Economic Survey: Services sector resilient, to grow by 8.2% in FY22

Omicron could prove a hurdle, may particularly impact contact intensive segments, says Survey

The services sector is expected to grow by 8.2 per cent in 2021-22 but the spread of Omicron variant of Covid-19 poses a risk to the recovery especially in contact intensive segments, according to the Economic Survey which was released today.

This is after 8.4 per cent contraction in the previous year. The de-growth was driven by sectors such as trade, hotels, transport which due to its contact intensive nature suffered the maximum brunt of the pandemic. The sector was worst hit during the pandemic and its share in the country’s gross value added from 55 per cent in 2019-20 to 53 per cent in 2020-21.

However, with increased vaccination and easing of restrictions by states, the services sector has seen a recovery in FY22.

“During the first half of the current fiscal year, the services sector has registered a steady recovery. Overall, the services sector grew by 10.8 per cent YoY in the first  half of 2021-22. The GVA in the services sector (excluding construction) crossed its pre-pandemic level2 in Q2 2021-22,” the survey said.

The trade, hotels, transport and communications and services related to broadcasting which was the worst hit during the pandemic grew 18.4 per cent in the first half of the year. On a full year basis this sub sector is expected to grow by 11.9 per cent.

Yet challenges persist and around 30 per cent of hotels and restaurants across the country shut down during the pandemic and others are running with losses, Pradeep Shetty, joint honorary secretary of Federation of Hotels and Restaurants Association of India pointed in reaction to the survey.

Services sector exports have shown resilience despite the pandemic-induced restrictions and weak tourism revenues. Service sector exports grew 18.4 per cent to $177.7 billion on a year-on-year basis in April-December period. Computer services exports continue to be the largest exported service in H1 FY 22, constituting about 49 per cent of total services exports. They exhibited positive sequential growth since Q2 FY 21 on account of increasing demand for digital support, cloud services and infrastructure modernisation owing to new pandemic challenges.

“With more than 75 per cent of the eligible population fully vaccinated and the third wave also showing signs of receding, prospects look upbeat. Also given that there are little restrictions this time in comparison with the second wave and many states are already further easing up, we will see momentum going up in the near future,” said Anuj Puri, chairman of Anarock group.

Sector experts however say that the government needs to support the services sector. “Travel and hospital sector’s earnings have declined considerably and we hope that the government will introduce some much needed and long overdue reforms for the sector’s recovery,” said Mandeep Lamba, South Asia president of consultancy HVS.

Ashish Gupta, CEO of industry body Federation of Associations in Indian Tourism and Hospitality suggests that the government must take slew of measures including fee waiver for e-tourist visas, grant infrastructure and export status for hotels and tourism sector, increase allocation for tourism ministry etc.