New Delhi: India’s services sector has bright growth prospects on the back of improved performance of sectors like tourism, real estate and e-commerce, but external factors and bleak economic outlook in advanced economies could pose a challenge, the Economic Survey tabled Tuesday said.
“India’s services sector is a source of strength and is poised to gain more… From low to high value-added activities with export potential, the sector has enough scope to generate employment and foreign exchange and contribute to India’s external stability,” the Survey noted.
While the Covid-19 pandemic hurt most sectors of the economy, with the effect particularly profound for contact-intensive services sectors like tourism, retail trade, hotel, entertainment, and recreation, non-contact services such as information, communication, financial, professional, and business services remained resilient, it said.
“However, the services sector witnessed a swift rebound in FY22, growing Year-on-Year (YoY) at 8.4 per cent compared to a contraction of 7.8 per cent in the previous financial year,” the Survey said, adding that the improvement was driven by growth in the ‘Trade, Hotel, Transport, Storage, Communication and Services related to broadcasting’, which bore the maximum burden of the pandemic.
Also Read: What Economic Survey says about education: Decline in dropout rate, improved gender parity
Growth momentum continues in FY23
India’s services sector growth — which was highly volatile and fragile in the last two fiscal years — has shown resilience in FY23 driven by the release of pent-up demand, ease of mobility restriction, near-universal vaccination coverage and pre-emptive government interventions, the Survey said.
“The prospects look bright with improved performance of various sub-sectors like Tourism, Hotel, Real estate, IT-BPM (Information Technology-Business Process Management), e-commerce etc. The downside risk, however, lies in the external exogenous factors and bleak economic outlook in Advanced Economies impacting growth prospects of the services sector through trade and other linkages,” it added.
The Economic Survey added that the bank credit to services sector saw a YoY growth of 21.3 per cent in November 2022, the second highest in 46 months. Within the services sector, credit to wholesale and retail trade increased by 10.2 per cent and 21.9 per cent in November 2022, respectively, “reflecting the strength of the underlying economic activity. Credit to NBFCs grew by 32.9 per cent as NBFCs shifted to bank borrowings because of high bond yields,” it said.
The Survey anticipates an improvement in India’s services exports as runaway inflation in advanced economies drives up wages and makes local sourcing expensive, opening up avenues for outsourcing to low-wage countries, including India. “India is a significant player in services trade, being among the top ten services exporter countries in 2021,” the Survey noted, adding that services exports registered growth of 27.7 per cent in April-December 2022 as compared to 20.4 per cent in the corresponding period last year.
Among services exports, software exports have remained relatively resilient during the Covid-19 pandemic as well as amid current geopolitical uncertainties, driven by higher demand for digital support, cloud services, and infrastructure modernisation catering to new challenges.
On the sector-wise performance, the Survey said that the Information Technology-Business Process Management (IT-BPM) revenues registered YoY growth of 15.5 per cent during FY22 compared to 2.1 per cent growth in FY21.
“On the same lines as the IT-BPM sector, the E-Commerce sector also witnessed a renewed push and a sharp increase in penetration in the aftermath of the pandemic,” it said.
The Survey noted that lockdowns and mobility restrictions disrupted consumer behaviour and gave an impetus to online shopping. The government’s push to boost the digital economy, growing internet penetration, rise in smartphone adoption, innovation in mobile technologies, and increased adoption of digital payments further accelerated the adoption and growth of e-commerce, it said.
Additionally, the expansion of e-commerce to newer segments like grocery, fresh-to-home fruits and vegetables, and general merchandise has contributed to the expansion of the customer base beyond traditional buyers.
According to the Survey, India’s G20 presidency presents a unique opportunity for the domestic tourism industry, which was adversely impacted by the pandemic, to promote the country as a “major tourism destination”, which is likely to positively impact passenger travel and hotel occupancy rate.
“The Covid-19 pandemic affected the fortunes of the hospitality and tourism industries in recent years…with the waning of the pandemic, India’s tourism sector is also showing signs of revival. Foreign tourist arrivals in India in FY23 have been growing month-on-month with the resumption of scheduled international flights and the easing of Covid-19 regulations. Yet, the arrivals are below the pre-pandemic level,” it said.
The Economic Survey added that that notwithstanding the current impediments, such as rising interest rates on home loans and an increase in property prices, the real estate sector witnessed resilient growth in the current year, with housing sales and the launch of new houses in Q2 of FY23 surpassing the pre-pandemic level of Q2 of FY20.
The pandemic brought about a change in sentiment “in favour of owning a house”, it said, adding: “With the easing of curbs, there was an increase in interest in the residential housing sector and more so in the readily available and affordable segment. The hybrid work mode with the privileges of working from anywhere encouraged first-time home buyers to move away from the conventional metros, and this brought about a pent-up demand in the residential real estate markets of Tier II and III cities.”
(Edited by Anumeha Saxena)
Also Read: ‘Recovery complete’: Economic Survey pegs India’s growth at 6.5% in FY24, and faster thereafter