Service Sector 2008-Final

8/14/2019 Service Sector 2008-Final

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PREPARED BY :

TWINKLE DAGLI

TARUN ASRANI

SECTOR OF INDIAN

ECONOMY


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CONTENTS

Meaning & Inclusions Importance of Service Sector Growth of Service Sector Economic Reforms

Contribution in GDP GATS FDI share in service sector Taxation in service sector Imports & Exports of Services

Employment in Service Sector PAD Service sector & INFLATION Conclusion Bibliography


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Introduction & Inclusions

Services are those forms of intangible but tradableancillaries that acts as a firm support to theeconomic system of a country.

It covers a wide gamut of activities like trading,banking & finance, infotainment, real estate,transportation, security, management & technical

consultancy among several others.


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RISING IMPORTANCE OF SERVICESECTOR

Service sector - > importance grew since

Economic Reforms. (early 1990s)

Growth of 9% in 1990s compared to 5.8% of Industrial sector &3.1% Agriculture. (p.a.)

Presently provides 26% employment in organized sector

Services trade shares about 9% of GDP.


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Cont

Past Forex crisis during 1st & 2nd Oil Shocks(1973 & 1980)& during economic crisis of 1991.

Manufacturing sector & services inextricably linkedtogether.

Splintering of industrial activity pushed up growth ofservices.

Service sector unarguable answer to problem ofunemployment.

Services export growing much faster than world servicesexports;In 2000-2006-India: 38.22%, World: 12.84%.


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A low tradability of a host of services in India, and alarge potential of Indias services trade.

An efficient services sector is crucial for the growthof the Indian economy and reducing poverty

Cont.


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Cont..

The fact that the service sectornow accounts for more than half

the GDP marks a watershed in theevolution of the Indian economyand takes it closer to the

fundamentals of a developedeconomy.


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TREND GROWTH IN REAL GDP Originating inService Sector (1950-2005)


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CONTRIBUTION IN GDP


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Growth Of Service Sector(1970-1990)


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Growth Of Service Sector(1991-2008)


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Analysis - Economic Reforms

Reforms initiated in 1991.

Restrictions on Imports removed.

Custom duties progressively lowered.Foreign Investment(Direct & Portfolio) liberalized.

Policies framed to eradicate Infrastructure Bottlenecks.

Telecommunications, power, ports, etc were privatizedfor better efficiency.


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Cont..

Fact Elusion :

Government is withdrawing, though gradually, as acontroller and licenser of private activity andallowing competition and market forces to guideinvestment decisions.


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% SHARE OF ALL SECTORS IN GDP


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ANALYSIS

1950s agriculture contributed almost 60% of GDP

By 2004 Agri. Contribution dropped to about 26% of GDP.

1950s service sector contributed about 28% of GDP

Share of Industries stabilized in 1990s.

By 2004 its contribution reached almost 52% of GDP.

At present (2007-08) service sector contributes almost 61%towards GDP.


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GATS (General Agreement on Trade in Services) &India

1st set of international rules for trade in services incepted in1995.

GATS one of the major areas GATT in Uruguay Round, inGeneva on Dec. 15, 1993.

Aims to liberalize all service sectors & its mode of supplyunder multilateral rules.

Members choose the services & mode of supply to offertrading commitments.

To ease the plethora of tariff & non-tariff barriers.


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LIST OF SERVICES SELECTED BY INDIA

