Services Sector in India

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The services sector is not only the dominant sector in India’s Gross Domestic Product (GDP), but has also attracted significant foreign investment flows, contributed significantly to exports as well as provided large-scale employment.

India’s services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction.

Indian service sector grew at approximately 8 per cent per annum and contributed to about 64 per cent of India’s GDP in FY 2015-16.

The services sector is the key driver of India’s economic growth. The sector contributed around 66.1 per cent of its Gross Value Added growth in 2015-16, thereby becoming an important net foreign exchange earner and the most attractive sector for FDI (Foreign Direct Investment) inflows.

The Indian telecommunication services market is expected to grow by 10.3 per cent year-on-year to reach US$ 103.9 billion by 2020.

India is the eighth largest services exporter in the world. The services exports have in 2014 stood at US$ 155.6 billion, which constitutes 7.5 per cent of the GDP. The services imports increased at a rate of 3.3 per cent to US$ 81.1 billion in 2014-15.

Out of overall services sector, the sub-sector comprising financial services, real estate and professional services contributed 21.6 per cent to the GDP, and grew the fastest among all sub-segments at 10.3 per cent year-on-year in 2015-16.

The sub-sector of trade, hotels, transport, communication and services related to broadcasting contributed 12.6 per cent to the GDP.

The third-largest sub-segment comprising public administration, defence and other services contributed nearly 12.6 per cent to the GDP.

The Indian services sector has attracted the highest amount of FDI equity inflows in the period April 2000 to March 2016, amounting to about US$ 50.79 billion which is about 18 per cent of the total foreign inflows, according to the Department of Industrial Policy and Promotion (DIPP).

The Government of India plans to significantly liberalise its visa regime, including allowing multiple-entry tourist and business visas, which is expected to boost India’s services exports.

The Ministry of Communication and Information Technology has announced plans to increase the number of common service centres or e-Seva centres to 250,000 from 150,000 currently to enable village level entrepreneurs to interact with national experts for guidance, besides serving as a e-services distribution point.

By December 2016, the Government of India plans to take mobile network to nearly 10 per cent of Indian villages that are still unconnected.

The Government of India has proposed provide tax benefits for transactions made electronically through credit/debit cards, mobile wallets, net banking and other means, as part of broader strategy to reduce use of cash and thereby constrain the parallel economy operating outside legitimate financial system.

The Reserve Bank of India (RBI) has allowed third-party white label automated teller machines (ATM) to accept international cards, including international prepaid cards, and has also allowed white label ATMs to tie up with any commercial bank for cash supply.

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