Services sector sees 'V-shaped' recovery

Bengaluru: After badly battered by lockdown amid the COVID pandemic, Indian services sector is witnessing a 'V' shaped recovery with key indicators showing positive momentum, the Economic Survey pointed out on Friday. Despite this revival, Gross Value Addition (GVA) is likely to contract by 8.8 percent in the current financial year (FY21) as compared to 5.5 percent rise registered in FY20.

The survey released on the eve of Union Budget 2021 also noted that key indicators such as Services Purchasing Managers' Index (PMI), air passenger traffic, rail freight traffic, port traffic, foreign tourist arrivals and foreign exchange have bottomed out and are showing a 'V-shaped' recovery. "India's services sector witnessed a significant set-back during the COVID-19 pandemic mandated lockdown, owing to its contact-intensive nature. The sector contracted by nearly 16 percent during the first half of the financial year 2020-21," the survey said. It, however, said that ongoing vaccination drive would push up growth prospects of these contact-intensive sectors.

Services sector accounts for 54 percent of Gross Value Addition (GVA) and attracts 80 percent of the total FDI (foreign direct investment) inflows in the Indian economy. The sector has emerged as one of the largest employers in the economy. The survey noted that domestic passenger air traffic is recovering gradually on a monthly basis though overall demand remains subdued as compared to last year. Similarly, FDI equity inflows into the services sector grew by 34 percent Y-o-Y during April-September 2020 to reach $23.6 billion. "This growth was led by strong inflows into computer software & hardware sub-sector, where FDI inflows grew by over 336 percent during the same period," it said. Even retail trading, agricultural services, and education also saw sound interest from foreign investors. Backed by such inflows, India improved its position from 12th in 2018 to 9th in 2019 in the list of world's largest FDI recipients as per World Investment Report 2020.

Tourism sector is one of the worst affected sectors of the economy amid travel restrictions worldwide. However, ongoing vaccination drive may spur revival in this sector, the survey noted.

On the startup ecosystem, the survey finds out that Indian startup ecosystem has shown resilience on the face of this global pandemic and is progressing well. "The ecosystem defied the odds and had added a record number of 12 startups to the unicorn list last year, taking the total to 38,' the survey noted.

Similarly, the IT-BPM (Information Technology-Business Process Management) sector has seen many structural reforms including removal of telecom related regulations and introduction of consumer protection regulations for e-commerce sectors.