The services sector has been instrumental in powering India’s growth in the past two decades, including in exports
The Great Eastern Hotel in Calcutta in the 19th century
The growth in the services sector largely began after the reforms of 1991. Liberalisation, removal of FDI restrictions, easier approvals and so on led to the sector’s growth broadly classified under the following categories—information and communication, financial and insurance sectors, education, arts and entertainment, real estate etc. In the 1950s, the sector’s share in India’s GDP was about 29 per cent, accelerating to over 30 per cent in the ’60s and ’70s and increasing to over 53 per cent by the 2000s. India has also emerged as one of the top services exporter countries, increasing its share from 0.6 per cent in 1991 to 4.6 per cent in 2020.
Between 1980 and 2010, India’s share in the global services sector increased from less than 1 per cent to over 3 per cent while its share in the goods trade remained constant at 1 per cent. In 2011, an A.T. Kearney Global Services Location Index noted that the country was the leading outsourcing destination in a list of 50 countries. But though India ranked high in human resources, it was rated poorly in terms of business environment.
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An Asian Development Bank analysis says that in the 1950s and ’60s, transport, storage, communication, trade, hotels and restaurant services grew faster while in the 1970s and ’80s, financing and business services started accelerating. In the 2000s, transport, storage and communications saw the fastest growth. In terms of FDI inflows, between January 2000 and December 2019, the services sector received $80.7 billion (Rs 6.4 lakh crore), about 17.6 per cent of the total FDI equity inflow into the country. While the sector continues to contribute over 50 per cent to India’s GDP, the pandemic did have an adverse impact—share in Gross Value Addition (GVA) declined from 55 per cent in 2019-20 to 53 per cent in 2021-22.
ITC Royal Bengal in Kolkata now
On the policy front, some of the services industries such as transport and energy have ministries with conflicting interests, leading to multiple clearance requirements. Businesses such as e-commerce and fintech are currently grappling with multiple policy changes. Having said that, the government has removed FDI limits across several sectors, including increasing the stake in the insurance sector to 74 per cent in Budget 2021.