Detail of Service sector from 2009-10 Name: Shiva Kr. Yadav Roll No. 11316603911

SERVICES SECTOR: INTERNATIONAL
COMPARISON
Conventional wisdom suggests that during the early development phase of any country, expansion of output in manufactured goods precedes growth in the services sector. As a country progresses further manufacturing often takes a back seat, giving way to the services sector in terms of both output and employment, and manufacturing firms themselves become increasingly service centric in order to remain competitive. Some have argued that the decline in manufacturing and corresponding shift to services is unsupportable in the long run as services depend critically on manufacturing for their demand. Although this argument may be applicable for certain services such as retailing and transportation, it does not entirely hold for many other services. IT in particular very high services sector growth. Russia at 5.5 per cent and Brazil at 4.0 per cent are a distant third and fourth respectively. While India’s growth rate of the services sector at 10.1 per cent in 2009 was higher than that of China at 9.6 per cent, in 2010 it has decelerated to 7.7 per cent while China’s has remained constant (Table 10.1). All this highlights the prominence of the services sector for India. Despite the higher share of services in India’s GDP and China’s dominance in manufacturing over services, the hard fact, however, is that in terms of absolute value of services GDP and also in terms of growth of services, China is still ahead of India in 2010.
Services GDP: International Comparison In 2010, the share of services in the US$63 trillion world gross domestic product (GDP) was nearly 68 per cent, as in 2001. India’s performance in terms of this indicator is not only above that of other emerging developing economies, but also very close to that of the top developed countries. Among the top 12 countries with highest overall GDP in 2010, India ranks 8 and 11 in overall GDP and services GDP respectively. While countries like the UK, USA, and France have the highest share of services in GDP at above 78 per cent, India’s share of 57 per cent is much above that of China at 41.8 per cent. In 2010 compared to 2001, India is the topmost country in terms of increase in its services share in GDP (7 percentage points) followed by Spain and Canada (5.3 percentage points each), the UK (4.5 percentage points), and Italy (3.2 percentage points). In terms of compound annual growth rate (CAGR) for the period 2001-10, China at 11.3 per cent and India at 9.4 per cent show After having increased by 13 per cent in 2008 (as per WTO data), world exports of services fell sharply with negative growth of 12 per cent in 2009, only to bounce back in 2010 with 9 per cent growth. In 2010 the value of services exports was US$3,695 billion, slightly below the 2008 pre-crisis peak of US$ 3,842 billion. While world trade in services is dominated by the developed countries, emerging economies like China and India are now playing an increasing role. India is the most dynamic exporter of services and ranked seventh in the world in both exports and imports of services in 2010.

International Trade in Services
Global trade in services has more or less mirrored the trend in merchandise trade, and, by corollary, international demand. World exports of services have shown consistent rise in the 2000s decade with a healthy average annual growth of around 9.5 per cent, except in 2001 and 2009 periods of global slowdown and economic crisis. Sector declined from US$ 392 billion in 2009 to US$ 338 billion in 2010, resulting in its share in sectoral FDI declining from 33 per cent to 30 per cent in this period. Business services declined by 8 per cent compared to pre-crisis levels as multinational companies, who are outsourcing a growing share of their business support functions to external providers, downsized their operations due to economic slowdown. Transportation and telecommunication services also suffered equally in 2010 as the industry’s restructuring was more or less complete after the round of large mergers and acquisition deals before the crisis, particularly in developed countries. FDI in the financial industry experienced the sharpest decline and is expected to remain sluggish in the medium term. Over the past decade, its expansion was instrumental in integrating emerging economies into the global financial system, bringing substantial benefits to host countries’ financial systems in terms of efficiency and stability. Utilities were also strongly affected by the crisis as some investors were forced to reduce investment or even divest due to lower demand and accumulated losses.
Foreign Direct Investment (FDI) in the Services Sector
The global economic and financial crisis had a dampening effect on overall FDI flows. FDI in services, which accounted for the bulk of the decline in FDI flows due to the crisis, continued on its downward path in 2010. FDI in all main service industries (business services, finance, transport and communications, and utilities) fell, although at different rates. Overall, FDI projects in the services. The service sector growth rate at constant prices has always been above overall GDP growth rate since 1996-7 except for 2003-4 when the two converged. Thus for the last 15 years, this sector with growth much above overall GDP growth of the economy has been pushing up the growth of the economy with a great amount of stability The CAGR of the services sector at 10.2 per cent for the period 2004-5 to 2010-11 has been higher than the 8.6 per cent CAGR of GDP during the same period, clearly indicating that the services sector has outgrown both the industry and agriculture sectors.
Services GDP
The share of services in India’s GDP at factor cost (at current prices) increased from 33.5 per cent in 1950-1 to 55.1 per cent in 2010-11 and to 56.3 per cent in 2011-12 as per Advance Estimates (AE). If construction is also included, the service sector’s share increases to 63.3 per cent in 2010-11 and 64.4 per cent in 2011-12. With a 16.9 per cent share, trade, hotels, and restaurants as a group is the largest contributor to GDP among the various services’ subsectors, followed by financing, insurance, real estate, and business services with a 16.4 per cent share. Community, social, and personal services with a share of 14.3 per cent is in third place. Construction, a borderline service inclusion, is at fourth place with an 8.2 per cent share. In the years 2009-10 and 2010 11, the services sector has grown at 10.5 per cent and 9.3 per cent respectively. In 2011-12, the growth rate of services is 9.4 per cent (AE). State-wise Comparison of Services
A comparison of the share of services in the gross state domestic product (GSDP) of different states and union territories (UTs) in 2009-10 shows that the services sector is the dominant sector in most states of India. States and UTs such as Tripura, Nagaland, West Bengal, Mizoram, of services, though it could include some non-service elements. This share is 41.9 per cent of the cumulative FDI equity inflows during the period April 2000-December 2011. With the inclusion of the construction sector (6.5 per cent), the share of services in FDI inflows increases to 48.4 per cent. If the shares of some other services or service-related sectors like hotels and tourism (2.02 per cent), trading (1.94 per cent), information and broadcasting (1.60 per cent), consultancy services (1.21 per cent), ports (1.04 per cent), agriculture services (0.91 per cent), hospital and diagnostic centres (0.72 per cent), education (0.30 per cent), air transport including air freight (0.27 per cent), and retail trading (0.03 per cent) are included then the total share of cumulative FDI inflows to the services sector would be 58.4 per cent. Following the general trend in FDI inflows, FDI inflows to the services sector (top five sectors including construction) have also slowed down in 2009-10 and 2010-11, with negative growths of -7.5 per cent and -42.5 per cent respectively in rupee terms. In 2011-12 (April-December), again following the trend of overall FDI inflows, which increased by 50.8 per cent to reach US$ 24.19 billion, FDI inflows to the top five service sectors (including construction) also increased by 36.8 per cent to US$ 9.3 billion Services (financial and non-financial), telecommunications, and construction, are the leading sectors in FDI inflows to the services sector in 2011-12 (April-December). The inflows to the other two service sectors are comparatively low report on Employment and Unemployment Situation in India 2009-10, on the basis of usually working persons in the principal status and subsidiary status, for every 1000 people employed in rural and urban India, 679 and 75 people are employed in the agriculture sector, 241 and 683 in services sector (including construction), and 80 and 242 in the industrial sector, respectively. State-wise, there are wide differences in the share in employment of different sectors in rural India. While some north-eastern states like Sikkim, Tripura, and Manipur have a high share of employment in the services sector, city states like Chandigarh and Delhi also have very high shares of 826 and 879 out of 1000 employed people. Among the major states, Kerala has a high share of employment in the services sector at 511 persons per 1000. Construction; trade, hotels, and restaurants; and public administration, education, and community services are the three major employment-providing services sectors in different states. In urban India the shares of employment in services is very high in most of the states.

