service sector gdp

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Services Sector 10CHAPTER

India’s services sector expanded quickly with double-digit growth in the second half

of the 2000s. As the uro-!one crisis has worsened" growth has slowed" though the

sector is still growing at a #uch higher rate than the other two sectors of the econo#y.

10.2 The services sector covers a wide array of

activities ranging from services provided by the most

sophisticated sectors like telecommunications,

satellite mapping, and computer software to simple

services like tehose performed by the barber, the

carpenter, and the plumber; highly capital-intensive

activities like civil aviation and shipping to

employment-oriented activities like tourism, real

estate, and housing; infrastructure-related activitieslike railways, roadways, and ports to social sector-

related activities like health and education. Thus,

there is no one-sie-fits- all definition of services

resulting in some overlapping and some borderline

inclusions. The !ational "ccounts classification of

the services sector incorporates trade, hotels, and

restaurants; transport, storage, and communication;

financing, insurance, real estate, and business

services; and community, social, and personal

services. #n the $orld Trade %rganiation &$T%'

list of services and the (eserve )ank of #ndia &()#'

classification, construction is also included.

SERVICES SECTOR : I NTERNATIONAL

COMPARISON

10.* #n world + of /0.2 trillion in 2011, the

share of services was .3 per cent, more or less

the same as in 2001. #nterestingly the top 13

countries in terms of services + are also the

same in overall + in 2011. This list includes thema4or developed countries and )rail, (ussia, #ndia,

http566indiabudget.nic.in

and 7hina. "mong the top 13 countries with highest

overall + in 2011, #ndia ranked 8 th in overall +

and 10th in services +. " comparison of theservices performance of the top 13 countries in the

eleven-year period from 2001 to 2011 shows that

the increase in share of services in + is the

highest for #ndia &9.1 percentage points' followed

by /pain. $hile 7hina:s highest services compound

annual growth rate &7"+(' of 11.1 per cent was

accompanied by marginal change in its share ofservices for this period, #ndia:s very high 7"+( &8.2

per cent' which was second highest was also

accompanied by the highest change in its share.

This is also a reflection of the domination of the

industrial sector along with services in 7hina in its

growth, while #ndia:s growth has been powered

mainly by the services sector &also see 7hapter 2'.

espite the higher share of services in #ndia:s +

and dominance of industry over services in 7hina,

in terms of absolute value of services + as well

as growth in services & both decadal and annual in2001, 2010, and 2011' 7hina is still ahead of #ndia.

&Table 10.1'

10. 7ountry estimates for 2012 show a

deceleration in services growth in some ma4orcountries. <or e=ample, in 2012 it decelerated to

0.3 per cent from 0.8 per cent &in 2011' in the /";

9.1 per cent in 2012 from 8. per cent &in 2011' in

7hina; and . per cent in <> 2012-1* from 9.2 per

cent &in <> 2011-12' in #ndia. #n )rail, the services

sector grew by a 1. per cent in ?* of 2012

compared to 2.1 per cent in the correspondingperiod of the previous year.



Services Sector 211

Table 10.1 : Performance in Services : International comparison

Country Rank Overall GP S!are of services C!an"e Services "ro#t!

$%S& billion' $ percent of GP' in rate $ per cent'

S!are

(t (t )011 C(GR

Overall Services current constant over )001*

GP GP Prices Prices )001 11)011 )011 )001 )010 )011 )001 )010 )011

1 / 1 1 1881.* 1*223.8 .0 9.* 9. 1. 2.8 2.3 3.1 2.1

2 7hina 2 * 20*.9 2*.0 0. 1.8 1. 1.1 10. 8.8 9.8 11.1

* @apan * 2 390. 0.1 0. 8.8 0.3 -0.1 1.9 1.1 0. 0.

+ermany *0.1 *09. 0.0 0.9 0.0 0.0 2.3 1.0 1.8 1.*

3 <rance 3 3 23.3 220.3 .9 8.0 8.2 2. 1.9 1.8 2.1 1.

)rail 9 2. 112. 3. .2 .3 1.1 1.9 3.0 *.1 *.9

A 228.2 2*91.1 .0 . .0 2.0 *.9 1.1 1.2 2.*

9 #taly 9 2183.8 1*.1 0.8 *.1 *.1 2.2 2. 1. 0. 0.

8 #ndia 8 10 198. 1*22. 30.1 3.9 39.2 9.1 .3 8. . 8.2

10 (ussia 10 1* 193.9 8.2 3.* 2. 2.1 3.9 *.* *.8 *. 3.3

11 7anada 11 8 1*.8 12**.3 3.0 8.8 8. . *.3 2. 2.2 2.

12 "ustralia 12 11 1313.3 98.3 .8 8.0 8.2 1.* *.8 2.* *. *.*

1* /pain 1* 12 19.2 119*.9 *. 8.9 0.0 .* *. 1.2 1.2 2.9

1 Be=ico 1 1 1133.2 83.9 1. *.9 .2 2.9 1.2 3. 3.0 2.8

13 /outh Aorea 13 13 111.2 103.1 0.3 3.0 3. -*.8 . *.8 2. *.3

+orl, -0)01. /)-.- .) -. -./ *0.- ). ). 2. ).

Source : Compute, from %3 3ational (ccounts Statistics accesse, on 4 5anuary )012.

3ote : Rank is base, on current prices6 s!ares are base, on constant prices$%S&'6 "ro#t! rates arebase, on constant prices$%S&'6 C(GR is estimate, for )001*116 construction sector is e7clu,e, in

services GP.

10.3 $hile the share of services in employment

for many developed countries is very high and in

many cases higher than the share of services in

incomes, the gap between these shares is relatively

less. C=cept 7hina and #ndia, all the other )(#7/

countries also have a similar pattern. #n the #ndian

and 7hinese cases, there is a wide gap between

the two, with gap being wider for #ndia. 7hina:s shareof services in both income and employment is

relatively low due to the domination of the industrial

sector, but the gap is also narrower than that of #ndia.

10. $orld services e=port growth &7"+(' reached

a high of 12. per cent during 2000 to 2009 compared

to . per cent in the 1880s. +rowth of world e=ports

of services which declined to - 11.1 per cent due to

the global economic crisis of 2009, Duickly

rebounded in 2010 and grew by 10 per cent.

Eowever, the pre-crisis &2009' level of / *.9; trillionwas reached and surpassed only after a lag of two


years in 2011 when world services e=ports reached

/ .1 trillion with a growth of 11 per cent. The

Curo-one crisis and the global slowdown in 2012

affected services trade as well. Birroring the trends in

world + growth and merchandise trade, world

e=ports of commercial services started decelerating

from ? of 2011 with 3 per cent growth followed by

per cent in ?1 of 2012, ero per cent in ?2 of 2012and - 2 per cent in ?* 2012.

10. $orld services-sector <# rebounded in 2011

after falling sharply in 2008 and 2010, to reach around

/ 30 billion, registering a growth of 13 per cent

over the previous year. <# in non-financial services,

which accounted for 93 per cent of the total, rose

modestly, on the back of increases in <#, targeting

electricity, gas, and water as well as transportation

and communications. <inancial services registered

a 1* per cent increase in the value of <# pro4ects in

2011 reaching /90 billion, though still 30 per centbelow the pre-crisis average &2003-200'. <# pro4ects



212 Economic Survey 20121!

in banking remained subdued in the wake of the

global financial crisis. Curopean banks, which had

been at the forefront of international e=pansion

through <#, were largely absent, with a number of

them remaining under government control. #n 2012,

nited !ations 7onference on Trade and

evelopment &!7T"' estimates indicate a fall inglobal <# by 19 per cent to / 1.* trillion, while

forecasting a moderate recovery in 201*-1.

I N"IA#S SERVICES SECTOR

10.9 #ndia:s services sector has emerged as a

prominent sector in terms of its contribution to

national and states incomes, trade flows, <# inflows,

and employment.

/ervices +10.8 The growth story overall and services of world

and #ndia in the 2000s began from almost the same

level of around -3 per cent in 2000. )ut over the

years, #ndia:s overall and services growth rates have

outpaced those of the world. #nterestingly, unlike

world services growth, which has been moving in

tandem with its overall growth with mild see-saw

movements over the years, #ndia:s services growth

has been consistently above its overall growth in

the last decade e=cept for 200* &when the former

was marginally lower than the latter'. Thus, for morethan a decade, this sector has been pulling up the

growth of the #ndian economy with a great amount

of stability &<igure 10.1'.

10.10 The share of services in #ndia:s + at factor

cost &at current prices' increased from **.* per cent

in 1830-1 to 3.3 per cent in 2012-1* as per "dvance

Cstimates &"C'. #ncluding construction, the share

would increase to .9 per cent in 2012-1*. $ith an

19.0 per cent share, trade, hotels, and restaurants

as a group is the largest contributor to + among

the various services sub-sectors, followed by

financing, insurance, real estate, and business

services with a 1. per cent share. )oth these

services showed perceptible improvement in their

shares over the years. 7ommunity, social, and

personal services with a share of 1.0 per cent is in

third place. 7onstruction, a borderline services

inclusion, is at fourth place with an 9.2 per cent share

&Table 10.2'.

10.11 The 7"+( of the services sector + at 10

per cent for the period 200-3 to 2011-12 has been

higher than the 9.3 per cent 7"+( of overall +during the same period. Eowever in 2011-12 and

2012-1*, there has also been a deceleration in growth

rate of services sector at 9.2 per cent and . per

cent respectively. "mong the ma4or broad categories

of services, Ffinancing, insurance, real estate, and

business services:, which continued to grow robustly

both in 2010-11 and 2011-12 decelerated to 9. per

cent in 2012-1*. $hile in 2011-12 growth in Ftrade,

hotels, and restaurants: and Ftransport, storage, and

communication: slowed down to .2 per cent and

9. per cent respectively, in 2012-1* Ftrade, hotels,and restaurants: and Ftransport, storage, andcommunication: combined grew by an estimated

3.2 per cent.

10.12 /ub-sector wise, among commercial

services, in terms of shares, the ma4or services are

trade, transport by other means &i.e. e=cluding

Source : 8ase, on %3 3ational (ccounts Statistics accesse, on ) 9ebruary )012.




Services Sector

Table 10.) : S!are an, Gro#t! of In,ias Services Sector $at factor cost'

21!

$per cent'

)000* )00/* )00* )00-* )00* )00* )010* )011* )01)*

01 0 0- 0 0 10; 11< 1)= 12==

Tra,e6 !otels6 > restaurants 14. 1.- 1-.1 1-.1 1. 1./ 1-.) 1.0 )/.1?

$/.)' $1).)' $11.1' $10.1' $/.-' $-.' $11./' $.)' $/.)'

Trade 1*.* 13.1 13. 13. 13.* 13.1 13. 1.

