Page 39 - DMGT522_SERVICES MANAGEMENT

Services Management

Notes 2.3.4 Foreign Direct Investment (FDI) in the Services Sector

The global economic and financial crisis had a dampening effect on overall FDI flows. FDI in
services, which accounted for the bulk of the decline in FDI flows due to the crisis, continued on its
downward path in 2010. FDI in all main service industries (business services, finance, transport and
communications, and utilities) fell, although at different rates. Overall, FDI projects in the services
sector declined from US$ 392 billion in 2009 to US$ 338 billion in 2010, resulting in its share in
sectoral FDI declining from 33 per cent to 30 per cent in this period. Business services declined by 8
per cent compared to pre-crisis levels as multinational companies, who are outsourcing a growing
share of their business support functions to external providers, downsized their operations due to
economic slowdown. Transportation and telecommunication services also suffered equally in 2010
as the industry’s restructuring was more or less complete after the round of large mergers and
acquisition deals before the crisis, particularly in developed countries. FDI in the financial industry
experienced the sharpest decline and is expected to remain sluggish in the medium term. Over the
past decade, its expansion was instrumental in integrating emerging economies into the global
financial system, bringing substantial benefits to host countries’ financial systems in terms of efficiency
and stability. Utilities were also strongly affected by the crisis as some investors were forced to
reduce investment or even divest due to lower demand and accumulated losses.

2.4 India’s Services Sector

Different indicators like share in national and states’ GDP, FDI, employment, and exports indicate
the importance of the services sector for the Indian economy.

2.4.1 Services GDP

The share of services in India’s GDP at factor cost (at current prices) increased from 33.5 per cent
in 1950-1 to 55.1 per cent in 2010-11 and to 56.3 per cent in 2011-12 as per Advance Estimates (AE).
If construction is also included, the service sector’s share increases to 63.3 per cent in 2010-11 and
64.4 per cent in 2011-12. With a 16.9 per cent share, trade, hotels, and restaurants as a group is the
largest contributor to GDP among the various services’ subsectors, followed by financing,
insurance, real estate, and business services with a 16.4 per cent share. Community, social, and
personal services with a share of 14.3 per cent is in third place. Construction, a borderline service
inclusion, is at fourth place with an 8.2 per cent share (Table).

Table 2.1: Share of Different Services Categories in GDP at Factor Cost (Current Prices)

Source: Computed from Central Statistical Office (CSO) data.
Note: Provisional Estimates (PE) * Quick Estimates (QE) ** Advance Estimates (AE) # includes the share
of both Trade, Hotels, & Restaurants and Transport, Storage & Communication for 2011-12.

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