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  • Services Sector CHAPTER10

    Indias services sector expanded quickly with double-digit growth in the second halfof the 2000s. As the Euro-zone crisis has worsened, growth has slowed, though thesector is still growing at a much higher rate than the other two sectors of the economy.

    10.2 The services sector covers a wide array ofactivities ranging from services provided by the mostsophisticated sectors like telecommunications,satellite mapping, and computer software to simpleservices like tehose performed by the barber, thecarpenter, and the plumber; highly capital-intensiveactivities like civil aviation and shipping toemployment-oriented activities like tourism, realestate, and housing; infrastructure-related activitieslike railways, roadways, and ports to social sector-related activities like health and education. Thus,there is no one-sizefits- all definition of servicesresulting in some overlapping and some borderlineinclusions. The National Accounts classification ofthe services sector incorporates trade, hotels, andrestaurants; transport, storage, and communication;financing, insurance, real estate, and businessservices; and community, social, and personalservices. In the World Trade Organization (WTO)list of services and the Reserve Bank of India (RBI)classification, construction is also included.

    SERVICES SECTOR : INTERNATIONALCOMPARISON10.3 In world GDP of US$70.2 trillion in 2011, theshare of services was 67.5 per cent, more or lessthe same as in 2001. Interestingly the top 15countries in terms of services GDP are also thesame in overall GDP in 2011. This list includes themajor developed countries and Brazil, Russia, India,

    and China. Among the top 15 countries with highestoverall GDP in 2011, India ranked 9th in overall GDPand 10th in services GDP. A comparison of theservices performance of the top 15 countries in theeleven-year period from 2001 to 2011 shows thatthe increase in share of services in GDP is thehighest for India (8.1 percentage points) followedby Spain. While Chinas highest services compoundannual growth rate (CAGR) of 11.1 per cent wasaccompanied by marginal change in its share ofservices for this period, Indias very high CAGR (9.2per cent) which was second highest was alsoaccompanied by the highest change in its share.This is also a reflection of the domination of theindustrial sector along with services in China in itsgrowth, while Indias growth has been poweredmainly by the services sector (also see Chapter 2).Despite the higher share of services in Indias GDPand dominance of industry over services in China,in terms of absolute value of services GDP as wellas growth in services ( both decadal and annual in2001, 2010, and 2011) China is still ahead of India.(Table 10.1)

    10.4 Country estimates for 2012 show adeceleration in services growth in some majorcountries. For example, in 2012 it decelerated to0.5 per cent from 0.9 per cent (in 2011) in the USA;8.1 per cent in 2012 from 9.4 per cent (in 2011) inChina; and 6.6 per cent in FY 2012-13 from 8.2 percent (in FY 2011-12) in India. In Brazil, the servicessector grew by a 1.4 per cent in Q3 of 2012compared to 2.1 per cent in the correspondingperiod of the previous year.

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  • 211Services Sector

    10.5 While the share of services in employmentfor many developed countries is very high and inmany cases higher than the share of services inincomes, the gap between these shares is relativelyless. Except China and India, all the other BRICScountries also have a similar pattern. In the Indianand Chinese cases, there is a wide gap betweenthe two, with gap being wider for India. Chinas shareof services in both income and employment isrelatively low due to the domination of the industrialsector, but the gap is also narrower than that of India.

    10.6 World services export growth (CAGR) reacheda high of 12.6 per cent during 2000 to 2008 comparedto 6.6 per cent in the 1990s. Growth of world exportsof services which declined to - 11.1 per cent due tothe global economic crisis of 2008, quicklyrebounded in 2010 and grew by 10 per cent.However, the pre-crisis (2008) level of US $ 3.84 trillionwas reached and surpassed only after a lag of two

    years in 2011 when world services exports reachedUS $ 4.17 trillion with a growth of 11 per cent. TheEuro-zone crisis and the global slowdown in 2012affected services trade as well. Mirroring the trendsin world GDP growth and merchandise trade, worldexports of commercial services started deceleratingfrom Q4 of 2011 with 5 per cent growth followed by 4per cent in Q1 of 2012, zero per cent in Q2 of 2012and - 2 per cent in Q3 2012.

    10.7 World services-sector FDI rebounded in 2011after falling sharply in 2009 and 2010, to reach aroundUS $570 billion, registering a growth of 15 per centover the previous year. FDI in non-financial services,which accounted for 85 per cent of the total, rosemodestly, on the back of increases in FDI, targetingelectricity, gas, and water as well as transportationand communications. Financial services registereda 13 per cent increase in the value of FDI projects in2011 reaching US$80 billion, though still 50 per centbelow the pre-crisis average (2005-2007). FDI projects

    Table 10.1 : Performance in Services : International comparison

    Country Rank Overall GDP Share of services Change Services growth(US$ billion) ( percent of GDP) in rate ( per cent)