&3.0' &11.' &10.9' &8.9' &.' &9.3' &11.3' &.3'

Eotels G restaurants 1.* 1. 1. 1. 1.3 1. 1.3 1.3

&.0' &1.' &1.' &1*.0' &-*.*' &1.8' &10.9' &2.9'

Transport6 stora"e6 > -. .) .) .0 -. -.- -.2 -.1

communication $.)' $11.' $1).' $1)./' $10.' $14.' $12.' $.4'

(ailways 1.1 0.8 0.8 1.0 0.8 0.8 0.9 0.

&.1' &.3' &11.1' &8.9' &.' &9.9' &3.8' &.3'

Transport by other means 3.0 3. 3. 3. 3.3 3.* 3.* 3.

&.' &8.*' &8.0' &9.' &3.*' &.*' &9.2' &9.'

/torage 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

&.1' &.' &10.8' &*.' &1.1' &18.*' &2.2' &8.'

7ommunication 1.3 1. 1.3 1. 1. 1. 1.1 0.8

&23.0' &2*.3' &2.*' &2.1' &23.1' &*1.3' &23.' &9.*'

9inancin"6 insurance6 real estate6 12. 14./ 14. 1/.1 1/. 1/. 1.0 1. 1-.)

> business services $4./' $1).' $14.0' $1).0' $1).0' $.-' $10.1' $11.-' $.'

)anking G insurance 3. 3. 3.3 3.3 3. 3. 3. 3.

&-2.' &13.9' &20.' &1.' &1.0' &11.' &1.8' &1*.2'

(eal estate, ownership of , 9. 8.1 8.* 8. 10.* 10. 10. 10.9dwellings G business services &.3' &10.' &8.3' &9.' &10.' &9.*' &.0' &10.*'

Community6 social6 > personal 14. 12./ 1). 1)./ 12.2 14./ 14.0 14.0 14.2

services $4.' $-.1' $).' $.' $1)./' $11.-' $4.2' $.0' $.'

ublic administration G defence . 3. 3.2 3.1 3.9 . .1 .1

&1.8' &.*' &1.8' &.' &18.9' &1.' &0.0' &3.'

%ther services 9.2 .8 . . .3 .9 .8 .8

&.0' &8.1' &*.3' &.*' &.' &.2' &9.0' &.3'

Construction .0 -. .) ./ ./ .) .) .) .)

$.1' $1).' $10.2' $10.' $/.2' $.-' $10.)' $/.' $/.'

Total Services /0. /2.1 /). /).- /2. /4./ /4.4 //.- /./$/.4' $10.' $10.1' $10.2' $10.0' $10./' $.' $.)' $.'

Total Services $incl. Construction' /. 1.0 1.0 1.) ).4 ).- ). 2. 4.

$/./' $11.1' $10.1' $10.2' $.4' $10.0' $.' $-.' $./'

Total GP 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

$4.2' $./' $.' $.2' $.-' $.' $.2' $.)' $/.0'

Source : Central Statistics Office $CSO'.

3otes :S!ares are in current prices an, "ro#t! in constant prices@

9i"ures in parent!esis in,icate "ro#t! rate@

= first revise, estimates6 < secon, revise, estimates6 ; t!ir, revise, estimates6

== (,vance Astimate $(A'@

? inclu,es t!e s!ares an, "ro#t! of bot! tra,e6 !otels6 > restaurants an, transport6 stora"e6

> communication only for )01)*12.




21$ Economic Survey 20121!

railways', banking, and insurance, and real estate

ownership of dwellings, and business services,

besides construction. #n 2011-12, though the growth

of Ftrade: decelerated to .3 per cent, its share

improved to 1. per cent. The share of Ftransport by

other means: at 3. per cent was almost at earlier

levels, while its growth was at 9. per cent. )ankingand insurance with marginal improvement in its share

to 3. per cent was the most dynamic sector in

2011-12 with a growth of 1*.2 per cent on the top of

high growths in the preceding years. F(eal estate,

ownership of dwellings, and business services: with

a share of 10.9 per cent, which is marginally higher

than that of the previous year, also had robust growth

of 10.* per cent. F%ther services: with a share of

.8 per cent both in 2010-11 and 2011-12 grew at a

slower pace of .3 per cent in 2011-12. "mong Fother

services:, the two ma4or items are communityservices, of which education, medical, and health,

are the ma4or items; and personal services.#nterestingly some items among community services

like coaching centres and membership organiations

have high growth rates with small shares which are

rising. 7onstruction, the borderline services sector,

has been the most vulnerable to global events. $ith

a share of 9.2 per cent as in the previous two years,

it has been growing unevenly since the global crisis.

/tate-wise 7omparison of /ervices10.1* " comparison of the share of services in the

gross state domestic product &+/' of different

states and union territories &Ts' in 2011-12 shows

that the services sector is the dominant sector in

most states of #ndia &<igure 10.2'. /tates and Ts

such as 7handigarh, elhi, Aerala, Bioram, $est

)engal, Tamil !adu, Baharashtra, !agaland, and

Aarnataka have higher than all-#ndia shares.7handigarh tops the list with a share of 93 per cent

followed by elhi with 91.9 per cent. %ther than

"runachal radesh &**.9 per cent', 7hhattisgarh

&*. per cent', and /ikkim &*.0 per cent', the share

of services in the +/ in all other states is more

than 0 per cent. #n 2011-12, in tune with the general

moderation in overall services growth, services growth

rates in many states also moderated. )ut some

states continued to register high growth rates with

the highest being in Eimachal radesh at 1.* per

cent followed by )ihar at 1. per cent. "mong Ts

with high services share in +/, elhi with11.3

per cent growth tops the list. $hile the services

revolution in #ndia is becoming more broad-based,

with even the hitherto backward states piggy-backing

on the good performance of this sector, the initial

momentum seems to have slowed down for some

north-eastern states like "runachal radesh,Bioram, and !agaland after the advantage of base

effect is over.

<# in the /ervices /ector

10.1 The growth of the services sector is closelylinked to the <# inflows into this sector and the role

of transnational firms. $hile the ambiguity inclassifying the different activities under the services

sector continues, the combined <# share of financial

Source : Compute, from CSO ,ata.3otes : ata in t!e case of GuBarat an, iDoram are from )010*11.

S!ares at current prices6 "ro#t! rate at constant $)004*/' prices.




Services Sector 21%

and non-financial services, construction

development, telecommunications, computer

hardware and software, and hotel and tourism can

be taken as a rough estimate of the <# share of

services, though it could include some non-service

elements. This share is per cent of the cumulative

<# eDuity inflows during the period "pril 2000-!ovember 2012. The five service sectors are also

the sectors attracting the highest cumulative <#

inflows to the economy with financial and non-

financial services topping the list at / *.0 billion

during the period "pril 2000-!ovember 2012. This is

followed by other service sectorsHconstruction

development &/21. billion', telecommunication

&/ 12.2 billion', and computer software and

hardware &/ 11.3 billion'. #f the shares of some

other services or service-related sectors like trading

&1.8 per cent', information and broadcasting &1.3per cent', consultancy services &1.11 per cent',

construction &infrastructure' activities &1.0', ports

&0.99 per cent', agriculture services &0.90 per cent',

hospital and diagnostic centres &0.92 per cent',

education &0.* per cent', air transport including air

freight &0.2 per cent', and retail trading &0.02 per

cent' are included then the total share of cumulative

<# inflows to the services sector would be 3.09

per cent.

10.13 #n 2011-12, <# inflows to the services sector

&top five sectors including construction' grew robustlyat 3.2 per cent to / 12.1 billion compared to

the growth of overall <# inflows at **. per cent.

Eowever, in 2012-1* &"pril-!ovember', overall <#

inflows fell by *.* per cent to / 13.93 billion

from / 2.8* billion in the corresponding period

of the previous year. <ollowing this trend, <# inflows

in the top five services also fell by 8. per cent to /

9.18 billion. "mong them, while <# inflows to the top

four services sectors fell in the range of 1 to 8 per

cent, <# inflows to the hotel and tourism sector

increased by a very high *29 per cent over the

corresponding period in the previous year.

10.1 The government has taken many policy

initiatives to liberalie the <# policy for the services

sector. These include liberaliing the policy on foreign

investment for companies operating in the

broadcasting sector, like increasing the foreign

investment limit from 8 per cent to per cent in

teleports &setting up up-linking E)s6teleports' and

direct to home &TE' and cable networks, and

permitting foreign investment &<#' up to per cent

in mobile TI; permitting foreign airlines to makeforeign investment, up to 8 per cent in scheduled

and non-scheduled air transport services; permitting

<#, up to 31 per cent, in multibrand retail trading,

&also see )o= 10. 2'; and amendment of the e=isting

policy on <# in single-brand product retail trading.

#ndia:s /ervices Trade

10.1 #ndia:s share of services e=ports in the world

e=ports of services, which increased from 0. per

cent in 1880 to 1.0 in 2000 and further to *.* per

cent in 2011, has been increasing faster than theshare of merchandise e=ports in world e=ports. The

growth rates of e=ports of services of #ndia and the

world show two distinct phases, the first till 188

when the two growths had a scissor-like movement

and the second phase after 188 when the growth of

#ndia:s services e=ports was higher than that of the

Source : Compute, from +TO ,ata.




21& Economic Survey 20121!

world in almost all the years e=cept 2008. #n this

second phase, the former was much above the latterin upswings but almost converged with the latter

during downswings. &<igure 10.*' &also see 7hapter5 F#nternational Trade:'.

10.19 The overall openness of the economy

reflected by total trade including services as apercentage of + shows a higher degree ofopenness at 33.0 per cent in 2011-12 compared to

*9.1 per cent in 200-3. The openness indicator

based only on merchandise trade is at *.2 per

cent in 2011-12 compared to 29.* per cent in200-3.

/ervices employment in #ndia

10.18 The pattern of sectoral share of employment

has changed over the last two decades with the

share of agriculture falling from .3 per cent in

188*- to 3*.2 per cent in 2008-10 and of industries

&e=cluding construction' falling from 12.* per cent

to 11.8 per cent. The shares of the services and

construction sectors in employment, on the other

hand, increased in the same period from 18.0 per

cent to 23.*0 per cent and *.12 per cent to 8.0 per

cent respectively. "s per the !ational /ample

/urvey %ffice:s &!//%' report on Cmployment and

nemployment /ituation in #ndia 2008-10, on the

basis of usually working persons in the principal

and subsidiary statuses, for every 1000 people

employed in rural #ndia, 8 people are employedin the agriculture sector, 21 in the services sector

&including construction', and 90 in the industrial

sector. #n urban #ndia, 3 people are employed in

the agriculture sector, 9* in the services sector

&including construction' and 22 in the industrial

sector. 7onstruction; trade, hotels, and restaurants;

and public administration, education, and community

services are the three ma4or employment-providingservices sectors.

10.20 /tudies show that the tertiary employmentshare has strong upward slopes in all the income

Duintiles both in rural and urban areas with higher

income Duintiles having higher shares in eachsuccessive !//% round &<igure 10.'. Thus tertiary

employment growth is steadily moving from being an

absorber of low income labour to provider of high

income 4obs.

