By Priyanka Venkat
The services sector is known for fuelling Indias GDP and economic growth. This is hardly surprising, considering that it contributes close to 28% of employment and over 60% of the countrys economy. The services sector includes (but is not limited to) services such as those offered by hotels, financial services, business services, transport, real estate, trade and the e-commerce industry.
Boost in service sector activity
The activity in the sector increased in October, with the Nikkei India Services Purchasing Managers Index rising to 51.7, from 50.7 in September. A Purchasing Managers Index (PMI) indicates the level of business activity in the services and manufacturing sector. A figure above 50 signifies expansion, while one below 50 indicates contraction.
The service sector activity increased at its fastest pace in four months since June, earlier this year. The Nikkei Composite Output index, which is indicative of activity of both the manufacturing and service sector, increased from 51.1 in September to 51.3 in October. The growth in service sector activity was driven by an increase in demand. Companies transferred the burden of high input costs to end consumers by increasing prices.
Both sectors saw a fall in business activity during the months of July and August due to ambiguity in the pricing of products with the implementation of GST. A contraction was seen, with the index falling below the 50 benchmark. A slight turnaround has been seen in October, with the service sector coming on board with the changes due to GST. Aashna Dodhia, an economist at IHS Markit, said, recovery from the GST implementation was sustained in the private sector in October, mainly radiating from service providers as growth in manufacturing was relatively subdued.
The International Monetary Fund (IMF), in its World Economic Outlook report, revised and reduced its estimate for GDP growth to 6.7%. Dodhia believes that considering that the composite PMI (includes both manufacturing and service sector activity) is at the highest since four months ago, it is likely that the GDP will expand at the forecasted rate (as per the IHS Markit forecast) of 6.8% in the fiscal year 2017-18.
Global potential of the service sector
The services sector is a reservoir of potential, waiting to be tapped. The sector attracts large amounts of Foreign Direct Investment (FDI) and its industries like healthcare, tourism and banking, to name a few, are rapidly growing and they generate large amounts of revenue.
This is probably why initiatives by the government, such as Digital India and Smart Cities play a significant role in attracting global attention, creating a conducive environment that helps develop the sector further. For instance, the healthcare sector in India is gaining traction worldwide, with major surgeries in the country costing a mere 10% of the same in developed countries in certain cases.
Digital India could do wonders to revolutionise the healthcare sector. Innovations in telemedicine, the designing of health-related apps for diagnosis, and diverse modes of payments such as e-wallets, through the creation of digital money, are just some of the ways in which the initiative could push the sector forward. This, coupled with the significant cost advantage that India enjoys in the sector, could make it competitive with Europe and the US (the cost is close to half of Europes) over a period of time. There has been a growing demand from countries such as Afghanistan, Bangladesh, Bhutan, and Africa for Indian medical knowledge. A study shows that many African countries approach Indian companies in the sector for assistance in setting up of hospitals, thus adding to exports.
The services sector, with the right amount of regulation and support through well thought out policy frameworks, could prove to be a goldmine.
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