Service Sector – 04
- The Indian logistics sector is currently valued at $160 Bn, the sector is expected to become worth $215 Bn in the next two years.1
- India’s rank has gone up from 54 in 2014 to 44 in 2018 in the World Bank’s Logistics Performance Index (LPI), in terms of overall logistics performance.2
- The Indian logistics sector employs more than 22mn people. The Logistics Sector was granted infrastructure status in 2017.1
The infrastructure status permits the Logistics Sector to avail the following benefits:2
- Infrastructure lending at easier terms with enhanced limits.
- Access to larger amounts of funds as External Commercial Borrowings (ECB).
- Access to longer tenor funds from insurance companies and pension funds.
- Eligibility to borrow from India Infrastructure Financing Company Limited (IIFCL).
INITIATIVES TAKEN BY THE GOVERNMENT FOR IMPROVING BUSINESS ENVIRONMENT
- A new Logistics Division has been set up in the Department of Commerce to coordinate integrated development of the sector by way of policy changes, improvement in existing procedures, identification of bottlenecks and gaps, and introduction of technology-based interventions.
- Expenditure on investment in logistics, including infrastructure, will touch $500 Bn, annually, by 2025.1
- Multi-Modal Logistics Parks Policy (MMLPs): The MMLPs are a key policy initiative of the Government of India to improve the country’s logistics sector. This initiative will lower freight costs, reduce vehicular pollution and congestion and cut warehouse costs to promote domestic and global trade.2
- Logistics Portal: A National Logistics Portal is being developed in phases to serve as a transactional e-marketplace by connecting buyers, logistics service providers and relevant government agencies. This portal will be the single window market place to link all stakeholders.3
- Logistics Data Bank: As a part of the India-Japan bilateral cooperation, a Logistics Data Bank Project has been commissioned to track containers on a ‘near-real-time’ basis. RFID tags are placed on every container coming out of the ports to tracks the container’s movement. The project has already expanded to various ports in India and covers almost 90% of the total container volumes in India.4
Champion service sectors
Champion Services Sectors refers to the 12 identified sectors where the Government wants to give focused attention for promoting their development, and realizing their potential. These include Information Technology & Information Technology enabled Services (IT& ITeS), Tourism and Hospitality Services, Medical Value Travel, Transport and Logistics Services, Accounting and Finance Services, Audio Visual Services, Legal Services, Communication Services, Construction and Related Engineering Services, Environmental Services, Financial Services and Education Services. A dedicated fund of Rs. 5000 crores has been proposed to be established to support initiatives for sectoral Action Plans of the Champion Sectors.
The respective line Ministries/Departments finalizes the Action Plans and the implementation timelines along with a monitoring mechanism to monitor implementation under the overall guidance of the Committee of Secretaries (CoS) under Cabinet Secretary. The idea was launched and accepted on 28 February 2018.
Rationale and Objective
This initiative is expected to enhance the competitiveness of India’s service sectors thereby creating more jobs in India, contributing to a higher GDP and export of services to global markets.
The share of India’s services sector in global services exports was 3.3% in 2015. Based on this initiative, a goal of 4.2% has been envisaged for 2022. The share of services in Gross Value Added (GVA) was about 53% for India in 2015-16 (61% including construction services). This initiative is expected to raise the share of services in GVA to 60% (67% including construction services) by the year 2022.
The Group of Secretaries in their recommendations to the Prime Minister, had identified ten Champion Sectors, including seven (7) manufacturing related sectors and three (3) services sectors, for promoting their development and achieving their potential. It was subsequently decided that Department of Industrial Policy and Promotion (DIPP), the nodal department for ‘Make in India’, would spearhead the initiative for the Champion Sectors in manufacturing and Department of Commerce would coordinate the proposed initiative for the Champion Sectors in Services. Accordingly, Department of Commerce, with wide stakeholder consultation coordinated the preparation of draft initial sectoral reform plans for several services sectors and, subsequently the action plan.
Economic Survey data on service sector (2019-20)
- Services sector is estimated to grow at 6.9% in 2019-20 as compared to 7.5% in 2018-19. The services sector is estimated to contribute 55.3% to India’s GVA in 2019-20. Currently, the services sector accounts for over 50% of the Gross State Value Added in 15 states and UTs. Sub-sectors such as trade, hotels, transport, communication & services related to broadcasting, financial and real estate services saw a deceleration during this period.
- The share of services exports in overall exports of India has been increasing. India’s share in the world’s commercial services exports was 3.5% in 2018, twice the share in the world’s merchandise exports at 1.7%.
The Government of India recognises the importance of promoting growth in services sector and provides several incentives across a wide variety of sectors like health care, tourism, education, engineering, communications, transportation, information technology, banking, finance and management among others.
The Government of India has adopted few initiatives in the recent past, some of these are as follows:
- In October 2020, the government selected Hughes Communications India to connect 5,000 village panchayats in border and naxal-affected states and island territories with satellite broadband under BharatNet project by March 2021.
- In September 2020, the government announced that it may infuse Rs. 200 billion (US$ 2.72 billion) in public sector banks through recapitalisation of bonds
- In the next five years, the Ministry of Electronics and Information Technology is working to increase the contribution of the digital economy to 20% of GDP. The government is working to build cloud-based infrastructure for collaborative networks that can be used for the creation of innovative solutions by AI entrepreneurs and startups.
- On Independence Day 2020, Prime Minister Mr. Narendra Modi announced the National Digital Health Mission (NDHM) to provide a unique health ID to every Indian and revolutionise the healthcare industry by making it easily accessible to everyone in the country. The policy draft is under ‘public consultation’ until September 21, 2020.
- In September 2020, the Government of Tamil Nadu announced a new electronics & hardware manufacturing policy aligned with the old policy to increase the state’s electronics output to US$ 100 billion by 2025. Under the policy, it aims to meet the requirement for incremental human resource by upskilling and training >100,000 people by 2024.
- The Cabinet Committee on Economic Affairs has given its approval for continuation of the process of recapitalization of Regional Rural Banks (RRBs) by providing minimum regulatory capital to RRBs for another year beyond 2019-20.
- Government of India has launched the National Broadband Mission with an aim to provide Broadband access to all villages by 2022.
- Under the Mid-Term Review of Foreign Trade Policy (2015-20), the Central Government increased incentives provided under Services Exports from India Scheme (SEIS) by 2%.
Services sector growth is governed by domestic and global factors. The Indian facilities management market is expected to grow at 17% CAGR between 2015 and 2020 and surpass the US$ 19 billion mark supported by booming real estate, retail, and hospitality sectors.
By 2023, healthcare industry is expected to reach US$ 132 billion. India’s digital economy is estimated to reach US$ 1 trillion by 2025. By end of 2023, India’s IT and business services sector is expected to reach US$ 14.3 billion with 8% growth.
The implementation of the Goods and Services Tax (GST) has created a common national market and reduced the overall tax burden on goods. It is expected to reduce costs in the long run on account of availability of GST input credit, which will result in the reduction in prices of services.