PER'ORMANCE O' SOME MA(OR

SERVICES

10.21 The performance of the different services

based on the different indicators shows that sectors

like telecom, tourism, and railways have done well in

2011-12 &Table 10.*'. /hipping and ports show poor

performance reflecting the effects of the global

slowdown. The performance and outlook for the

different services sectors based on limited firm-level

data, based on estimates and forecasts, show a

mi=ed picture for this year, though there are some

grounds for optimism in the coming year &)o= 10.1'.

10.22 The important commercial services for #ndia

based on their significance in terms of +,employment, e=ports, and future prospects, have

been dealt with in detail in this section. 7are has

been taken to avoid duplication to the e=tent possible

of services covered in other chapters like

#nfrastructure, <inancial #ntermediation, and /ocial

Source : . aDum,ar6 S. Sarkar an, 8.S. e!ta6 EIneFuality in In,ia6 part of I Researc! Pro"ramme on Globalisation an, Habourfun,e, by ICSSR. $fort!comin"'.

3ote : (PCA : (vera"e per capita e7pen,iture@ %PS : %sual principal status.




Services Sector 21)

/ectors. The important services for #ndia include enabled services &#Te/', research and development

trade, tourism, shipping and port services, real estate &(G' services, legal services, and accounting and

services, business services including #T and #T audit services.

Table 10.2 : Performance of In,ias Services Sector: Some In,icators

Sector In,icators %nit Perio,

)00*0 )00*10 )010*11 )011*1) )01)*12

"viation "irline passengers &domestic and international' Billion 8.3 &a' 3.3 &a' .3 &a' 0.2&a' .3&a'

Telecom Telecom connections &wireline and wireless' Jakh 28.23 212.9 9*.2 831*. 9833.1&b'

Tourism <oreign tourist arrivals Billion 3.29 &a' 3.1 &a' 3.9 &a' .*1 &a' .3 &a'

<oreign e=change earnings from tourist arrivals / million 119*2 &a' 111*&a' 118* &a' 13&a' 1*&a'

/hipping +ross tonnage of #ndian shipping Billion +T 8.29 8.8 10.3 11.0&c' 10.3&d'

!o. of ships !umbers 823 100* 101 1122 &c' 1139&d'

orts ort traffic Billion tonnes .02 930.0* 993.3 811.9 33.&e'

(ailways <reight traffic by railways Billion tonnes 9**.*1 99.88 9*2.3 88.9 *3.*2&c'

!et tonne kilometers of railways Billion 3*922 390 313 *89 083&c'

/torage /torage capacity Jakh BT 103.23 103.89 102. 100.93 101.0

!o. of warehouses !umbers 88 9 8 9 8

Sources : irectorate General of Civil (viation6 Telecom Re"ulatory (ut!ority of In,ia6 inistry of Tourism6

inistry of S!ippin"6 inistry of Rail#ays an, Central +are!ousin" Corporation $Compile, by AI 8ank

of In,ia'.

3otes : $a' calen,ar years6 for e7ample )00-* for )00-. $b' (s on 21st ecember6 )01)6 $c' (pril*

ecember6 $,' (s on 21 5anuary )0126 $e' (pril*September. GT is "ross tonna"e@ T is metric tonnes.

8o7 10.1 : Performance of Services 9irms : ( Sectoral (nalysis

T*e Centre +or Monitorin, In-i.n Economy#s /CMIE .n.ysis o+ t*e sectorise 3er+orm.nce o+ services .ctivities 4.se-

on +irmeve -.t. s*o t*.t t*e 3er+orm.nce o+ sectors suc* .s tr.ns3ort o,istics5 .vi.tion .n- construction in t*e ye.r

20121! is su4-ue- in com3.rison to it* t*e 3revious ye.r6 Hi,* ne,.tive PAT in *ote sector continue-6 T*e *e.t*

services .n- teecom sectors .re 3ro7ecte- to *.ve re4oun-e- in t*e ye.r 20121!6 Over. t*e ye.r 201!1$ is 3ro7ecte-

to 4e 4etter +or most o+ t*e sectors5 e8ce3t ret.i tr.-in,5 *ic* is 3ro7ecte- to *.ve ne,.tive ,rot* in 3ro+it.4iity6 T*is

ne,.tive ,rot* is contri4ute- 4y to +.ctors9one is t*e 4.se e++ect it* *i,* 3ro+it .+ter t.8 /PAT ,rot* in t*e ye.r

20121! .n- t*e ot*er is .n e83ecte- s*rin;in, o+ m.r,ins in 201!1$ -ue to incre.se in o3er.tin, costs .n- 3rice cuts

-riven 4y *i,* com3etition /T.4e 16

T.4e 1: Per+orm.nce o+ Seect Services 'irms

Annu. <rot* / 3er cent c*.n,e over 3revious ye.r

Sector S.es PAT E83en-iture

201112 20121!= 201!1$= 201112 20121!= 201!1$= 201112 20121!= 201!1$=

Tr.ns3ort o,istics 1160 16> 116? %6> 26% 1&6! 1!6$ !61 106>

S*i33in, ?6! 126? $62 )>6% &!6) >$60 2!60 ?6% 060

Avi.tion 106& 062 >60 2160 $62 )6%

Ret.i tr.-in, 106! 106& 126! 2$6? 1&?6& %?6$ 26% )6> 126!

He.t* services 1&6& 2161 1?6% 2260 %26$ 2$6) 1>6> 2060 1)6>

Hote ?62 ?6% 1160 ))6% )&62 116) 1&6$ 126? 106?

Teecom >6? ?6% 116> )160 !?6? %&62 1!60 126& 116$

So+t.re 216! 1?6! 106) 1&62 1?6& %62 2&60 1>6% 116>

Construction 1>6& 1261 1)62 26& 06$ 1?6! 216& 1!6& 1&6$

Source: CMIE In-ustry An.ysis /Com3ie- 4y E8im @.n; o+ In-i.6 Note: =

'orec.st6




21> Economic Survey 20121!

Trade

10.2* Trade with a share of above 13 per cent in

#ndia:s + in the last seven years &1. per cent in

2011-12' and a 7"+( of 8.* per cent during 200-3

to 2011-12, has grown to K 9,10,393 crore in 2011-

12. "s per the ".T. Aearney, +lobal (etailevelopment #nde= 2012 report, #ndia ranked at 3th

place remains a high-potential market with

accelerated retail market growth of 13 to 20 per cent

e=pected over the ne=t five years. $hile the overall

retail market contributes 1 per cent of #ndia:s +,

organied retail penetration remains low, indicating

room for growth. )rail tops the ranks with retail

sales accounting for 0 per cent of )rail:s consumer

spending, followed by 7hile, 7hina, and ruguay. #n

#ndia, the food and beverages segment is seeing

increased activity from foreign players, and groceryremains #ndia:s largest source of retail sales.

Eypermarkets and supermarkets continue to

dominate the organised retail market, but cash-and-

8o7 10.) : 9I in ultibran, Retail Tra,in"

carry is growing fast, with significant e=pansion

planned from )harti $al-Bart, Betro +roup, and

7arrefour. "pparel is e=pected to grow by 8 to 10

per cent annually for the ne=t five years. layers

such as Lara, Barks G /pencers, and Bango are

actively scouting locations to open more stores

across the country. The lu=ury retail sector saw 20per cent growth last year, with lu=ury malls becoming

entrenched in elhi, Bumbai, and )angalore.

10.2 /ince 200, #ndia allowed <# in single-brand

retail to the e=tent of 31 per cent. #n @anuary 2012,

the government removed restrictions on <# in the

single-brand retail sector, allowing 100 per cent <#

and from /eptember 2012. <# in multibrand retail

has been allowed up to 31 per cent under the

government route and sub4ect to specified conditions

&)o= 10.2'. $hile agricultural products could get

vastly improved access to markets with the growthof modern retail trade, the revenue to the government

could also increase, as at present the retail sector

is largely unorganied and has low ta= compliance.

'"I in muti4r.n- ret.i tr.-in, *.s 4een 3ermitte- su47ect to s3eci+ie- con-itions i;e t*e +ooin,:

'res* .,ricutur. 3ro-uce5 incu-in, +ruits5 ve,et.4es5 +oers5 ,r.ins5 3uses5 +res* 3outry5 +is*ery5 .n- me.t

3ro-ucts5 m.y 4e un4r.n-e- B

Minimum .mount to 4e 4rou,*t in .s '"I 4y t*e +orei,n investor5 ou- 4e S D 100 miion

At e.st %0 3er cent o+ tot. '"I 4rou,*t in s*. 4e investe- in 4.c;enin+r.structure# it*in t*ree ye.rs o+ t*e +irst

tr.nc*e o+ '"I

At e.st !0 3er cent o+ t*e v.ue o+ 3rocurement o+ m.nu+.cture-F 3rocesse- 3ro-ucts 3urc*.se- s*. 4e source-

+rom In-i.n sm. in-ustries# *ic* *.ve . tot. investment in 3.nt .n- m.c*inery not e8cee-in, S D 1miion

Ret.i s.es outets m.y 4e set u3 ony in cities it* . 3o3u.tion o+ more t*.n 10 .;* .s 3er Census 2011.n- m.y .so

cover .n .re. o+ 10 ;m .roun- t*e munici3.Fur4.n .,,omer.tion imits o+ suc* cities

<overnment i *.ve t*e +irst ri,*t to 3rocurement o+ .,ricutur. 3ro-ucts6

St.te ,overnmentsFTs ou- 4e +ree to t.;e t*eir on -ecisions in re,.r- to im3ement.tion o+ t*e 3oicy .s ret.i tr.-e is

. st.te su47ect6 Eeven st.tesFTs5 viG6 An-*r. Pr.-es*5 Ass.m5 "e*i5 H.ry.n.5 (.mmu .n- .s*mir5 M.*.r.s*tr.5

M.ni3ur5 R.7.st*.n5 tt.r.;*.n-5 ".m.n .n- "iu5 .n- ".-r. .n- N.,.r H.vei *.ve .,ree- to 3ermit est.4is*ment o+

ret.i outets un-er t*is 3oicy6 Constitution o+ . *i,*eve ,rou3 un-er t*e Minister o+ Consumer A++.irs *.s .so 4een

.nnounce- to oo; into v.rious .s3ects re.tin, to intern. tr.-e .n- to m.;e recommen-.tions on intern. tr.-e re+orms to

t*e ,overnment5 *enever reuire-6 '"I in muti4r.n- ret.i tr.-e ou- 4ene+it st.;e*o-ers .cross t*e entire s3.n o+ t*esu33y c*.in6 '.rmers st.n- to 4ene+it +rom t*e si,ni+ic.nt re-uction in 3ost*.rvest osses e83ecte- to resut +rom t*e

stren,t*enin, o+ t*e 4.c;enin+r.structure5 *ic* ou- en.4e t*e +.rmers to o4t.in . remuner.tive 3rice +or t*eir 3ro-uce6

Sm. m.nu+.cturers i 4ene+it +rom t*e con-ition.ity reuirin, .t e.st !0 3er cent 3rocurement +rom In-i.n sm.

