Services Sector in India Sees Tech-Driven and Export Diversification

Discussing the sector wise performance of major services, the Economic Survey 2023-2024 tabled in Parliament today by the Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman, highlighted“Two significant transformations are reshaping India's services landscape: the rapid technology-driven transformation of domestic service delivery and the diversification of India's services exports”.

India's services sector encompasses a wide array of economic activities, which can be broadly classified into two categories:

1. Contact-intensive (physical connectivity-based services): includes trade, hospitality, transport, real estate, social, community and personal services.
2. Non-contact-intensive services (Information Technology services, tech start-ups and Global Capability Centres): comprises financial, information technology, professional, communication, broadcasting, and storage services. The sector also incorporates public administration and defence services.

Physical connectivity-based services

Myriad services are that are offered to ensure the seamless movement of goods, people, and information across diverse infrastructure networks encompass a broad spectrum, ranging from passenger transport via trains, buses, taxis, and airlines to freight transport facilitated by shipping companies, freight forwarders, and courier services.

1. Roadways: A considerable portion of India's cargo is transported via road. Accordingly, through various initiatives user convenience on National Highways (NH) has been enhanced:
   • Toll digitisation has drastically reduced waiting times at toll plazas, from 734 seconds in 2014 to 47 seconds in 2024.
   • Ministry of Road Transport and Highways (MoRTH) has devised a comprehensive '4E' strategy - Engineering (roads and vehicles), Enforcement, Emergency Care, and Education - to elevate road safety standards on NHs.
   • The Government has utilised the PM Gati Shakti National Master Plan portal for network planning and congestion projections.

2. Indian Railways: Indian Railways (IR) hosts many services to enhance user experience, efficiently manage the train system and build capacity for a Viksit Bharat.
   • Passenger traffic originating in IR was 673 crore in FY24 (provisional actuals), increasing by about 5.2 per cent compared to the previous year.
   • IR carried 158.8 crore tonnes of revenue-earning freight in FY24 (excluding Konkan Railway Corporation Limited), showing an increase of 5.3 per cent over the previous year.
   • To upgrade the passenger experience, railways have introduced Wi-Fi facilities at 6108 stations, bridging the digital divide between rural and urban citizens.

3. Ports, Waterways and Shipping: The port sector is leveraging the Sagar Setu application to streamline daily vessel and cargo operations, aspiring to become a central hub for all maritime engagements.
   • Sagar Setu is also integrated with all the 13 major ports of India, along with 22 non-major ports and 28 private terminals.
   • There is a push for promoting river cruise tourism on national waterways. There has been a staggering 100 per cent surge in overnight cruise trips during FY24.

4. Airways: India is the third-largest domestic aviation market and the aviation sector in India has shown substantial growth, with a 15 per cent YoY increase in total air passengers handled at Indian airports reaching 37.6 crore in FY24.
   • In FY24, the domestic air passenger traffic handled increased by 13 per cent YoY to 30.6 crore, and international air passenger traffic handled increased by 22 per cent YoY to 7 crore.
   • Air cargo handled at Indian airports increased by 7 per cent YoY to 33.7 lakh tonnes in FY24.
   • The Government has approved 21 greenfield airports nationwide and operationalised new terminal buildings to increase passenger handling capacity backed by a solid capex plan.
   • To promote regional equity, the ‘Ude Desh Ka Aam Nagrik’ (UDAN) scheme launched in 2016 facilitated the travel of over 141 lakh domestic passengers across various 579 Regional Connectivity Scheme routes connecting 85 unreserved and underserved airports since its inception.
   • Initiatives like Digi Yatra are enhancing efficiency through technology
   • Women constitute 15 per cent of the country’s pilots, which is almost three times higher than the global average, thus presenting greater opportunities for women in the sector. In the year 2023, a total of 1622 commercial pilot licenses were issued, of which 18 per cent were issued to women.