FDI in the Services Sector
FDI plays a major role in the dynamic growth of the services sector though the ambiguity in classifying various activities under the services sector poses difficulty in the measurement of FDI inflows into this sector. The combined FDI share of financial and non-financial services, computer hardware and software, telecommunications, and housing and real estate can be taken as a rough estimate of FDI share The five service sectors are also the sectors attracting the highest cumulative FDI inflows to the economy with financial and non-financial services topping the list at US$ 31.7 billion during the period April 2000-December 2011. This is followed by other service sectors – telecommunication, computer software & hardware and housing & real estate. The top five source countries for FDI inflows into India in the financial and non-financial services sector (for which break-up data are available) during April 2000 to December 2011 are Mauritius, which alone accounts for 39.7 per cent of FDI inflows in the service sector, followed by Singapore (15.4 per cent), the UK (8.6 per cent), USA (7.1 per cent) and Japan (4.5 per cent). This is more or less similar to the general sourcing pattern of total FDI with the top five countries remaining the same in the same order of ranking. The shares of the financial and non-financial\ services sector in total FDI inflows from these sourcing countries are –Mauritius 20.1 per cent, Singapore 30.6 per cent, UK 29.5 per cent, USA 21.9 per cent and Japan 11.9 per cent.

India’s Services Trade
As per balance of payments (BoP) data of the RBI, India’s services exports grew at a CAGR of 20.6 per cent during the period 2004-5 to 2010-11, compared to the 19.7 per cent CAGR of merchandise exports in the same period. Within the services sector, CAGRs of financial services (52.8 per cent) and business services (29.2 per cent) were higher, while that of software at 21 per cent was low. In terms of size, software is a major services export category, accounting for 41.7 per cent of total services exports in 2010-11. The CAGR for import of services was 20.2 per cent compared to the CAGR of merchandise imports at 21.4 per cent. Among services imports, nonsoftware services (22.6 per cent) and transportation (20.5 per cent) had high CAGRs. The overall openness of the economy reflected by total trade including services as a percentage of GDP showed a higher degree of openness at 50.3 per cent in 2010-11 compared to 25.4 per cent in 1997-8. Openness indicator based only on merchandise trade is at 37.5 per cent in 2010-11 compared to 21.2 per cent in 1997-8.

India’s Services Data
In last year’s Economic Survey, the weaknesses related to availability and quality of services datas was highlighted. To reiterate, these are difficulties in compilation of an index of services sector production, non-representation of many service sectors in the calculation of the wholesale price index, limited availability of published data on pricing of services, and limited data on trade in services. Even where data are available, they suffer from deficiencies related to definition, method of collection, suitability for pricing, and construction of indices. The recent efforts in streamlining data in the services sector, though welcome, need to be accelerated in a coordinated manner with the help of experts in the field.