Resilience brightens services outlook

A tough job ahead is to make inroads in traditional areas like tourism and shipping.

The Survey has projected a sunny outlook for the services sector, a new entry in the annual document that offers broad guidance on the Union Budget. The sector, which showed an annual growth rate of 10 per cent even during the global financial crisis, is set to emerge even brighter.

Incidentally, overall GDP growth fell to 6.8 per cent in 2008-09 from 9.3 per cent in 2007-08. Thus, the resilience of the services sector has greatly contributed to that of the economy.

“Although the primary sector (mainly agriculture) is the dominant employer, followed by the services sector, the share of services has been increasing over the years,” said H A C Prasad, senior economic adviser in the finance ministry.

While opportunities are huge in the sector in terms of growth, employment, foreign direct investment and exports, it also faces many challenges. Retaining competitiveness in sectors such as information technology (IT) and IT-enabled services (ITeS), where India has done remarkably well so far, is one.

Another tough job is to make inroads in traditional areas like tourism and shipping. Plus, India must make a foray into globally traded services like healthcare, education, financial services.

Regulatory improvements are also needed, the Survey has said. This is because many “domestic regulations and market-access barriers can come in the way of fully tapping this growth-accelerating sector”.

The Survey has recommended permitting FDI in retail in a phased manner, beginning with metros.

This is based on a discussion paper floated by the Department of Industrial Policy and Promotion.

Currently, FDI is not allowed in multi-brand retail, but 100 per cent foreign investment is permitted in wholesale business, and up to 51 per cent in single-brand retail. For the latter segment, 94 proposals were received by the government till May 2010, of which 57 were cleared.

Besides retail business, other areas covered under services include tourism, hotels, shipping, storage, telecom, real estate, IT, accounting, research and development , legal, and social.

The sector contributes 55.2 per cent to the country’s GDP. If construction is added, the figure would rise to 63.4 per cent. It was just 30.5 per cent in the GDP of 1950-51.