LEGAL SERVICES

HEALTH & SOCIAL SERVICES TOURISM

CONSULTING SERVICES TRANSPORT

PLACEMENT & SUPPLY SERVICES POSTAL

PACKAGING SERVICES RECREATIONAL

AUDIO VISUAL SERVICES CULTURAL & SPORTING

EDUCATION & TRAINING SERVICES DISTRIBUTIONAL

TRANSPORT IT SERVICES

ENEGY TELECOMMUNICATIONS

INSURANCE BANKING


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Mode of ServiceTransaction

Example Value of World TradeServices

Mode 1 : CROSS BORDERSUPPLY

Physical movement ofprovider or user not

required

28%

Eg : IT & Telemedicine,distance learning, musicconcerts, etc

Mode 2 : ConsumptionAbroad

The movement of user toprovider

Eg : eco-tourism, medicaltourism, etc

14%

Mode 3 : CommercialPresence

Setting up an establishmentlike a construction or an

engineering firm offeringconstruction or engineering

services,

57%

FDI in services

Mode 4 : Movement ofNatural

Temporary movement ofnatural persons e.g. Indian

Professors,

1%

Persons doctors, engineers,consultants,etc


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FDI SHARE IN SERVICE SECTOR

YEAR TELE-COMMUNICATION

CONSULTANCYSERVICES

FINANCIAL &NON-FINANCIAL

HOTEL &TOURISM

TRADING Total Services Total FDIInflow

(Amount in Rs.

Million)

(Amount in Rs.

Million)

(Amount in Rs.

Million)

(Amount in Rs.

Million)

(Amount in Rs.

Million)

(Amount in Rs.

Million)

(Amount in Rs.

Million)

1991 0 0 0.3 0 0 0.3 2656.3

1992 0 0 48.3 7.4 1.9 57.7 6912

1993 16.6 0 1214.9 2.9 55 1289.4 18619.6

1994 140.2 0 943.1 533 240.9 1857.1 34196.6

1995 1274.5 0 11014.9 219.1 3320.1 15828.5 69351.5

1996 7529.8 0 10106.9 444.3 650.7 18731.7 103970

1997 11850 0 5411.4 1031.9 945.1 19283.4 164258

1998 17410 5.8 7679.8 399.5 520 26015.3 133399

1999 2155.6 214.2 4023.8 405.4 980.6 7779.5 168678

2000 6855.4 209 1861.5 524 1239.8 10689.7 193417

2001 42671 2922.9 8202.2 471.5 2204.4 56472.1 192652

2002 9090.7 1003 15431.4 2237.9 1824.2 29587.2 212860

2003 7272.6 2480.3 13904 2594.2 831.5 27082.6 143011

2004 6087.84 11843.5 11455.83 1527.23 682.16 31596.56 172657.5

2005 9639.13 1627.16 31445.14 2799.59 1257.67 46768.69 192990.9


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543

4664

6615

2576

1375

2614

1410 1400

0

1000

2000

3000

4000

5000

6000

7000

2005-06 2006-07 2007-08 2008-09

SERVICES SECTOR

COMPUTER SOFTWARE &

HARDWARE

TELECOMMUNICATIONS

CONSTRUCTION ACTIVITIE

HOUSING & REAL ESTATE

AUTOMOBILE INDUSTRY

POWER

METALLURGICAL INDUSTRIE

PETROLEUM & NATURAL GA

CEHMICALS

Linear (METALLURGICAL

INDUSTRIES)

SECTORS ATTRACTING HIGHEST FDI INFLOWS:


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ANALYSIS

INFLOW OF FDI IN INDIA HAS BEEN UNIFORM ACROSS ALL SERVICE SECTORS.

GROWTHS IN FDI FLOWS FOUND TO BE THE HEAVIEST IN CONSULTANCY SERVICES,

FINANCIAL AND NON-FINANCIAL SERVICES, HOTEL AND TOURISM AND

TELECOMMUNICATIONS AND TRADING.

CONSULTANCY SERVICES RECORDS A HIGHEST GROWTH OF 119.0 PERCENT PER

ANNUM DURING STUDY PERIOD.

FDI IN FINANCIAL AND NON-FINANCIAL SERVICES, HOTEL AND TOURISM AND

TELECOMMUNICATIONS AND

TRADE RECORD A GROWTH RATE OF 60.5, 46.8, 43,9 AND 32.0 PERCENT PER ANNUM

RESPECTIVELY.


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SERVICE TAX - HISTORY

LIST II (State List) State govt. empowered to tax entertainment &professional services.

Till 1994 central govt. had no powers to tax services.

Introduced under LIST I (Union List 7th schedule)

Collection on tax entrusted to excise department.

