Economic Survey: Services Sector Contributes Over 50% to India’s GDP

It was revealed on Monday that the services sector accounts for more than 50% of India’s GDP.

The Economic Survey 2021-22, which was tabled by Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman in Parliament on January 31, a day before the Union Budget 2022-23.

The survey also found that the services sector witnessed a steady recovery in the first half of the current fiscal. “Overall, the services sector grew by 10.8 per cent year-on-year (YoY) in the first half (H1) of 2021-22,” the survey said.

As highlighted in the study, the gross value added of the entire services sector is expected to grow by 8.2% in 2021-2022, although the spread of the Omicron variant carries a degree of uncertainty in the short term, especially in segments requiring human contact.

Foreign Direct Investment in Services

The Economic Survey found that the services sector was the largest recipient of FDI inflows in India. In the first half of 2021-22, the services sector received USD 16.73 billion in FDI capital inflows. “Finance, business, outsourcing, research and development, courier, technology testing and analysis, and education sectors witnessed strong FDI inflows,” the survey said.

Trade in services

The Economic Survey highlighted that India has a dominant position in global services exports. It remained among the top ten service exporting countries in 2020, with its share in global commercial services exports increasing to 4.1% in 2020 from 3.4% in 2019. “The impact of the global lockdown induced by Covid-19 on India’s services exports was less severe as compared to its goods exports,” the Economic Survey said. The Survey further mentioned that despite the impact of Covid-19 on transport exports, double-digit growth in gross services exports, aided by exports of software, business services and transport services, resulted in a 22.8% increase in net services exports in the first half of 2021-22.

Results by subsector

IT-BPM Sector (Information Technology – Business Process Management)

The Economic Survey described the IT-BPM sector as a major services segment in India. In 2020-21, as per NASSCOM provisional estimates, IT-BPM revenue (excluding e-commerce) touched $194 billion, growing at 2.26% year-on-year, adding 1.38 lakh employees. The survey further noted that in the IT-BPM sector, IT services account for the majority (>51%). The Economic Survey noted that a number of policy initiatives have been taken over the past year to drive innovation and technology adoption in the sector, including relaxation of regulations on other service providers, telecom sector reforms and the Consumer Protection (E-Commerce) Rules, 2020. “This would significantly expand access to talent, increase job creation and catapult the sector to the next level of growth and innovation,” the study suggested.

Startups and patents

The economic survey pointed out that the number of startups in India has increased significantly in the last six years, with most of them belonging to the services sector. Over 61,400 startups were recognised in India till January 10, 2022. Further, the survey stated that India had a record number of startups (44) that achieved unicorn status in 2021. The economic survey also mentioned that intellectual property, particularly patents, were crucial for the knowledge economy. “The number of patents filed in India increased to 58,502 in 2020-21 from 39,400 in 2010-11, while patents granted in India increased to 28,391 from 7,509 during the same period,” the survey noted.

Tourism sector

The economic survey found that the tourism sector contributed significantly to GDP growth, foreign exchange earnings and employment, however, the Covid-19 pandemic had a devastating impact on travel and tourism across the world, including in India. The survey further suggested that the resumption of international tourism will continue to largely depend on a coordinated response by countries in terms of travel restrictions, harmonized health and safety protocols, and effective communication that will help restore consumer confidence. The survey found that special international flights were operated under the Vande Bharat Mission, which was currently in its 15th phase, and carried over 63.55 lakh passengers.

Ports, shipping and water services

The economic survey found that port development is crucial for the economy. Ports handled about 90% of the export-import cargo by volume and 70% by value. The survey found that the total cargo capacity of all ports increased to 1,246.86 million tonnes per annum (MTPA) as of March 2021 from 1,052.23 MTPA in March 2014. Moreover, port traffic grew during 2021-22, registering a growth of 10.16% during April-November 2021, following the disruptions caused by Covid-19 in 2020-21. The survey also mentioned the Sagarmala Scheme, a flagship programme aimed at promoting port-based development in the country, comprising 802 projects worth Rs 5.53 lakh crore.

Space sector

The economic survey highlighted that since its inception in the 1960s, India’s space programme has expanded drastically. Capabilities have been developed in the space sector across domains, including indigenous space transportation systems, space assets comprising a fleet of satellites catering to diverse needs of the society. The survey noted that the government has undertaken various reforms in the space sector in 2020, envisaging private sector participation in the provision of space-based services. These reforms included empowering the New Space India Limited (NSIL) and changing the current supply-driven model to a demand-driven model; setting up an independent nodal agency, i.e., Indian National Space Promotion and Authorisation Centre (IN-SPACe) under the Department of Space; and ensuring a predictable, future-proof, well-defined and enabling regulatory regime for space activities in the country.