New Delhi: India’s services sector has bright prospects for growth on the back of improved performance by sectors such as tourism, real estate and e-commerce, but externalities and a weak economic outlook in advanced economies could pose a challenge, the Economic Survey presented on Tuesday said. said in the survey.
The survey states, “India’s service sector is a source of strength and is poised to gain more…from low to high value-added activities with export potential, generating employment and foreign exchange in this sector.” And there is ample scope to contribute to India’s external stability.” noted,
While the Covid-19 pandemic hurt most sectors of the economy, the impact was particularly profound for contact-intensive service sectors such as tourism, retail trade, hotels, entertainment and recreation, non-contact services such as information, communication, financial, professional , and business services remained resilient, it said.
The survey said, “However, the services sector saw a sharp comeback in FY2022, growing year-on-year (YoY) at 8.4 per cent as compared to a contraction of 7.8 per cent in the previous fiscal. ” Driven by growth in ‘trade, hotels, transport, storage, communication and services related to broadcasting’, which bore the maximum burden of the pandemic.
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Growth momentum continues in FY23
India’s services sector growth – which was highly volatile and fragile in the previous two fiscal years – has shown resilience in FY23 driven by robust demand, easing of mobility restrictions, near-universal vaccination coverage and pre-emptive government interventions. the survey said.
“Prospects look bright with improved performance of various sub-sectors such as tourism, hotels, real estate, IT-BPM (Information Technology-Business Process Management), e-commerce etc. However, the downside risk lies in external exogenous factors And the bleak economic outlook in advanced economies is affecting the growth prospects of the services sector through trade and other linkages.
The Economic Survey states that bank credit to the services sector sees a growth of 21.3 per cent in November 2022, the second highest in 46 months. Within the services sector, loans to wholesale and retail trade grew by 10.2 percent and 21.9 percent, respectively, in November 2022, “reflecting the strength of underlying economic activity.” Credit to NBFCs grew by 32.9 per cent as NBFCs shifted to bank lending due to higher bond yields.
The survey expects India’s services exports to improve as hyperinflation in advanced economies drives up wages and makes local sourcing costlier, opening avenues for outsourcing to low-wage countries, including India. The survey said, “India is a significant player in the services trade due to be among the top ten service exporting countries in 2021.” last year’s period.
Among services exports, software exports have been relatively resilient amid the COVID-19 pandemic as well as the current geopolitical uncertainties, driven by high demand for digital support, cloud services and infrastructure modernization for new challenges.
On sector-wise performance, the survey noted that information technology-business process management (IT-BPM) revenue registered a growth of 15.5 per cent during FY21 as compared to a growth of 2.1 per cent in FY21.
“Similar to the IT-BPM sector, the e-commerce sector also witnessed a renewed push and a sharp increase in penetration post the pandemic,” it said.
The survey states that lockdown and mobility restrictions have disrupted consumer behavior and encouraged online shopping. It said that the promotion of digital economy, increasing internet penetration, increase in smartphone adoption, innovation in mobile technologies and increased adoption of digital payments have driven the adoption and growth of e-commerce.
Additionally, the expansion of e-commerce into new areas such as grocery, home fresh fruits and vegetables, and general merchandise has contributed to the expansion of the customer base beyond traditional shoppers.
According to the survey, India’s G20 presidency presents a unique opportunity for the domestic tourism industry, which was adversely affected by the pandemic, to promote the country as a “major tourism destination”, whose passenger travel and hotel This is likely to have a positive impact on the occupancy rate. ,
“The Covid-19 pandemic affected the fortunes of the hospitality and tourism industries in recent years… With the pandemic subsiding, India’s tourism sector is also showing signs of revival. Foreign tourist arrivals in India in FY23 increased month-on-month with the resumption of scheduled international flights and easing of Covid-19 regulations. Still, arrivals are below pre-pandemic levels,” it said.
The Economic Survey said that despite current headwinds, such as rising interest rates on home loans and rising property prices, the real estate sector witnessed resilient growth in the current year with housing sales rising and new home launches in Q2. FY23 crossed the pre-pandemic level of Q2 of FY20.
The pandemic brought about a shift in sentiment “in favor of owning a home”, adding: “With the easing of restrictions, there has been a surge in interest in the residential housing sector and so has the easily available and affordable segment. . The hybrid work mode, with the privilege of working from home, has encouraged first-time home buyers to move away from traditional metros, and this has led to increased demand in the residential real estate markets of Tier II and III cities.
(Editing by Anumeha Saxena)