in-ustries5 .s t*is ou- en.4e t*em to ,et inte,r.te- it* ,o4. ret.i c*.ins6 T*is in turn i en*.nce t*eir c.3.city to

e83ort 3ro-ucts +rom In-i.6 As +.r .s sm. ret.iers .re concerne-5 or,.niGe- ret.i .re.-y coe8ists it* sm. tr.-ers .n-

t*e unor,.niGe- ret.i sector6 Stu-ies in-ic.te t*.t t*ere *.s 4een . stron, com3etitive res3onse +rom t*e tr.-ition. ret.iers

to t*ese or,.niGe- ret.iers5 t*rou,* im3rove- 4usiness 3r.ctices .n- tec*noo,ic. u3,r.-.tion6 <o4. e83erience .so

in-ic.tes t*.t or,.niGe- .n- unor,.niGe- ret.i coe8ist .n- ,ro6 Consumers st.n- to ,.in t*e most5 +irst5 +rom t*e oerin,

o+ 3rices t*.t ou- resut +rom su33yc*.in e++iciencies .n- secon-y5 t*rou,* im3rovement in 3ro-uct u.ity -ue to t*e

com4ine- e++ect o+ tec*noo,ic. u3,r.-.tion5 e++icient ,r.-in,5 sortin, .n- 3.c;.,in,5 testin, .n- u.ity contro5 .n-

3ro-uct st.n-.r-iG.tion6 Im3ement.tion o+ t*e 3oicy is .so i;ey to e.- to ,re.ter '"I in+os5 u.ity em3oyment5 .n-

.-o3tion o+ ,o4. 4est 3r.ctices6

Source: @.se- on In3uts +rom t*e "e3.rtment o+ In-ustri. Poicy .n- Promotion /"IPP




Services Sector 21?

Tourism, including hotels and restaurants

10.23 Tourism accounts for around - per cent of

global employment &direct and indirect' and 3 per

cent of global income as per the nited !ations

$orld Tourism %rganiation &!$T%', Tourism

Eighlights 2012 edition. #t is one of the largest

generators of employment across the world and

women account for 0 per cent of the workforce in

the travel and tourism industry. Eence it generates

more inclusive growth than other sectors. "ccording

to the !$T%, international tourist arrivalssurpassed the 1 billion mark for the first time in history

in 2012, reaching a figure of 1.0 billion from 88

million in 2011 with per cent growth despite the

volatility around the globe, particularly in Curope

which accounts for over half of international tourist

arrivals worldwide. Cmerging economies, with .1

per cent growth regained the lead over advanced

economies with *. per cent growth, with "sia and

acific showing the strongest growth at per cent.

#n 201* growth is e=pected to decelerate slightly

and fall in the range of *- per cent with prospects

stronger for "sia and acific &3- per cent'. #n 2011

international tourism receipts grew by 11 per cent

&*.8 per cent in real terms' to an estimated /

10*0 billion, setting new records in most destinations

despite economic challenges in many source

markets. "vailable data on international tourism

receipts and e=penditure for 2012 covering at least

the first nine months of the year confirm the positive

trend in arrivals. #n a significant number of destinations

including #ndia &22 per cent' receipts from international

tourism increased by 13 per cent or more. "ccording

to the !$T%, the number of international tourist

arrivals worldwide is e=pected to increase by *.*

per cent a year on an average from 2010 to 20*0,

resulting in around ;* million more arrivals every year,

to reach a total of 1.9 billion arrivals by 20*0. "s in

the past, emerging economy destinations are set to

grow faster than advanced economy destinations.

"s a result, the market share of emerging economies

which has increased from *0 per cent in 1890 to

per cent in 2011 is e=pected to reach 3 per cent by

20*0, eDuivalent to over one billion international tourist

arrivals.

10.2 "s per Tourism /atellite "ccount &T/"' data

2008-10, the contribution of tourism to #ndia:s +

was .9 per cent &*. per cent direct and *.1 per

cent indirect' and its contribution to total employment

generation was 10.2 per cent &direct . per cent


and indirect 3.9 per cent'. "s per the Twelfth <ive

>ear lan approach paper, #ndia:s travel and tourism

sector is estimated to create 9 4obs per million

rupees of investment compared to 3 4obs per million

rupees in the manufacturing sector. <oreign tourist

arrivals &<T"s' in #ndia grew by 8.2 per cent in 2011.

Eowever, due to the Curo-one crisis and global

slowdown, <T" growth moderated to 3. per cent to

reach .9 lakh arrivals in 2012. "s a result, foreign

e=change earnings &<CCs' growth in dollar terms

that was 1. per cent in 2011 moderated to .1 per

cent to reach / 1. billion in 2012. The share

of #ndia in international tourist arrivals was 4ust 0.

per cent &rank *9' in 2011. #ndia:s share in the

international tourism receipts was relatively higher

at 1.1 per cent in 2011 &rank 1', though it is very

low compared to countries like the / &11.* per cent'and even 7hina &. per cent'.

10.2 omestic tourism is also an important

contributor to the growth of this sector with a 1.*

per cent 7"+( of domestic tourist visits from 1881

to 2011. uring 2011, there were 931 million domestic

tourists, with the top five states, ttar radesh,

"ndhra radesh, Tamil !adu, Aarnataka, and

Baharashtra, cumulatively accounting for around 8

per cent of the total domestic tourist visits in the

country. The hotels and restaurants sector with a

1.3 per cent share in #ndia:s + in 2011-12 is alsoan important sub-component of the tourism sector.

There are also many new tourism products that hold

significant potential for #ndia like wellness tourism,

golf tourism and adventure tourism.

10.29 To promote tourism, the government has

taken many policy initiatives including a five-year

ta= holiday for 2, *, and ; star category hotels located

around all nited !ations Cducational, /cientific,

and 7ultural %rganiation &!C/7%' $orld Eeritage

sites &e=cept elhi and Bumbai' for hotels whichstart operating w.e.f. 1 "pril 2009 to *1Barch 201*;

an investment-linked deduction under /ection *3 "

of the #ncome Ta= "ct e=tended to new hotels of 2

star category and above anywhere in #ndia, allowing

100 per cent deduction in respect of the whole or

any e=penditure of capital nature e=cluding land,

goodwill, and financial instruments incurred during

the year; and inclusion of * star or higher category

classified hotels located outside cities with

population of more than 10 lakh in the harmonied

list of the infrastructure subsector. The +overnmentof #ndia has also taken the initiative of identifying,




diversifying, developing, and promoting the nascent6

upcoming niche products of the tourism industry to

overcome the Fseasonality: aspect and promote #ndia

as a *3 days destination, attract tourists with

specific interests, and ensure repeat visits for

products in which #ndia has comparative advantage.

" committee has been constituted for promotion ofgolf tourism and wellness tourism and specific

guidelines have been formulated to support golf, polo,

and wellness tourism. The government has also

formulated a set of guidelines on safety and Duality

norms for adventure tourism. " scheme of "pproval

of "dventure Tour %perators which is a voluntary

scheme open to all bonafide adventure-tour operators

has been announced. To attract foreign tourists

coming to #ndia for medical treatment, a new Fmedical

visa: category has been introduced. The government

has also formulated guidelines to address variousissues governing wellness centres, covering the

entire spectrum of the #ndian systems of medicine.

10.28 The Cconomic /urveys 2010-11 and 2011-

12 have highlighted various challenges that need to

be addressed to develop this sector. /ome of the

challenges still remain as hindrances to the growth

of this sector. %ne of them is the multiple ta=es on

hospitality- and tourism-related activities which make

the tourism product e=pensive in the form of high

hotel rates and high fares; another is the lu=ury ta=

which is imposed by state governments leading to

high tariffs and low occupancy in hotels. Ju=ury ta=

on hotels in some states is very high and varies

from 3 per cent to 12.3 per cent and in some cases

it is applicable on printed room rates whereas the

actual hotel rates offered to guests are much lower.

Tourism infrastructure is another area which needs

immediate attention where there is plenty of scope

for public private partnerships &'. ser fees could

be levied if monuments or tourist sites are developed

by the private sector or through . Thus significant

opportunities still remain relatively untapped and for

faster, sustainable, and more inclusive growth, as

envisaged in the Twelfth <ive >ear lan, the tourism

sector holds a lot of promise.

/ome Transport-related /ervices

S!ippin"

10.*0 /hipping plays an important role in

merchandise trade. The fortunes of the former depend

on the growth of the latter and the prospects of the

latter depend on the efficiency of the former. "bout


83 per cent of #ndia:s trade by volume and 9 per

cent in terms of value is transported by sea. "s on

*1 @anuary 201*, #ndia had a fleet strength of 1139

ships with +T of 10.3 million, with the public-sector

/hipping 7orporation of #ndia having the largest share

of *2.0 per cent. %f this, *3 ships with 8.* million+T cater to #ndia:s overseas trade and the rest to

coastal trade. The gross foreign e=change earnings6

savings of #ndian ships in 2011-12 were K 10,.3

crore. espite one the largest merchant shipping

fleets among developing countries, #ndia ranks 19 th

among the *3 flags of registration with the largest

registered dead weight tonnage &$T' with a share

of only 1.03 per cent in total world $T as on 1

@anuary 2012. Jeaving aside flags of convenience,

Eong Aong has the highest $T, with a share of

. per cent, while 7hina:s share is *.8 per cent.#n 2011 as per !7T", #ndia was ranked 9 th among

developing countries in terms of container ship

operations with 8.83 million twenty foot eDuivalent

units of container &TCs', with a world share of 1.

per cent. #ndia is one of the ma4or ship-breaking

destinations. #n 2011, with a world share of 29. per

cent &in terms of $T', it topped the list of ship-

scrapping nations, scrapping 20* ships of 1*.9

million $T as per #/J /hipping /tatistics and

Barket (eview /eptember6%ctober 2012. #ndia is

also one of the ma4or countries supplying seafarers.

10.*1 "s a result of the global slowdown, the

turbulence e=perienced by the global shipping

industry continued in 2012. The )altic ry #nde=,

the barometer of merchandise trade as well as

shipping services, has been in the red since the global

crisis of 2009, though there were small upswings at

the lower end of the inde= &"lso see 7hapter 5

F#nternational Trade:'. Jike shipping companies

worldwide, #ndian shipping companies also faced

problems of restricted cash inflows due to very low

charter hire and freight rates in all segments of

shipping. +oing by the rough assimilation of various

Iery Jarge 7rude 7arrier &IJ77' fi=tures, the average

rate tumbled from / 1*,03 a day in the first

Duarter of <> 2012-1* to / 9*3, / , and

/ 128 in the ne=t three months.