5. Tourism: The tourism sector in India is rapidly expanding, with India being ranked at the 39th position in the World Economic Forum's Travel and Tourism Development Index (TTDI) 2024.
   • Showing positive signs of revival post-pandemic, the tourism industry witnessed over 92 lakh foreign tourist arrivals in 2023, implying a YoY increase of 43.5 per cent.
   • India has significantly earned foreign exchange receipts amounting to over ₹2.3 lakh crore through tourism, indicating a 65.7 per cent YoY increase.
   • Swadesh Darshan 2.0, focuses on integrated tourism destination development, targeting 55 destinations across 32 states and Union Territories.

6. Real Estate: Real estate and ownership of dwellings have accounted for over 7 per cent of the overall Gross Value Added (GVA) in the past decade, highlighting their integral role in the economy.
   • In 2023, residential real estate sales in India were at their highest since 2013, witnessing a 33 per cent YoY growth, with a total sale of 4.1 lakh units in the top eight cities.
   • The housing sector’s growth has been due to several key factors namely the Pradhan Mantri Awas Yojana-Urban (PMAY-U), policy reforms like the Goods and Services Tax, Real Estate (Regulation and Development) Act, and the Insolvency and Bankruptcy (SWAMIH), PMAY(U)-Credit Linked Subsidy Scheme interest subvention.
   • According to a report by CRISIL, the housing loan market in India grew at a CAGR of approximately 13 per cent from FY18 to FY23. The housing loan market in India is expected to continue growing at a CAGR of 13 to 15 per cent reaching ₹42 lakh crore to ₹44 lakh crore by FY26.

Information Technology Services, Tech start-ups and Global Capability centres

Over the past decade, information and computer-related services have become increasingly significant, with their share of total GVA rising from 3.2 per cent in FY13 to 5.9 per cent in FY23. Despite the pandemic-induced economic downturn, this sector achieved a real growth rate of 10.4 per cent in FY21. The flourishing growth of IT services has also supported the expansion of Global Capability Centers (GCCs) and the tech start-up ecosystem in India.

Global Capability Centres (GCCs) in India have grown significantly, from over 1,000 centres in FY15 to more than 2,740 units by FY23. These centres contribute to economic growth by providing high-quality employment. Revenue from India's GCCs has increased from USD 19.4 billion in FY15 to USD 46 billion in FY23, growing at a compound annual growth rate (CAGR) of 11.4 per cent.

Technology start-ups in India have risen remarkably from around 2,000 in 2014 to approximately 31,000 in 2023. As per NASSCOM, the sector witnessed the inception of roughly 1000 new tech start-ups in 2023. Also, as per NASSCOM, India’s tech start-up ecosystem ranks third globally and has performed considerably better than the USA and the UK. The Start-up India Initiative and Start-up hubs across ministries and departments of the Government of India along with National Deep Tech Start-up Policy, the Drone Shakti Program and custom duty exemptions for EV-related capital goods and machinery have aided the growth of tech start-ups. Targeted efforts such as accelerating & strengthening the deep-tech ecosystem, strengthening domestic capital flow and leveraging initiatives such as Start-Up India have been undertaken to tap the potential of start-ups.

1. Telecommunications: The overall tele density (number of telephones per 100 population) in India increased from 75.2 per cent in March 2014 to 85.7 per cent in March 2024.
   • Internet subscribers jumped from 25.1 crore in March 2014 to 95.4 crore in March 2024, of whom 91.4 crore are accessing the internet via wireless phones.
   • The internet density also increased to 68.2 per cent in March 2024.
   • The cost of data has declined substantially, vastly improving the average wireless data usage per subscriber.
   • India is amongst the fastest-growing 5G networks in the world. The Bharat 5G Portal propels India's 5G capabilities and fosters innovation, collaboration, and knowledge-sharing within the telecom sector.

2. E-Commerce: The Indian e-commerce industry is expected to cross USD 350 billion by 2030.