Indian Service Sector - An Ocean of Opportunities

By: Anil Shyam, Head- Alternate Business & ETF, Aditya Birla Sun Life AMC Limited Given the indication by Flash Purchasing Managers' Index (PMIs) for August 2022, both manufacturing & services activity in United States

& Europe seems to be facing setbacks on account of rising prices. While Consumer Price Index (CPI) in the US remains sticky and Producer Price Index (PPI) has begun to fall, they remain a source of concern in the Eurozone and the United Kingdom. The looming energy crisis and the impending winter season may worsen Europe’s woes. Furthermore, China’s industrial production, retail sales, property sales, all registered lower-than expected growth in July 2022. However, in the face of global uncertainty, Indian markets have shown great resilience and have outperformed major global markets, with the Service Sector proving to be a shining light.

India is a unique case-study where the growth narrative shifted from Agriculture to Services. The contribution of service sector to Gross Value Added (GVA) has grown over the years from ~36% in 1951 to ~ 53% 1. However, the share of services to GDP for India still remains considerably below that of developed economies (USA – 80% of GDP, UK – 72% of GDP) 2, thus providing ample room for further growth of the sector. Even China, which is referred to as “The World’s Factory” has seen services output surpass manufacturing sector.

The services sector has not only contributed significantly to Indian GDP but has also attracted significant foreign investment, contributed significantly to exports and has provided large-scale employment. Over the last two decades, the service sector’s contribution to national employment has increased from 23% to 32%2. The growth of Indian service sector has led to continued investor interest as demonstrated by ever increasing share of service driven businesses in frontline indices.