10.*2 There has been a sharp decline in the share

of #ndian ships in the carriage of #ndia:s overseas

trade from about 0 per cent in the late 1890s to

10. per cent in 2011-12 with 1.03 per cent share

in #ndia:s oil imports. +iven the relatively lowparticipation of #ndian ships in #ndia:s trade and given



Services Sector 221

the fact that #ndian ships are ageing, with the average

age of the #ndian fleet increasing from 13 years in

1888 to 1.9* years as on *1 ecember 2012 &with

1.38 per cent of the fleet over 20 years and 11 per

cent in the age group 1-20 years', there is urgent

need to increase the shipping fleet so that it is

adeDuate atleast to meet #ndia:s trade volumes. Thisis also an opportune time to increase our depleting

shipping fleet to reasonable sie as ship prices which

had peaked in the middle of 200-9 have dropped to

historical lows in the subseDuent years and the trend

is continuing even now as on ecember 2012. "

large and modernied shipping fleet will not only lead

to higher growth, employment and higher earning6

saving of foreign e=change, but also increase our

bargaining power with foreign liners who carry #ndian

cargo as per their schedule and also discriminate in

the rates.

Port Services

10.** ort services are closely connected to

shipping services and merchandise trade. The

performance of the latter two is also dependent on

the efficiency of ports. The total capacity of #ndian

ports has reached appro=imately 123.* million

tonnes as on *1st Barch 2012. uring 2011-12, total

traffic handled at all ports at 811. million tonnes,

grew by * per cent over the previous year. Though

there was a decline in traffic at ma4or ports, whichaccounted for more than 0 per cent of total traffic,

the 11.3 per cent growth achieved by non-ma4or ports

contributed to the overall traffic growth handled by

all ports. #n the first half of 2012-1* &"pril-/eptember',

traffic handled by #ndian ports grew by 1.9 per cent

over the corresponding period of the previous year,

with the growth of non-ma4or ports &10.* per cent'

compensating for the decline in growth of ma4or ports.

10.* "s per the $orld /hipping 7ouncil, /hanghai

port ranked at the top in terms of total cargo volumehandled with *1. million TCs in 2011. /ingapore

with 28.8 million TCs was in second position. The

@awaharlal !ehru ort Trust &@!T' is ranked *0 th in

terms of total cargo volume handled with .3* million

TCs in 2011. The three port-related performance

indicators show improvement in both 2011-12 and

"pril-/eptember 2012 over corresponding previous

period. The average output per ship-berth-day

improved to 1*,* tonnes for all ma4or ports during

2012-1* &"pril-/eptember' compared to 12,923

tonnes in corresponding period of 2011-12.Theaverage turnaround time at ma4or #ndian ports

improved to .13 days in 2012-1* &"pril-/eptember'

compared to 3.28 and 3.03 in 2010-11 and 2011-12

respectively and ranged between 1.3; days at 7ochin

ort to .2 days at Aandla ort. The average pre-

berthing detention time &)T' for all ma4or ports

declined from 2.*2 days in 2010-11 to 2.0 in 2011-

12. $hile at first sight this indicates greater efficiency

of ports, it could also be due to the lower volumes

handled by ports with the global downturn. Cven the

average turnaround time has been higher in 2011-12compared to 2009-08. Thus e=cept for average output

per ship berth day, the other two indicators have not

shown much improvement over the years. Thus

efficiency of our ports needs to be improved further

&Table 10.'.

Table 10.4 : Some Performance In,icators of Ports in In,ia

(pril to C!an"e C!an"e in

September in )01)*12

)011*1) )011*1) $(pr.*Sept.'In,icators over over

10* )000* )00* )00* )010* )011* )011* )01)* )00*0 previous

1 01 0 10 11 1)P 1) 12 Jear

"verage turnaround 9.10 .2 .20 .* 3.28 3.03 .90 .13 0.93 -0.3

Time &days'

"verage pre- berthing 2.1 1.18 1.* 2.1 2.*2 2.0 - - 0.1 -

detention time &days'

"verage output per ship- **2 81 88 8213 810 1*0* 12923 1** *0 38berth-day &in tonnes'

Source : Transport Researc! +in"6 Cinistry of S!ippin" base, on ,ata of CaBor PortsKIn,ian Port

(ssociation$IP('.

P stan,s for provisional





10.*3 The government has been following the

strategy of increasing investment in infrastructure

through a combination of public investment and .

The Twelfth <ive >ear lan with an outlay ofK *,03.crore &gross budgetary support' for the

port sector envisages an increase in capacity of ma4or

ports to 1228.28 million tonnes by the end of 201-1 from the pre-lan base level of 8.3 million

tonnes with 12 per cent average annual growth in

capacity addition. $hile efforts are being made to

improve port infrastructure, there is need to upgrade

the facilities at e=isting ports with regard to cargo

handling, stevedoring, pilotage services, bunker

services, and warehousing facilities; increase the

drafts to facilitate trans-shipment of #ndian cargo

which otherwise takes place outside the country;

and rationalie the different port charges to make

them comparable with best practice levels. TheBaritime "genda 2010-20 covers some of these

issues like full mechaniation of cargo handling and

movements, having draft of not less than 1 m in

ma4or ports and 1 m in hub ports, and shifting of

trans-shipment of #ndian containers from foreign ports

to #ndian ports.

(eal Cstate /ervices and Eousing

10.* (eal estate and dwellings has a share of

3.8 per cent in #ndia:s + and a growth of .2 per

cent in 2011-12. The growth of the real estateservices in particular has been impressive

consistently at over 23 per cent since 2003- with

2.* per cent growth in 2011-12. Eousing is a basic

necessity for human life and is the second largest

generator of employment, ne=t only to agriculture.

Eousing activities have both forward and backward

linkages in nearly *00 sub-sectors such asmanufacturing &steel, cement, and builders:hardware', transport, electricity, gas and water

supply, trade, financial services, and construction

which contribute to capital formation, incomeopportunities, and generation of employment.

10.* #n 2012-1* property prices have moderated.

"s per the !ational Eousing )ank &!E)' (C/#CM

inde= for the Duarter @uly-/eptember 2012 compared

to "pril-@une 2012 &covering 20 cities, with 200 as

base year', there is a general decline in prices of

residential properties in some smaller towns, while

the increase in other cities is mostly marginal. #n

view of increased urbaniation, the housing

reDuirements in urban areas have been witnessingincreases over the years. The Cleventh <ive >ear


lan &200-12' estimated housing reDuirement of

2. million units in urban areas of which 88 per

cent was in the economically weaker sections6lower

income groups &C$/6J#+' segment. "s per the

estimation of the Task <orce on Eousing

(eDuirements in rban "reas during the Twelfth <ive

>ear lan eriod &2012-1', the housing reDuirementin urban areas is 19. million units of which 19.3

million are for the C$/6J#+ segment. "s per a

BcAinsey (eport, the demand for affordable housing

will be *9 million by 20*0.

10.*9 To support the growth of the housing and

real estate sector, many institutions have been set

up especially for financing. $hile these institutions

largely cater to the formal sector, access to finance

by the informal market segment largely remains

untapped. "s this untapped market segment issignificant and growing, the +overnment of #ndia has

announced various measures like the #nterest

/ubsidy /cheme for Eousing for the rban oor and

setting up of the 7redit (isk +uarantee <und Trust

for Jow #ncome Eousing. $ith support from lending

institutions, housing credit has grown substantially

over the years, resulting in increased market

penetration. The housing loan portfolio of scheduled

commercial banks and housing finance companies

- the ma4or institutional players - stood at K .10

lakh crore as in end-Barch 2012. Eowever, due tolimited housing finance solutions, the gap between

housing demand and supply is widening. )esides

the mortgage market in #ndia is also underdeveloped.

Though mortgages as a percentage of + have

risen from *. per cent in 2001 to 8 per cent in 2011-

12, the share is relatively lower than in many other

countries - such as 7hina &12 per cent', Thailand

&1 per cent', Balaysia &28 per cent', Eong Aong

&0 per cent', and the /" &3 per cent'.

10.*8 $hile advanced countries like the / wererattled by the sub-prime crisis, #ndian banks have

demonstrated a great amount of maturity in their

lending for the housing sector. The government has

also taken many policy measures for this sector. #n

nion )udget 2012-1*, a number of incentives were

given for promoting affordable housing like allowing

e=ternal commercial borrowings &C7)' for low cost

affordable housing pro4ects, increase in investment-

linked deduction of capital e=penditure incurred in

the affordable housing pro4ects, e=emption from

service ta= payments for construction servicesrelated to residential dwellings, and low cost mass



Services Sector 22!

housing up to an area of 0 sD. m under the /cheme

of "ffordable Eousing in artnership. " 7redit (isk

+uarantee <und Trust has been established since 1

Bay 2012, which will be managed by the !E), and

provide default guarantee for housing loans up to K 3

lakh sanctioned and disbursed by the lending

institutions without any collateral security or third-party guarantees and for new borrowers in the C$/6

J#+ category in urban areas. The !E) has also

floated a 4oint-venture mortgage guarantee company

- the #ndia Bortgage +uarantee 7orporation vt.

JtdHwhich will offer mortgage guarantees against

borrower defaults on housing loans from mortgage

lenders which will help e=pand access to housing in

#ndia. (enting of residential units has been included

in the negative list of services that are e=empt from

payment of service ta=. #n order to develop strategic

policy intervention to promote rental housing as aviable alternative for addressing the housing shortage,

the +overnment of #ndia has also set up a task force

for rental housing. The (a4iv "was >o4ana &(">',

also provides support to states for creation of

affordable housing stock and assigning property rights

to slum dwellers.

10.0 #ndia:s housing and real estate sector faces

many challenges. $hile #ndia is among the top

countries in terms of housing and workspace needs,

it ranks 192nd in construction permission processes

according to the $orld )ank:s oing )usiness 201*

report. There are *; procedures and the average time

taken is 18 days, which increases the sale value

by 0 per cent. (apid increase in land prices,

absence of a long-term funding and lending market

at fi=ed rates, limited developer finance, the rban

Jand 7eiling (egulations "ct &J7("' continuing in

some states, e=isting lower floor area ratio in cities,

high stamp duties and difficulties in land acDuisition

are some other issues which need to be addressed.

F"ffordable Eousing for "ll: is another challenge as

the demand for housing by the C$/6J#+ segment

has increased.

/ome )usiness /ervices

10.1 )usiness services include services likecomputer-related services, (G, accounting services

and legal services, and renting of machinery in order

of importance &shares' as per #ndia:s !ational

"ccounts. The share of business services in #ndia:s

+, has risen over the years, and these are also

the dynamic services with a combined growth rate

of 1*.3 per cent in 2011-12. They grew at around 20

per cent during 2003-, 200- and 2009-8 but growth

decelerated in the ne=t two years due to the global

economic situation.

IT an, ITeS

10.2 #ndia:s #T and #Te/ services with e=ponential

growth are a uniDue e=port-led success story which

has put #ndia on the global map. $hile #ndia has

achieved a brand identity in this sector, other

developing countries are trying to emulate #ndia:s

e=ample. )esides its impact on growth &both direct

and indirect', it is also a provider of skilled

employment both in #ndia and abroad, generating

direct employment for nearly 2.9 million persons and

indirect employment of around 9.8 million in 2011-12. The #T-#Te/ industry has four ma4or sub-components5 #T services, business processoutsourcing &)%', engineering services and (G,

and software products.

