Current Affairs Brain Booster for UPSC & State PCS Examination (Topic: India’s Service Sector Needs Urgent Attention)

Brain Booster for UPSC & State PCS Examination


Current Affairs Brain Booster for UPSC & State PCS Examination


Topic: India’s Service Sector Needs Urgent Attention

India’s Service Sector Needs Urgent Attention

Why in News?

  • According to the recently released IHS Markit India Services Index, the Indian services sector has been contracting for five consecutive months since March, with an index of 34.2. In Purchasing Managers' Index (PMI) jargon, the 50-mark level separates expansion from contraction.

Indian Service Sector

  • The services sector has been a key driver of both the global and Indian economy over the last three decades. India’s growth story has been driven by services, which has a 55 per cent share in the economy.
  • Services exports have outperformed goods exports in recent years, due to which India’s share in the world’s commercial services exports has risen steadily over the past decade to reach 3.5 per cent in 2018 — twice the sector’s share in the world’s merchandise exports, 1.7 per cent.

Survey Findings

  • The IHS Markit India Services PMI is compiled by IHS Markit from responses to questionnaires sent to a panel of around 400 service sector companies.
  • The sectors covered include consumer (excluding retail), transport, information, communication, finance, insurance, real estate and business services.
  • Service sector remains severely constrained as the spread of the coronavirus pandemic continues to restrict mobility of consumers as well as workers.
  • The survey said employment across the Indian service sector fell during June. Job losses were attributed to lower business requirements, although some companies reported poor staff availability.

Registering Sharp Decline

  • Central to the overall contraction was a further marked drop in new orders, with the rate of decline unchanged from June.
  • Key to the ongoing downturn in July was a further drop in sales. Total new business declined for a fifth successive month, with little change in the rate of contraction from June, although order books at manufacturers fell at an accelerated pace.
  • With demand conditions heavily subdued, Indian firms made further job cuts in July, with the rate of job shedding the quickest on record.
  • Looking ahead, the 12-month outlook for activity remained pessimistic for a third successive month.
  • Despite the growing evidence of services forming the backbone of our country, the talk about making India self-reliant almost always focuses on manufacturing.

Future Outlook

  • Services firms remained pessimistic with regards to activity over the year ahead for a third consecutive month in July, with the proportion of survey respondents expecting a decline in activity levels outweighing those anticipating a rise.
  • Negative sentiment was linked to substantial uncertainty, lockdown measures and expectations of a severe economic recession.
  • With such a prolonged and significant downturn, any substantial recovery will take many months, if not years.
  • Given the uncertainty in the world market and the projected slowdown of developed economies by 8 per cent this year, India’s services-led growth has to depend mostly on the domestic economy.
  • The International Monetary Fund (IMF) said high-frequency indicators signal plateauing of economic activity in India as the positive impact from unlock is not as strong as the negative impact of the lockdown. It urged the government to urgently contain the spread of the coronavirus pandemic on a priority to make economic recovery sustainable.

Suggestive Measures

  • The government needs to make cuts in VAT, which ranges from 0-30 per cent on aviation fuel, make provisions for GST holidays, compensate for wages of workers under distress and draft flexible terms for working capital credit.
  • To ensure employability and subsequent sustainability of the services sector, the government will have to take measures to stress on quality training of youth. Short-term skilling, for one, could be a big boon.
  • In addition to this, the government needs to act as an interface with the industry to ensure that the policies are attuned to the needs and demands of key stakeholders.
  • The corporate sector will have to start considering services as an integrated part of their ecosystem, rather than just a third-party provider, or something that needs to be simply ‘outsourced’.
  • In order to make the services sector more self-reliant, it needs to be viewed as a serious and crucial cog in the bigger economic wheel of the country.