Services: New Challenges for the Old War Horse

Introduction

• The service sector's contribution to total GVA has risen from 50.6% in FY14 to 55.3% in FY25 (First Advance Estimates).
• India ranked 7^th worldwide in global services exports with a share of 4.3% (2023)
• It also provides employment to approximately 30 % of the workforce.

Services sector performance in India

• Services also contribute indirectly to the GDP through the servicification of manufacturing, i.e., increasing utilization of services in manufacturing production and post-production value addition. 
• The service sector includes: Trade, repair, hotels, and restaurants, Transport, storage, communication, and broadcasting, Financial services, Real estate etc.

Trade in the services

• Computer services and business services exports account for ~70% of India's services exports. 
• India remained amongst the top five major countries in terms of growth in services exports in FY25.

Progress in logistics and physical connectivity based services

• Railways: Indian Railway is the 4^th largest network in the world. It recorded an 8% growth in passenger traffic originating in FY24.  Revenue-earning freight in FY24 grew by 5.2% 
• Road transport: It accounted for 78%(the highest) of total GVA of transport services
• Aviation: flying high: India is the fastest-growing aviation market globally.
• Port, Waterways and Shipping: India aims to position shipbuilding and ship repair among the top 5 globally by 2047 through Maritime India Vision 2030 and Maritime Amritkaal Vision 2047.
  • Inland water transport, with 14,850 km of navigable waterways, holds great potential. Currently, 26 operational waterways span over 4,800 km.
• Tourism and hospitality: Tourism sector's contribution to GDP regained the pre-pandemic level of 5% in FY23 and created 7.6 crore jobs.
  • India received 1.8% of world tourism receipts and attained 14^th rank in world tourism receipts during 2023.
• Real Estate: After enactment of Real Estate Regulatory Authority, India ranked 31st out of 89 countries in the Global Real Estate Transparency Index (2024).
• Information Technology (IT) Services: Information and computer-related services grew at a trend rate of 12.8% over the last decade (FY13–FY23), increasing their share of overall GVA from 6.3% to 10.9%
• Global Capability Centres (GCC): GCC are emerging as strategic hubs reshaping Indian corporate landscape and their numbers have increased to >1,700 in FY24.
• Telecommunication: India is the 2^nd largest telecom market, with overall teledensity of 84%.
  • India offers the world's lowest data rates and has also achieved the fastest global 5G rollout.

State wise analysis of service sector performance

• The service sector accounts for about 55% of the national GVA in FY25 with variation across the states.
• In FY23, Karnataka and Maharashtra accounted for >25% of India's total service sector Gross State Value Added (GSVA) whereas 19 states contributed just 25% to the service sector GSVA.

Conclusion

• Sectors with skilled digital and technical labor will thrive with AI, making workforce skilling crucial for growth. 
• Streamlining complex procedures and regulations is crucial to support manufacturing and services, helping build resilience against global challenges.