10.* The global slowdown has impacted the

revenues of the #T-)usiness rocess Banagement

&)B' sector, the growth of which decelerated from

13 percent in 2011-12 to an estimated 9. percent

reaching /83.2 billion in 2012-1* as per!"//7%B. The deceleration in growth of the

Table 10./ : Overall Gro#t! Performance of t!e IT*8P Sector

Jear Lalue $%S & 8illion' Gro#t! rate $per cent'

)00-* )00* )00* )010* )011* )01)* )012* )011* )01)* )012*

0 0 10 11 1) 12A 14P 1) 12A 14P

Total #T-)B 32.1 38.8 .0 .* 9. 83.2 10-111 13.0 9. 1*-13

/ervices (evenue

C=ports 0. .1 8. 38.0 9.9 3.9 9-9 1.3 10.2 12-1

omestic 11. 12.9 1.* 1.* 18.0 18.* 22-2 8. 1.8 1*-13

Source : 3(SSCO

3ote : ata e7clu,es ar,#are@ A: Astimates@ P: ProBections




22$ Economic Survey 20121!

dominant e=port sector &90 percent share' was from

1.3 percent in 2011-12 to 10.2 percent in 2012-1*,

while domestic revenue growth decelerated from 8.

percent to a 1.8 per cent &due to currency effect'

during these years. #n #ndian rupee terms domestic

revenues have grown at 1.1 per cent in 2012-1*

compared to 1. per cent in 2011-12. !"//7%Bestimate of growth for 201*-1 are 1*-13 percent for

total #T-)B revenue, 12-1 percent for e=ports and

1*-13 percent for domestic sector. "s a proportion

of national +, #T and )usiness rocess

Banagement &)B' sector revenues have grown from

1.2 per cent in 188-89 to an estimated nearly 9 per

cent in 2012-1*. &Table 10.3'

10. $hile the global slowdown, increasing

competition from new countries, and rising

protectionist measures in the wake of 4ob losses indeveloped countries have slightly dimmed the

prospects for e=ports of #T and #Te/ services, a great

opportunity is waiting in #ndia:s domestic market with

increasing technology adoption within the

government sector and the small and medium

business &/B)' sector. The Twelfth <ive >ear lan

aims to harness the potential of the software and

services sector to contribute to the country:s

development and growth, particularly in terms of

investment, e=ports, employment generation, and

contribution to + and to retain #ndia:s leadership

position as a global #T-)% destination, consolidate

and grow in both mature and emerging markets. The

government has also announced the !ational olicyon #nformation Technology 2012 which aims to

ma=imally leverage the power of #7T to help address

the economic and developmental challenges the

country faces. nder the !ational e-+overnance lan

&!e+', the government focuses on making critical

public services available electronically and promoting

rural entrepreneurship. %f the *1 Bission Bode

ro4ects &BB', 2 have been approved by the

+overnment of #ndia &with 22 BBs having gone live'.

"t central level these are5 B7" 21,a complete e-

governance pro4ect of Binistry of 7orporate "ffairs,

pensions, income ta=, central e=cise and customs,

banking, insurance, passport, e-%ffice, !ational

opulation (egister &!(' and #, #ndia ost,

immigration visa, and foreigners: registration and

tracking. /ome of the issues and challenges related

to this sector are the growing competition from

developing countries with lower costs, risingprotectionist sentiments in developed countries, and

transfer pricing issues &/ee )o= 10.*'.

8o7 10.2 : Gro#in" competition to In,ias IT an, ITeS Services

T*e IT .n- ITeS sector *.s st.rte- +.cin, com3etition +rom m.ny -eveo3in, countries6 J*ie t*e E *.s t*e *i,*est s*.re

in com3uter .n- in+orm.tion services e83orts5 +ooe- 4y In-i. .n- t*e SA5 m.ny ne com3etitors i;e C*in.5 Isr.e .n-

t*e P*ii33ines *.ve emer,e- in recent ye.rs6 @eteen 200% .n- 20115 t*e .nnu. .ver.,e ,rot* o+ com3uter services .s

&? 3er cent in t*e P*ii33ines5 2> 3er cent in Sri L.n;.5 %? 3er cent in ;r.ine5 2) 3er cent in t*e Russi.n 'e-er.tion5 !) 3er

cent in Ar,entin. .n- !% 3er cent in Cost. Ric.6 Even i+ in some c.ses t*e e83ort v.ues .re re.tivey o5 t*e .ver.,e .nnu.

,rot* o+ com3uter services in t*ese economies is e .4ove t*e .ver.,e o+ t*e to3 e83orters6 In t*e @PO sector5 countries

suc* .s t*e P*ii33ines5 M..ysi. .n- C*in. in t*e Asi.n continent E,y3t .n- Morocco in Nort* A+ric. @r.Gi5 Me8ico5 C*ie

.n- Coum4i. in L.tin Americ. .n- Po.n- .n- Ire.n- in Euro3e .re emer,in, .s .ttr.ctive -estin.tions +or voice

contr.cts5 3osin, . si,ni+ic.nt t*re.t to In-i.n +irms6 Accor-in, to NASSCOM5 in t*e .st +ive ye.rs5 In-i. *.s ost .4out 10

3er cent m.r;et s*.re to t*e rest o+ t*e or- in t*e or- @PO s3.ce5 most o+ *ic* is in t*e voice contr.ct se,ment6

T*ou,* C*in. +.ces c*.en,es5 suc* .s .n,u.,e 3ro+iciency5 t*e country is s3en-in, .r,e .mounts in mission mo-e to

incre.se En,is* 3ro+iciency5 .n- t*us m.y eventu.y emer,e .s . t*re.t to In-i.6 T*ou,* t*e P*ii33ines5 t*e secon- .r,est

-estin.tion +or outsourcin,5 is currenty +.cin, t*e c*.en,e o+ .33reci.tin, currency5 it is . serious com3etitor *.vin,

-eveo3e- 4ot* t*e *.r-.re .n- so+t.re se,ments o+ IT6 Outsourcin, *.s .so 4ecome . n.tion. issue in sever.

-eveo3e- countries5 i;e t*e SA .n- t*e 5 *o .re su33ortin, t*e oc. @PO in-ustry t*rou,* v.rious me.ns6 Accor-in,

to in-ustry sources5 t*e @PO in-ustry in t*e em3oys >005000 @ritis* or;ers .n- is emer,in, .s . vit. 3.rt o+ t*e

economy6

In suc* . situ.tion5 t*e In-i.n @PO in-ustry nee-s to ,e.r u3 to .--ress t*e c*.en,es6 In+orm.tion c.m3.i,ns to -is3e t*e myt*s .n- +e.rs

.4out outsourcin, nee-s to 4e un-ert.;en 4y t*e in-ustry in t*e -eveo3e- economies6 In-i. s*ou- .so move u3 t*e v.ue c*.in in

so+t.re services6 Eu.y im3ort.nt is t*e nee- to +ocus on t*e .r,e -omestic sector *ere t*ere is . *u,e o33ortunity *ic*5 i+ t.33e- cou-

.so e.- to oer costs -ue to sc.e economies6 To .--ress t*e risin, .,es in t*e ur4.n @PO s3.ce5 t*ere is . nee- to move more to.r-s

rur. .re.s5 +or *ic* s;i -eveo3ment5 .n- En,is* .n,u.,e tr.inin, it* Americ.n .n- -i++erent Euro3e.n .ccents is necess.ry6

Source : @.se- on JTO Re3ort .n- in3uts o+ NASSCOM .n- EKIM @.n; o+ In-i.6




Services Sector 22%

R> Services

10.3 "mong business services, ( G occupies

the second position in #ndia:s + with growth being

consistently high at near 20 per cent in the last few

years with growth in 2011-12 at 20.3 per cent. ntil

recently, the competitive advantage in (G was

almost e=clusively with the developed economies.

%f late, emerging countries are increasingly involved

in (G and innovation, with active involvement of

both public and private sectors. <actors such as

low cost, access to new markets, availability of

knowledge-oriented manpower, favourable regulatory

environment, and fiscal benefits play a ma4or role in

driving (G investments towards emergingeconomies. These countries are also encouraging

innovation through legal, regulatory, and policy

support.

10. The / 1.3 trillion global gross e=penditure

on (G &+C(' for 201* pro4ected by )attelle and

(G magaine is e=pected to grow by more than

/ 30 billion over the previous year. #n this enormous

activity, #ndia:s share is * per cent with +C( in

&purchasing power parity' terms pro4ected at

/ 3.2 billion which is around five times lower

than that of 7hina. "s a percentage of + also it is

low at 0.8 per cent. This is partly because the sie

of the (G base and absorption capacity is not

commensurate with reDuirements. "s per the report,the share of basic research in #ndia:s (G isestimated to be 2 per cent, applied research *

per cent, development research *2 per cent, and

other research per cent. +overnment funding of

(G accounts for two-thirds of the total funding.

#ndustry contribution to (G has been steadily

increasing over the years but is still less than a third of

the total. +overnment support for (G in #ndia tends

to focus on classical ob4ectives for public (G funding

such as nuclear energy, defence, space, health, and

agriculture.

10. #ndia is ranked th in the global innovation

inde= &+##' in 2012 according to a 4oint reportpublished by the #nstitut CuropNen d:"dministration

des "ffaires i&#!/C"' and $orld #ntellectual

roperty %rganiation &$#%'. Though #ndia is

ranked better in terms of market sophistication,

knowledge and technology outputs, and creative

outputs, the country has scored relatively poorly in

terms of institutional support, human capital andresearch, infrastructure and business sophistication

for innovation. "ccording to the +lobal

7ompetitiveness (eport 2012-1*, #ndia:s capacity

for innovation has been lower than that of other )(#7/

countries e=cept (ussia. Though #ndia scores better

than 7hina, )rail, and (ussia on the Duality of

scientific research institutions, the researchundertaken in such institutions is not percolating

down for commercial usage. This is e=hibited through

its poor score on university-industry collaboration

on (G as compared to other )(#7/ nations e=cept(ussia. Though #ndia scores better than all )(#7/

nations on availability of scientists and engineers,

as compared to the population, the country has one

Table 10. : Global Competitiveness In,e7 : Innovation Capacity

Country Capacity Muality Company %niversity (vailability PCT patents

for innovation of scientific spen,in" on * In,ustry of scientists "rante,K

researc! R> collaboration an, million

institutions on R> en"ineers population

Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank

#ndia *.3 2 . *8 *.3 * *.9 31 3.0 1 1.2 *

7hina .1 2* .2 .1 2 . *3 . .3 *9

/outh "frica *.3 1 . * *.3 *8 .3 *0 *. 122 .9 *

)rail *. * .1 *. ** .1 *.3 11* 2.9 9

(ussia *.* 3 *. 0 *.0 8 *. 93 *.9 80 3.

