The Economic Survey today pegged the services sector growth at 9.6% for the current fiscal, lower than the 10.1% expansion in the previous fiscal, though the outlook remains bright.
"This (9.6% growth) is despite global deceleration in the sector," the Survey for 2010-11 tabled in Parliament by Finance Minister Pranab Mukherjee said.
The growth rate in the current fiscal is expected to be 19.5% for IT-BPO services, 18.5% for exports and 22.8% for domestic IT related services.
India is the second fastest emerging country in the services growth, behind China (10.5%)
Going ahead, the Survey notes that "the outlook for the services sector, which had slightly dimmed due to the fallout of the sub-prime crisis in the US and the global financial crisis has once again brightened".
The sector, growing by 10% annually, contributes 55.2% to the GDP and a quarter of total employment. It also contributes over one-third of country's total exports, besides accounting for a higher share in foreign direct investment (FDI), the Survey noted.
As per the advance estimates for 2010-11, the two broad services categories -- trade, hotels, transport and communication and financing, insurance, real estate and business services -- have performed well with growth of 11% and 10.6%, respectively.
The survey said only community, social and personal services have registered a low growth of 5.7%, thus contributing to the slight deceleration in the growth of the sector.
The financial and non-financial services sector, which falls purely in the services category, is the largest recipient of FDI equity inflows with a 21% share.
In terms of exports, India is also moving towards services-led export growth, it added. In the first half of the fiscal, services eports growth was 27.4% despite a dip due to the global crisis, which was due to fall in the share of merchandise trade to GDP.
While the outlook is bright, it said the sector was also facing many challenges.
One of the challenges is to retain India's competitiveness in sectors, like telecommunications and IT & ITeS, where the country has already made a mark.
Making inroads into some traditional areas such as tourism and shipping where other countries have already established themselves, is another challenge, it notes.
"Addressing these challenges and issues could further strengthen the services sector, which is driving force for India to relalise double digit growth potential...To help achieve more inclusive and balanced growth," it said.
The Economic Survey also said more conducive environment for trade in services can be created by liberalising FDI in the sector. Rationalising taxes in services like shipping, totalisation agreements with different countries and regulatory transparency, are among some of the steps which can help in growth and export of services.
An international comparison of the services sector shows that India compares well with developed countries in the top- 12 nations with highest overall GDP.