TAX REFORMS COMMITTEE (TRC) : Chairman - Raja Chelliah

Recommended imposition of tax on certain select services viz.

advertising, non-life insurance, services of stock brokers & telephoneservices.

there is no sound reason for exempting services from taxation whengoods are taxed and many countries treat goods & services alike for taxpurpose.


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SERVICE TAXYear No. of services No of

AssessesTax Rate Revenue

(Rs. crore)

1994-95 3 3943 5 407

1995-96 3 4866 5 862

1996-97 6 13982 5 1059

1997-98 15 45991 5 1586

1998-99 26 107479 5 1957

1999-00 26 115495 5 2128

2000-01 26 122326 5 2613

2001-2002 41 187577 5 3302

2002-2003 52 232048 5 4122

2003-2004 60 403856 8 7891

2004-2005 75 740267 10 14200

2005-2006 84 805591 10 23055

2006-2007 99 12 38169

2007-2008 104 12 50200


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SERVICE TAX REVENUE


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% Growth in Service Tax Revenue


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EXPLANATION

At present 26 services are taxed in India.Service tax grew from 0.4% in 1994-95 to 7.8% in 2007-08.Growth in service tax had a negative impact on custom &

excise duties.Tele-communication contributes 57% of Service Tax

Revenue.Main Reason Arrest the declining trend in tax-ratio.

Tax-ratio declined from 15.3% to 14.2% from 1991-92 to1999-2000.


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IMPORTS & EXPORTS OF COMMERCIAL SERVICES(US $ BILLION)


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Source : MPRA(Munich Personal RePEc Archive) PAPER


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ANALYSIS:

Services grew from 1950s to 1960s mainly because of travel,services & other business services.

Rejuvenation in 1990s was mainly on account of export of

software and IT enabled services.

Exports of IT services grew at an average of 46% since mid1990s.

In 2002-03, first time India had a +ve balance of current

account, courtesy SERVICES.


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Services trade and pro poor growth: Relationshipbetween PCI (per capita income) and PCISE (per

capita income from service export)

India is relatively successful in delivering pro-poorgrowth in last few decades(but widely debated).

India witnessed continuous rise in per capita income(PCI), US$ 1228.50 in 1981 to US$ 3054.67 in 2005.

This rise in PCI also linked with rise in per capitaincome from services export (PCISE), which increasedfrom US$ 3.93 in 1981 to US$ 55.89 in 2005


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Cont..

The relationship between PCI and PCISE is thusquite interesting: 1 percent rise in per capita incomefrom services export is associated with about 7percent rise in per capita income

i l d lli i i b i li


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Social report card: Falling poverty, rising urban inequality &unemployment


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EMPLOYMENT BY INDUSTRY OF ORIGIN


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Comparison of pad & services in gdp


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ANALYSIS

PAD (Public Administration & Defense) entered aswages and salaries in the national product.

EFFECT - > high growth may lead to inflationarycondition.

PAD + Service Sector Growth = High GDP + Stable inflation


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CONCLUSION

Marked acceleration in services sector growth in the eighties and nineties, especially in the 90s.

The share of services in India's GDP increased by 21 per cent points in the 50 years between 1950 and2000, nearly 40 per cent of that increase was concentrated in the 90s.

Growth in service sector mainly attributed to IT.

FDI inflow to this sector has grown more than ten times in last five years from Rs 13,903 crores in2003 to Rs 1,43,776 crores in 2007.

However in current year IT sector received Rs 5,727 crores FDI in the first seven months of 2008against Rs 10,215 crores in 2007.

The boom in the services sector has been relatively "jobless.

Service sector has proved to be GOSPEL OF WEALTHfor the IndianEconomy.


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BIBLIOGRAPHY

Handbook of Statistics on Indian Economy. RBIIMF Working Paper James Gordan & Poonam Gupta

WTO Working Paper Rashmi Banga

MPRA Deba Prasad Rath & Raj Rajesh

ICFAI Journal

ISAS (Institute of South Asian Studies) Working Paper

Service Sector by Srinivasan

Global Research project on Growth by Shankar Acharya.


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Service Sector 2008-Final

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