificates issued, 26,659 registered drones, and 82 approved drone models, India has seen a notable rise in drone activities

Major ports of India are enhancing their capacity to accommodate increased trade demand. The cargo movement in FY24 was 819 MT. In FY25, in line with the annual target of 870 MT, around 622 MT has been handled upto December 2024.

Inland water transport holds great untapped potential as a means for the transport of goods and passengers. As of October 2024, the country has 26 operational waterways of more than 4,800 km. The government is also putting efforts into promoting river cruise tourism on national waterways.

TOURISM AND HOSPITALITY

The tourism sector's contribution to GDP regained the pre-pandemic level of 5% in FY23. The tourism sector created 7.6 crore jobs in FY23. International tourist arrivals (ITAs) in India have rebounded to pre-pandemic level in 2023. The share of India's ITAs in World ITAs stands at 1.45 per cent in 2023.

REAL ESTATE: BUILDING THE ECONOMY

India's real estate market witnessed robust performance under office demand as well as residential sales driven by economic stability and positive market sentiment. The demand for real estate is emerging not only in tier 1 and tier 2 cities but across the country due to the expansion of metro networks, enhancement to road networks, and improvements in connectivity. The residential real estate market scaled an 11-year high in sales volume in the first six months of 2024. Housing demand in India is expected to touch 93 million units by 2036.

INFORMATION TECHNOLOGY (IT) SERVICES

The Indian IT/ ITeS industry has a leading position globally and has been a significant contributor to the growth of exports. The industry has estimated revenues of USD 254 billion, marking a 3.8% YoY growth in FY24 (excluding e-commerce). Tech exports reached nearly USD 200 billion, reflecting a growth of 3.3%, while the domestic market is expected to expand by 5.9%, crossing USD 54 billion in FY24.

GLOBAL CAPABILITY CENTERS

India's Global Capability Centres (GCCs) are emerging as strategic hubs reshaping the Indian corporate landscape while influencing global business dynamics. The number of GCCs in India has grown from approximately 1430 in FY19 to over 1700 in FY24. As of FY24, GCCs in India employ nearly 1.9 million professionals.

TELECOMMUNICATION

India's telecom sector is expanding with the smart phone boom, surging data consumption, and the advent of technologies like 5G. India stands as the second largest telecommunications market, with over 1.18 billion telephone subscribers, an overall teledensity of 84%, and 941 million broadband users as of 31st October, 2024. The country also leads in mobile data consumption per subscriber and offers the world's most affordable data rates. The average monthly wireless data usage per user in FY24 grew to 19.3 GB, up from 12.1 GB in FY21.

As per annual survey of unincorporated sector enterprises 2022-23, the number of estimated enterprises belonging to the unincorporated sector stands at 6.5 crore. 72.6% of these enterprises operate in the service sector. These enterprises, though contributing to the overall development of the economy in terms of employment and income, are losing out on benefits normally offered by incorporation, the Survey says.

The Economic Survey says that one of the primary conditions for manufacturing and service sector progress is the focus on appropriate skilling of the labour force. The significant initiatives taken in the Budget 2024-25 need to be carried forward into action by the synergic efforts of all tiers of the government, private sector and skilling institutions.