India's services sector, which contributes over 50 per cent to country's gross domestic product (GDP), has been the worst affected by the COVID-19 pandemic, especially segments that involve human contact, according to the Economic Survey 2021-22 tabled in the parliament on Monday, adding that its share in India’s Gross Value Added (GVA) declined from 55 per cent in 2019-20 to 53 per cent in 2021-22.
"While non-contact services such as information, communication, financial, professional and business services have
remained resilient, the impact has been much severe on contact-based services such as tourism, retail trade, hotel, entertainment and recreation, etc," according to the survey.
In addition, the Economic Survey added that this sector is estimated to grow by 8.2 per cent this financial year following last year’s 8.4 per cent contraction, although the spread of Omicron variant of COVID-19 brings in a degree of uncertainty for near term, especially in segments that require human contact.
The survey also added that the services sector as a whole has mostly recovered from the impact of the nationwide lockdown imposed during March-May 2020 and localised lockdowns during the second COVID wave in April-May 2021, although some of the sub-sectors continue to be impacted.
During the first half of 2021-22, the services sector grew by 10.8 per cent. The recovery is more pronounced given the Gross Value Added (GVA) of Services crossed the pre-pandemic level in Q2 2021-22, it stated. However, being a contact intensive sub-sector, GVA of ‘Trade, hotels, transport, communication & services related to broadcasting’ still remains below its pre-pandemic level.
High-frequency indicators, such as services' purchasing managers’ index, air freight and rail freight bottomed out in 2020. The impact of second COVID wave in April-May 2021 on these indicators was much more muted as compared to what it suffered during the full lockdown in March-May 2020, the survey noted.
During April-December 2021, rail freight crossed its pre-pandemic level while air freight and port traffic almost reached their pre-pandemic level. Domestic air and rail passenger traffic is also increasing gradually.
The global issue of container shortage is impacting port traffic, the survey noted.
Services exports, after the initial slump during the first three quarters of 2020-21, surpassed its pre-pandemic level in Q4 2020-21.
During H1 2021-22, services exports grew by 21.6 per cent, deriving strength from global demand for software and IT services
exports.
India’s share in world commercial services exports increased to 4.1 per cent in 2020. Moreover, the IT-BPM services revenue reached $194 billion in 2020-21, adding 1.38 lakh employees during the same period.
The Government undertook a major reform of removing telecom regulations in the IT-BPO sector. As per a survey conducted
by IT industry body NASSCOM, these reforms have reduced compliance burden, enhanced productivity, increased global competitiveness and lowered the cost of doing business in India. Similarly, the Government has opened up space sector to private players, which will enhance the socio-economic use of space assets and activities. During the first half of 2021-22, the services sector received over $16.7 billion FDI, accounting for almost 54 per cent of the total FDI inflows into India.
Growth in Start-ups
The Economic Survey also noted that start-ups in India have grown remarkably over the last six years. The number of new recognised start-ups have increased to over 14,000 in 2021-22 from only 733 in 2016-17. "As a result, India has become the third largest start-up ecosystem in the world after the US and China," the survey stated.
Further, a record 44 Indian start-ups have achieved unicorn status in 2021 taking the overall tally of unicorns in India to 83, most of these are in the services sector.
GDP forecast:
The Economic Survey that details the state of the economy ahead of the Union Budget, projected an 8-8.5 per cent growth rate for the Indian economy in fiscal year 2022-23.
“With the vaccination programme having covered the bulk of the population, economic momentum building back and the likely long-term benefits of supply-side reforms in the pipeline, the Indian economy is in a good position to witness GDP growth of 8.0-8.5 per cent in 2022-23,” stated the report.