core sector communique

Services Sector Likely to Register 9.6 per Cent Growth
India Remains Second Fastest Growing Economy in this Sector

The advance estimates (AE) of the Economic Survey 2010-11 put the growth rate of the services sector at 9.6 per cent. This is despite global deceleration in the sector. The sector had registered 10.1 per cent growth in 2009-10. The Survey presented by the Union Finance Minister, Shri Pranab Mukherjee in the Parliament today states that the Indian economy remains the second fastest growing in the services growth with 8.9 per cent rate, behind China (10.5 per cent). An international comparison of the services sector shows that India compares well even with the developed countries in the top 12 countries with highest overall GDP.

The two broad services categories, namely trade, hotels, transport, and communication; and financing, insurance, real estate, and business services have performed well with growth of 11 per cent and 10.6 per cent respectively in 2010-11 (AE). Only community, social and personal services have registered a low growth of 5.7 per cent due to base effect of fiscal stimulus in the previous two years, thus contributing to the slight deceleration in growth of the sector. The construction sector, a borderline service inclusion, grew at a moderate 8 per cent. Among the four broad categories of services, in terms of shares, financing, insurance, real estate, and business services; and trade, hotels, and restaurants are the largest groups accounting for 16.7 per cent and 16.3 per cent respectively of the national GDP in 2009-10.

The Survey says that in terms of exports, India is also moving towards a services led export growth. In the first half of 2010-1, services exports growth was 27.4 per cent despite a dip due to the global crisis which was more due to fall in the share of merchandise trade to GDP. The growth rate in 2010-11 is expected to be 19.5 per cent for IT – BPO services, 18.5 per cent for exports and 22.8 per cent for domestic IT related services.

The contribution of the services sector to the Indian economy has been 55.2 per cent in GDP and has been growing by 10 per cent annually. In terms of employment, although the primary sector is the dominant employer followed by the services sector, the share of the services sector has been increasing over the years.

The global economic and financial crisis had a dampening effect on the cross border FDI floors. The Survey says that in order to maintain the level of FDI into the sector, the major challenge is to retain India’s competitiveness in this sector. Making in roads into some traditional areas such as tourism and shipping and making forays into globally traded services such as financial services, health care, education and accountancy etc. are the other challenges that needs to be overcome.