Service sector shows early signs of revival

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India’s services sector that remained resilient even during and immediately after the global meltdown buckled under the pressure of continued global and domestic slowdown, resulting in sub-normal growth in the last two years. But early shoots of revival are visible in 2014-15 with signs of improvement in world GDP growth, said the economic survey on Wednesday. Sectors like IT, transport logistics and retail trading are also showing signs of pick-up.

Services constituted a major part of India’s GDP with 57 per cent share at factor cost (at current pric­es) in 2013-14, which was an increase of six percentage points over 2000-01. With construction included, it went up to 64.8 per cent. The CAGR of the services sector GDP at 8.5 per cent for 2000-01 to 2013-14 has been higher than the 7.1 per cent CAGR of overall GDP during the period.

In 2013-14, the growth rate of the services sector at 6.8 per cent was marginally lower than in 2012-13. This was due to deceleration in growth rate of the combined category of trade, hotels and restaurants, transport, storage and communications to 3 per cent from 5.1 per cent in 2012-13, despite robust growth of financing, insurance, realty, and business services at 12.9 per cent.

The IT-ITeS industry has become one of the significant growth catalysts for India. The business process management sector (excluding hardware) is estimated to have grown by 10.3 per cent, reaching $105 billion in 2013-14. Of this, exports with a major share of 81.9 per cent grew by 13 per cent, while domestic revenues fell by one per cent in dollar terms. Domestic revenue is estimated to have risen by 9.63 per cent in rupee terms. In 2014-15, hig­h­er growth is likely in both exports and domestic revenue.

“We maintain our constructive view on the medium-to-long term prospects of the sector on expectations of improving demand over 2014-15. The rupee has appreciated over the past few weeks and is a key concern for the market. But we believe the appreciation will not be significant,” said Dipen Shah, head of private client group research at Kotak Securities.

Exports of software services, accounting for 46 per cent of total services exports, decelerated to 5.4 per cent in 2013-14 from 5.9 per cent in 2012-13. But it’s expected to grow this fiscal year because of revival in demand.“India's IT sector is export oriented with a major chunk of revenues coming from the US. Tepid growth in the US since the start of quantitative easing had been a cause of concern. On an average, for 2013, the US GDP grew at 1.9 per cent year-on-year with the fourth quarter of 2013 reporting a 2.6 per cent growth,,” said Ankita Somani, IT analyst at MSFL Research.


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