/outh Aorea .3 18 .8 2 .8 11 . 23 .8 2* 11.1 8

A 3.0 12 .2 * .9 12 3.9 2 3.1 12 8*.0 19

/" 3.2 3.9 3.* 3. * 3. 3 1*.8 12

Source : Global Competitiveness Report )01)*126 +orl, Aconomic 9orum. 3ote :

PCTNPatent Cooperation Treaty.




22& Economic Survey 20121!

of the lowest ratios of scientists and engineers per

million people. art of this shortage is attributed to

the lack of Duality higher education institutions. The

(eport estimates that even with large population

base, #ndia is estimated to have 23 per cent shortage

of engineers in the country by 2023 &Table 10.'.

10.9 #n )udget 2012-1*, the government has

e=tended the weighted deduction of 200 per cent for

(G e=penditure in an in-house facility beyond *1

Barch 2012 for a period of five years to promote

investment in (G. #n this )udget a sum of K 200

crore has been set aside for incentiviing agricultural

research with awards. #ndia has declared 2010-20

as the Fdecade of innovation:. The government has

stressed the need to enunciate a policy for

synergiing science, technology, and innovation and

has also established the !ational #nnovation 7ouncil.

" /cience, Technology, and #nnovation olicy 201*

has been announced in furtherance of thesepronouncements. #ncreasing +C( to 2 per cent of

+, from the present level of less than 1 per cent

has been set as a national goal.

He"al Services

10.8 Jegal services have been growing at a steady

rate of 9.2 per cent in each of the years from 2003-

to 2011-12. The #ndian legal profession today

consists of appro=imately 1.2 million registeredadvocates, around 830 law schools, and

appro=imately to 3 lakh law students across the

country. Cvery year, appro=imately 0,000-0,000

law graduates 4oin the legal profession in #ndia. #ndia

is ranked 3, with a score of .3, in terms of 4udicial

independence by the +lobal 7ompetitiveness (eport

2012-1*, an improvement from 31st rank in 2011-12.

"s regards efficiency of the legal framework in

settling disputes, #ndia is ranked 38, with a score of

*.9, an improvement from th rank a year before.

#ndia is ranked at 32nd

position when it comes to theefficiency of the legal framework in challenging

regulations, with a score of *.8, a marginal declined

from 31st position in the previous year. Though #ndiaOs

rankings are better than most of the /outh "sian

and some /outh Cast "sian countries in all the three

parameters, there is a need for further improvement

particularly in speeding up disposal of cases. The

economic growth in our country has inevitably led to

comple= laws and regulations and it is important

that lawyers across #ndia have access to the

necessary tools to keep pace with the change.


10.30 The practice of law has however changed

drastically in the past few decades due to

liberaliation and associated economic growth in

#ndia. $ith industrialiation and <# inflows, the

corporate legal sector in #ndia has been witnessing

tremendous growth, as also legal process

outsourcing &J%'. #n #ndia the practice of law is

governed by the "dvocates "ct of 181. nder this

"ct, foreign law firms are not allowed to engage in

practice of law in #ndia. Bany foreign legal firms have

set up liaison offices &currently permitted under the

law', while a few have established referral

relationships with #ndian firms. +iven that #ndia has

benefited from opening up to foreign competition in

many other areas, and given that #ndian lawyers are

offering services across the world &see below', #ndia

should e=plore allowing foreign law firms greater

access to the #ndian market.

10.31 The global financial crisis has not only

increased recession-related litigations in developed

countries but also encouraged legal outsourcing to

cut down costs. #ndia is regarded as one of the best

J% destinations in view of the low cost of legal

professionals &30 per cent to 90 per cent more cost

competitive than that of the /" and A',

geographical advantage &#ndian time one is distinct

from that of the /" and )ritain, allowing it to offer

legal services round the clock', language proficiency&emphasis on Cnglish education', and the legal

system &which is inspired by the legal systems of

the /" and A'. Technologically too, the #ndian

J% industry has made rapid strides as #ndian

service providers can make use of advanced means

of communication technology. #ndian legal service

providers offer legal support in the form of research

document reviews, drafting of documents, making

applications for patents, and various paralegal and

administrative tasks.

10.32 The !ational Jegal /ervices "uthority&!"J/"' has been constituted under the Jegal

/ervices "uthorities "ct 189 to monitor and evaluate

implementation of legal aid programmes and to lay

down policies and principles for making legal services

available under the "ct. <ree legal services include

payment of court fee, process fees and other charges

incurred in legal proceedings, services of lawyers,

obtaining and supply of certified copies of orders

and other documents in legal proceedings and

preparation of appeal, paper book, etc. uring the

period from 1 "pril 2012 to *1 %ctober 2012, more



Services Sector 22)

than .92 lakh persons have benefited through legal

aid services in the country. %f them, there were more

than 2*,000 persons belonging to the scheduled

castes and about 20,000 persons from the scheduled

tribes. Bore than *,000 women and about 3800

children also benefited. uring this period more than

3 thousand Jok "dalats have been organied andthese Jok "dalats settled more than 1.*0 lakh

cases. " ara-Jegal Iolunteers &JIs' pro4ect has

been developed by !"J/" for the purpose of

imparting legal awareness to various target groups.

"s on *1 ecember 2012, *,333 JIs have been

trained in the country and have started functioning,

bridging the gap between common people and legal

services institutions.

(ccountin" an, (u,it Services

10.3* "ccounting, auditing, and book-keepingservices are a part of Fbusiness services:. "ccounting

services have been growing at around - per cent

since 2003- with .1 per cent growth in 2011-12.

The accounting profession in #ndia is highly developed

with the potential to play a greater role internationally.

"s per $T% data, in the / .3 billion Fother

business services: e=ports of #ndia in 2010, the legal,

accounting, management, and public relations

services with a value / 9. billion had a share of

18.* per cent. This is around five times less than the

/ e=ports of / *8.1 billion and three times lessthan 7hina:s e=ports of /22.9 billion.

10.3 The accountancy service providers in #ndia

are self-regulated through a combination of statutory

bodies like the #nstitute of 7hartered "ccountants of

#ndia &#7"#', the #nstitute of 7ost and $ork

"ccountants of #ndia, and the #nstitute of 7ompany

/ecretaries of #ndia &#7/#'. There are 3*,18 active

7" firms as of 2 ecember 2012. #ndian accounting

firms are increasingly getting integrated and are

providing associated services such as management

consultancy, corporate finance, and advisoryservices in addition to their core business ofaccounting, auditing, and ta= services. +iven the

high potential for accounting and audit services both

domestically and in e=ports through the outsourcing

mode, there is need to revamp the professional

development framework to e=pand the talent pool,

deepen the e=pertise, and enhance the flow of high

Duality accountancy professionals. Tapping the

outsourcing market of the / and other developing

countries in niche areas like actuarial and

accountancy services would depend on the


availability of high-Duality e=perts in ta=, insurance,

and pension laws of the / and other countries and

encouraging setting up of back offices of foreign firms

in #ndia. Tie-ups of domestic firms with foreign firms

can help gain e=pertise and markets which would

otherwise not be individually available for small

domestic accountancy firms. This would also need

rela=ation in some domestic regulations and obtaining

due recognition to #ndian Dualifications through mutual

recognition agreements &B("s'. "s with legal

services, <# in accounting services will help improve

the competitiveness of the #ndian market, and link it

better to global markets.

7ommunication /ervices

Telecom an, Relate, Services

10.33 Telecom services is another sunrise sector

in which #ndia has made a mark with the second

largest telephone network in the world, after only

7hina. Teledensity, which is an important indicator

of telecom penetration, increased from 19.22 per cent

in Barch 200 to *.* per cent as on *1 ecember

2012, with urban teledensity at 18.33 per cent and

rural at *8.80 per cent. &/ee 7hapter 11 for further

details.'

Postal Services

10.3 ostal services, a traditional mode of communications all over the world, have also been a

popular mode in #ndia, especially rural #ndia.epartment of osts has the largest postal network

in the world with 1,3,922 post offices in the country

as on *1Barch 2012. %f these, 1,*8,09 are in rural

areas and 13,* in urban. #n order to e=pand the

network and further improve people:s access to

postal services, #ndia ost is also adopting the

franchisee model. #t has so far opened 1,0franchisee outlets in areas where it was not possible

to open post offices. The epartment of osts haslaunched Fro4ect "rrow: as a Duality improvement

initiative to transform #ndia ost into a vibrant and

responsive organiation.

10.3 $ith tough competition from courier services

offered by the private sector, and emergence of

alternate modes of communications such as telecom

and information technology, the postal service is

diversifying into new areas like e-commerce, ) to 7

address6addresse verification, B to B money

transfer, web-based money transfer, social securitydisbursement and some other social sector-related



22> Economic Survey 20121!

8o7 10.4 : (n In,icative list of ,omestic restrictions an, re"ulations in some services in In,ia

One m.7or issue in services is t*e -omestic 4.rriers .n- re,u.tions6 "omestic re,u.tions in strict JTO terms incu-e

icensin, reuirements5 icensin, 3roce-ures5 u.i+ic.tion reuirements5 u.i+ic.tion 3roce-ures5 .n- tec*nic. st.n-.r-s

4ut *ere ot*er restrictions .n- 4.rriers .re .so consi-ere-6 J*ie t*ere .re m.ny -omestic re,u.tions in our m.7or m.r;ets

*ic* -eny m.r;et .ccess to us .n- t*ere+ore nee- to 4e ne,oti.te- .t muti.ter. .n- 4i.ter. eves5 t*ere .re .so m.ny

-omestic re,u.tions in In-i. *ic* *in-er t*e ,rot* o+ t*is sector6 Since -omestic re,u.tions 3er+orm t*e roe o+ t.ri++s inre,u.tin, services5 t*ere is nee- to ist t*e -omestic re,u.tions in In-i. *ic* nee- to 4e cur4e- to *e3 ,rot* o+ t*e sector

.n- its e83orts5 *ie ret.inin, t*ose *ic* .re necess.ry +or re,u.tin, t*e sector .t t*is st.,e6 An in-ic.tive ist o+ some

im3ort.nt -omestic re,u.tions in In-i. *ic* nee- to 4e e8.mine- +or suit.4e 3oicy re+orms in t*e services sector is .s

+oos:

Tr.-e .n- Tr.ns3ort services: Some constr.ints in t*ese sectors incu-e restrictions on interst.te movement o+ ,oo-s *ic* cou- e.se

it* t*e .-o3tion o+ t*e mo-e A,ricuture Pro-uce .n- M.r;etin, Committee /APMC Act 4y m.ny st.tes t*e Mutimo-.

