Growth of Services Sector in India

The services sector is not only the dominant sector in India’s GDP, but has also attracted significant foreign investment, has contributed significantly to export and has 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.

Market Size

India’s economy has seen significant contributions from the services sector, accounting for 55.39% of the Gross Value Added in FY20. In the second quarter of 2020-21, the sector’s GVA at current prices was estimated at Rs. 42.80 lakh crore (US$ 580.80 billion), showing a 4.2% contraction compared to the same period in the previous year.
According to the Reserve Bank of India (RBI), as of February 2021, service exports and imports stood at US$ 21.17 billion and US$ 10.61 billion, respectively. The country’s service industry faced challenges during this time, with the India Services Business Activity Index/Nikkei/IHS Markit Services Purchasing Managers’ Index dropping to 54 in April 2021 from 54.6 in March 2021. This decline was attributed to pandemic-induced constraints on business activities and a weakened sentiment towards growth prospects.

Industry Developments

Some of the developments in the services sector in the recent past are as follows:

From April 2000 to December 2020, the services sector in India attracted an impressive US$ 85.86 billion in foreign direct investment (FDI). This sector proudly held the top position in FDI inflow, according to data released by the Department for Promotion of Industry and Internal Trade (DPIIT).
In April 2021, the Ministry of Education (MoE) and University Grants Commission (UGC) embarked on a mission to simplify forms and processes in higher education. This initiative, following the government’s commitment to ease of doing business, involved engaging with stakeholders online to reduce the compliance burden, ultimately making life easier for everyone involved.
On March 17, 2021, the Health Ministry celebrated a significant achievement as its eSanjeevani telemedicine services surpassed 3 million teleconsultations. This service allows patients to consult with doctors from the comfort of their homes and facilitates doctor-to-doctor consultations, revolutionizing healthcare accessibility.
April 2021 marked the entry of Elon Musk’s SpaceX into the Indian market, accepting pre-orders for the beta version of Starlink satellite internet service. Interested users could secure their spot with a fully refundable deposit of US$ 99. The Department of Telecommunications (DoT) is currently reviewing this move, promising more exciting developments in the near future.
In December 2020, GE Healthcare’s India Edison Accelerator selected six health-tech start-ups for collaboration. AarogyaAI, BrainSightAI, Fluid AI, InMed Prognostics, Wellthy Therapeutics, and Onward Assist became part of this initiative, aiming to co-develop innovative healthcare solutions.
Anticipating a shift towards digitally enabled healthcare, the Indian healthcare industry is gearing up for remote consultations through telemedicine. The telemedicine market in India is projected to grow at an impressive CAGR of 31% from 2020 to 2025.
In December 2020, Gamma Skills Automation Training introduced a unique ‘Industry 4.0 Hands-on Skill Learning Centre’ in IMT Manesar, Gurgaon. This program aims to launch engineers into rewarding careers in robotics and automation.
Siemens, BMZ, and MSDE joined forces to initiate the ‘IGnITE’ program in December 2020. Designed to encourage high-quality training and technical education, this program follows the German Dual Vocational Educational Training (DVET) model. By 2024, it aims to upskill around 40,000 employees, preparing them for the industry’s evolving needs.
In October 2020, Bharti Airtel made a significant move by entering the cloud communications market with the launch of ‘Airtel IQ,’ a business-centric offering. This marked the telecom giant’s expansion into providing comprehensive solutions for businesses.

Government Initiatives

The Government of India recognises the importance of promoting growth in services sector and provides several incentives across a wide variety of sectors like health care, tourism, education, engineering, communications, transportation, information technology, banking, finance and management among others. The Government of India has adopted few initiatives in the recent past, some of these are as follows:

The government, in the Union Budget 2021-22, dedicated Rs. 7,000 crore (US$ 963.97 million) to the BharatNet program, aiming to enhance digital connectivity throughout India.
The FDI limit for insurance companies has been increased from 49% to 74%, and for insurance intermediaries, it’s now 100%, encouraging foreign investments in the insurance sector.
In FY 2020-21, India attracted a record FDI inflow of US$ 81.72 billion, as announced by the Ministry of Commerce and Industry in May 2021.
In March 2021, the central government infused Rs. 14,500 crore (US$ 1.99 billion) into Central Bank of India, Indian Overseas Bank, Bank of India, and UCO Bank through non-interest-bearing bonds.
On January 15, 2021, the third phase of Pradhan Mantri Kaushal Vikas Yojana (PMKVY) was launched, focusing on new-age and COVID-related skills. The initiative, led by the Ministry of Skill Development and Entrepreneurship, aims to train eight lakh candidates in 600 districts with 300+ skill courses.
The Department of Telecom, Government of India, signed an MoU with the Ministry of Communications, Government of Japan, in January 2021, to strengthen cooperation in 5G technologies, telecom security, and submarine optical fiber cable systems.
On November 4, 2020, the Union Cabinet approved an MoU between the Ministry of Communication and Information Technology and the UK’s Department of Digital, Culture, Media, and Sports, fostering cooperation in telecommunications and ICTs.
In October 2020, Hughes Communications India was chosen by the government to connect 5,000 village panchayats in border and naxal-affected areas with satellite broadband under the BharatNet project by March 2021.
In September 2020, the government hinted at infusing Rs. 200 billion (US$ 2.72 billion) in public sector banks through recapitalization bonds.
Over the next five years, the Ministry of Electronics and Information Technology aims to increase the digital economy’s contribution to 20% of the GDP. Cloud-based infrastructure is being developed to support collaborative networks for AI entrepreneurs and startups.
On Independence Day 2020, Prime Minister Narendra Modi introduced the National Digital Health Mission (NDHM) to revolutionize healthcare by providing a unique health ID to every Indian. The policy draft was open for public consultation until September 21, 2020.
In September 2020, the Government of Tamil Nadu unveiled a new electronics and hardware manufacturing policy aligned with the goal of increasing the state’s electronics output to US$ 100 billion by 2025. The policy includes upskilling and training over 100,000 people by 2024 to meet the human resource requirements.
The Government of India launched the National Broadband Mission with the objective of providing broadband access to all villages by 2022.