    ShareAt At 2011 CAGR

    Overall Services current constant over 2001-GDP GDP Prices Prices 2001 11

    2011 2011 2001 2010 2011 2001 2010 2011

    1 US 1 1 14991.3 13225.9 77.0 78.3 78.4 1.4 2.9 2.5 5.1 2.1

    2 China 2 3 7203.8 4237.0 40.6 41.9 41.7 1.1 10.4 9.9 8.9 11.1

    3 Japan 3 2 5870.4 4604.1 70.6 69.9 70.5 -0.1 1.8 1.1 0.6 0.4

    4 Germany 4 4 3604.1 3048.7 70.0 70.8 70.0 0.0 2.5 1.0 1.9 1.3

    5 France 5 5 2775.5 2240.5 76.8 79.0 79.2 2.4 1.8 1.9 2.1 1.4

    6 Brazil 6 8 2476.7 1126.4 65.4 66.2 66.5 1.1 1.8 5.0 3.1 3.8

    7 UK 7 6 2429.2 2381.1 74.0 76.4 76.0 2.0 3.8 1.1 1.2 2.3

    8 Italy 8 7 2195.9 1773.1 70.9 73.1 73.1 2.2 2.6 1.4 0.7 0.6

    9 India 9 10 1897.6 1322.7 50.1 56.8 58.2 8.1 7.5 9.4 7.4 9.2

    10 Russia 10 13 1857.8 947.2 56.3 62.4 62.1 5.8 3.3 3.9 3.6 5.5

    11 Canada 11 9 1736.9 1233.5 65.0 69.9 69.7 4.7 3.5 2.6 2.2 2.7

    12 Australia 12 11 1515.5 894.5 67.9 69.0 69.2 1.3 3.9 2.3 3.6 3.3

    13 Spain 13 12 1478.2 1183.8 63.7 69.8 70.0 6.3 3.6 1.2 1.2 2.8

    14 Mexico 14 14 1155.2 956.8 61.4 63.8 64.2 2.8 1.2 5.4 5.0 2.9

    15 South Korea 15 15 1116.2 1056.1 60.5 57.0 56.6 -3.9 4.4 3.9 2.7 3.5

    World 70201.9 52667.7 68.2 67.6 67.5 -0.7 2.8 2.9 3.6 2.6

    Source : Computed from UN National Accounts Statistics accessed on 4 January 2013.Note : Rank is based on current prices, shares are based on constant prices(US$), growth rates arebased on constant prices(US$), CAGR is estimated for 2001-11, construction sector is excluded inservices GDP.

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  • 212 Economic Survey 2012-13in 1950-1 to 56.5 per cent in 2012-13 as per AdvanceEstimates (AE). Including construction, the sharewould increase to 64.8 per cent in 2012-13. With an18.0 per cent share, trade, hotels, and restaurantsas a group is the largest contributor to GDP amongthe various services sub-sectors, followed byfinancing, insurance, real estate, and businessservices with a 16.6 per cent share. Both theseservices showed perceptible improvement in theirshares over the years. Community, social, andpersonal services with a share of 14.0 per cent is inthird place. Construction, a borderline servicesinclusion, is at fourth place with an 8.2 per cent share(Table 10.2).

    10.11 The CAGR of the services sector GDP at 10per cent for the period 2004-5 to 2011-12 has beenhigher than the 8.5 per cent CAGR of overall GDPduring the same period. However in 2011-12 and2012-13, there has also been a deceleration in growthrate of services sector at 8.2 per cent and 6.6 percent respectively. Among the major broad categoriesof services, financing, insurance, real estate, andbusiness services, which continued to grow robustlyboth in 2010-11 and 2011-12 decelerated to 8.6 percent in 2012-13. While in 2011-12 growth in trade,hotels, and restaurants and transport, storage, andcommunication slowed down to 6.2 per cent and8.4 per cent respectively, in 2012-13 trade, hotels,and restaurants and transport, storage, andcommunication combined grew by an estimated5.2 per cent.

    10.12 Sub-sector wise, among commercialservices, in terms of shares, the major services aretrade, transport by other means (i.e. excluding

    in banking remained subdued in the wake of theglobal financial crisis. European banks, which hadbeen at the forefront of international expansionthrough FDI, were largely absent, with a number ofthem remaining under government control. In 2012,United Nations Conference on Trade andDevelopment (UNCTAD) estimates indicate a fall inglobal FDI by 18 per cent to US $ 1.3 trillion, whileforecasting a moderate recovery in 2013-14.

    INDIAS SERVICES SECTOR10.8 Indias services sector has emerged as aprominent sector in terms of its contribution tonational and states incomes, trade flows, FDI inflows,and employment.

    Services GDP10.9 The growth story overall and services of worldand India in the 2000s began from almost the samelevel of around 4-5 per cent in 2000. But over theyears, Indias overall and services growth rates haveoutpaced those of the world. Interestingly, unlikeworld services growth, which has been moving intandem with its overall growth with mild see-sawmovements over the years, Indias services growthhas been consistently above its overall growth inthe last decade except for 2003 (when the formerwas marginally lower than the latter). Thus, for morethan a decade, this sector has been pulling up thegrowth of the Indian economy with a great amountof stabil

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