Tr.ns3ort.tion o+ <oo-s Act 1??! *ic* nee-s revision to e.se t*e e8istin, restrictions on tr.ns3ort.tion .n- -ocument.tion t*rou,* -i++erent

mo-es o+ tr.ns3ort5 3.rticu.ry restrictions in t*e Customs Act *ic* -o not .o se.mess movement o+ ,oo-s .n- restrictions on +ree

movement o+ c.r,o 4eteen In.n- Cont.iner "e3ots /IC"s5 Cont.iner 'rei,*t St.tions /C'Ss .n- Ports6

Construction: In construction5 4ottenec;s resut +rom continu.tion o+ restrictions un-er t*e r4.n L.n- Ceiin, .n-

Re,u.tion Act /LCRA in some st.tes n.mey An-*r. Pr.-es*5 Ass.m5 @i*.r5 .n- Jest @en,. *ic* *.ve not yet

re3e.e- it .n- t*e con+usion in t*e 3rocess reuire- +or ce.r.nce o+ 4ui-in,s even .+ter t*e re3e. o+ LCRA 4y 3.ssin, o+

t*e r4.n L.n-/Ceiin, .n- Re,u.tions Re3e. Act 1??? 4y t*e ot*er st.tes6 T*ere is .so .c; o+ c.rity on t*e roe o+ st.tes

.s +.ciit.tors in t*e .n- .cuisition 3oicy resutin, in incre.sin, num4er o+ court iti,.tions .--in, to ris; 3ro+ie o+

4ui-ersF3ro7ects t*ere4y restrictin, en-ers +rom e8ten-in, +in.nce to suc* 4ui-ersF 3ro7ects6 T*ere .re .so restrictions on

+oor .re. r.tio /'AR in m.ny st.tes .n- ot*er restrictions i;e t*e .33ic.tion o+ 4ye .sFre,u.tions .n- its e8em3tions

e6,6 incre.se in 'AR *ic* v.ries +rom 3ro7ect to 3ro7ect .n- is sometimes -iscrimin.tory6 O4t.inin, environment ce.r.nce is .not*er m.7or

*in-r.nce6

Account.ncy services: J*ie t*e .ccount.ncy 3ro+ession.s ere *it*erto .oe- to o3er.te eit*er .s . 3.rtners*i3 +irm or .s . soe

3ro3rietors*i3 +irm or in t*eir on n.me since t*e In-i.n re,u.tions -o not 3ermit e8cee-in, 20 3ro+ession.s un-er one +irm5 t*e emer,ence o+

Limite- Li.4iity P.rtners*i3 /LLP structure is i;ey to .--ress t*is im3e-iment6 Hoever5 t*e num4er o+ st.tutory .u-its o+ com3.nies

3er 3.rtner is restricte- to 206 '"I is .so not .oe- in t*is sector .n- +orei,n service 3rovi-ers .re not .oe- to un-ert.;e st.tutory

.u-it o+ com3.nies .s 3er t*e 3rovisions o+ t*e .s in In-i.6 T*ere .re .so -omestic re,u.tions i;e 3ro*i4ition on t*e use o+ in-ivi-u.o,os +or 3.rtners*i3 .n- sin,e 3ro3rietors*i3 .ccountin, +irms6 T*ese re,u.tions nee- to 4e re.8e- .n- stre.mine- to +.ciit.te tieu3s

.n- 3enetr.te +orei,n m.r;ets ,iven t*e 3otenti. +or e83ortin, t*ese services 4y t*e outsourcin, mo-e6

Le,. services: In e,. services '"I is not 3ermitte- .n- intern.tion. . +irms .re not .ut*oriGe- to .-vertise .n- o3en o++ices in In-i.6

'orei,n service 3rovi-ers c.n neit*er 4e .33ointe- .s 3.rtners nor si,n e,. -ocuments .n- re3resent cients6 T*e @.r Counci is o33ose-

to entry o+ +orei,n .yersF. +irms in .ny m.nner6 In-i.n .-voc.tes .re not 3ermitte- to enter into 3ro+its*.rin, .rr.n,ements it* 3ersons

ot*er t*.n In-i.n .-voc.tes6

E-uc.tion Services: T*ese come un-er t*e concurrent ist it* muti3e contros .n- re,u.tions 4y centr. .n- st.te

,overnments .n- st.tutory 4o-ies6 Re,u.tions o+ minimum o+ 2% .cres o+ .n- to est.4is* . me-ic. coe,e restricts t*e

settin, u3 o+ me-ic. coe,es in cities i;e "e*i6 P.tient o.- +.ctor re,u.tions re.te- to est.4is*ment o+ ne me-ic.

coe,es .so nee- to 4e in tune it* 3resent -.y eui3mentintensive 3.tient c.re .n- mo-ern 3r.ctices .n- 3roce-ures o+

me-ic. e-uc.tion6

Source : @.se- on "r H6A6C6 Pr.s.- .n- R6 S.t*is* /20105 or;in, 3.3er No6 1F2010"EA on Poicy +or In-i.#s Services

Sector# it* u3-.tes +rom concerne- "e3.rtments .n- Institutions6

activities. )esides the already e=isting instant money

order, the epartment of osts launched mobile

money remittance services on 13 !ovember 2012 in

19 selected post offices in each of four circles, vi.

Aerala, )ihar, elhi, and un4ab. The epartment of

osts has also been given the responsibility of


disbursing wages to Bahatma +andhi !ational (ural

Cmployment +uarantee /cheme &B+!(C+/'

beneficiaries through post office savings bank

accounts. "t present, B+!(C+/ wages aredisbursed through 3.33 crore !(C+/ accounts in

8,983 post offices. uring the current financial year



Services Sector 22?

&"pril-!ovember 2012' wages to the tune of K 8,912

crore have been disbursed. ost offices also have a

significant role in disbursement of benefits under

various schemes such as pensions and conditional

cash transfers to women. The wide reach of post

offices is also being utilied for collection of data to

compute the rural consumer price inde= every monthin rural areas. $hile the postal sector is entering

into new areas of activity, it has not only to shed its

role in some of the traditional activities and areas,

but also trim its sie and release the resources both

physical and human for use in other areas.

CHALLEN<ES AN" OTLOO

%utlook

10.39 The growth of the steadily growing services

sector did not fall even during the post 2009 crisis

period This was primarily due to higher government

spending with the high weighted community, social,

and personal services at 18.9 per cent and 1. per

cent in 2009-08 and 2008-10 respectively, which is

more than the rate in 200-09 and around eight to

ten times the rate of 200-0. This was supported

by the good growth in the other two ma4or sectors,

Ffinancial, insurance, real estate, and business

services: and Ftransport, storage, and

communication:. $hile these two sectors along with

Ftrade, hotels, and restaurants: were the ma4orcontributors to growth before the crisis, during the

crisis years of 2009-8 and 2008-10, Fcommunity,

social and personal services: assumed a greater role

in stabiliing the growth of the services sector.

Eowever, the growth of these services decelerated

in 2010-11 and was low in 2011-12 due to deceleration

in growth of public administration and defence. This,

coupled with the lower growth of trade &internal and

e=ternal' reflected in fall in growth of transport and

related activities, led to a relatively lower growth of

the services sector and even construction sector. #n2011-12, among the broad services sub-sectors, the

highest point contribution to total + growth at

*.0 per cent was that of Ffinancing, insurance, real

estate, and business services: followed by Ftrade,

hotels, and restaurants: &1.8 per cent'. #n 2012-1*,

with growth of even Ftrade, hotels G restaurants: and

Ffinancing, insurance, real estate and business

services: decelerating, overall services growth has

also decelerated.

10.38 Boving forward in the coming years, the

shipping sector continues to be in the red with fall in


e=ternal trade and the aviation sector has been rattled

by sudden eruption of problems in some airlines.

<ollowing the growth moderation in <T"s and the

resultant <CCs, growth in tourism and related

services like hotels is e=pected to be moderate. %n

the other hand with the recent announcement ofreform measures at regular intervals including mild

rela=ation in the monetary and credit policy, sectors

like retail, construction, and telecom are e=pected

to perform better. $ith the slight improvement in the

global economic situation, software, financial, and

fair-weather business services are also e=pected to

perform better. $ith no ma4or cuts in community

and social e=penditure e=pected, services sector

growth could recover, the downside risks, however,

being any downswings in the global economic

situation.

7hallenges

10.0 The immediate challenge for the services

sector covering myriad activities and areas is growth

revival. #ndia:s growth has been basically a services-

led growth pulling up overall growth of the economy.

$hile this could be through a business-as-usual

approach, a more targeted approach with focus on

big-ticket services could lead to e=ponential gains

for the economy. $hile software and telecom

services have led by e=ample, there are some other

important services like tourism including medical

tourism and shipping and logistics. Tourism is a big-

ticket item which can not only lead to higher growth

but also more inclusive growth. $ith world tourist

arrivals e=pected to increase by * million every year

on an average from 2010 to 20*0 and <T"s in

emerging countries e=pected to grow faster than in

advanced economies, a goldmine of opportunity in

tourism is waiting for #ndia which at present has a

paltry share of 0. per cent in world tourist arrivals.#ndia has an assorted list of destinations having

different types of weather and catering to different

types of tourists. Eowever, an image change for #ndian

tourism is needed with higher investment in tourism

infrastructure including through mode. Cven

user charges could be levied if monuments or tourist

sites are developed by the private sector or through

. There is urgent need to address issues like

high lu=ury ta=es on hotels by states and ensure

greater cleanliness and safety for tourists which can

help in giving a big boost to this sector. (efundingI"T as done in countries like Thailand and /ingapore



2!0 Economic Survey 20121!

can also help the tourism sector with ripple effects

on sectors like te=tiles and leather manufacturing,

as it can lead to high purchase of these items in

which #ndia is price competitive. /hipping services

is another ma4or area where the growth impact can

be high. $ith the share of shipping services in #ndia:s

overseas cargo falling from 0 per cent in the 1890sto 4ust 10. per cent in 2011-12, measures to

augment the ageing shipping fleet of #ndia are

necessary. $ith global prices at an all-time low, the

time is opportune for such purchases which can help

in greater foreign e=change earnings6savings in the

future through shipping services which have forward

linkage effect even in the e=port sector and also

increase our bargaining power with the foreign liners.

/uper specialty healthcare is another potential

sector with #ndia being one of the cheapest

destinations offering Duality services.

10.1 The other ma4or challenge is to retain and

e=pand our competitive advantage in those services

where we have already made a mark. The present

advantage in services may not continue forever, with

new competitors from other developing countries

making rapid strides even in areas where we had

the initial advantage as in the case of software

services. <urther e=pansion of established services

like software and telecom into new markets and

greater usage of these services domestically can

not only increase services growth but also propel

growth in other sectors with greater efficiency in these

sectors using knowledge- and technology-based

services.10.2 (emoving or easing domestic regulations is

the third challenge. $hile removal of market barriers

in the form of domestic regulations in other countries

depends on multilateral and bilateral negotiations,

the myriad restrictions and regulations in the different

services domestically as indicated in )o= 10. need

immediate attention. (emoving or easing

them can lead to dynamic gains for the #ndian

economy.

10.* The services sector is an uncharted seathrowing up many daunting challenges as well as

opening up many e=citing opportunities. $hile many

hitherto non-tradable services including those in the

government and social sectors are becoming

domestically tradable, many services hitherto

confined within national borders &like telemedicine'

have become internationally tradable. "ddressing the

challenges of the diverse services sectors and

seiing the new opportunities can lead to multiple

gains for the services sector and the economy.

service sector gdp

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