Services Sector (Financial/Non financial)

Services Sector (Financial/Non financial)

• The service sector now accounts for more than half of India’s GDP: 51.16 per cent in 1998-99. This sector has gained at the expense of both the agricultural and industrial sectors through the 1990s. The rise in the service sector’s share in GDP marks a structural shift in the Indian economy and takes it closer to the fundamentals of a developed economy  (in the developed economies, the industrial and service sectors contribute a major share in GDP while agriculture accounts for a relatively lower share).
• The service sector’s share has grown from 43.69 per cent in 1990-91 to 51.16 per cent in 1998-99.  In contrast, the industrial sector’s share in GDP has declined from 25.38 per cent to 22.01 per cent in 1990-91 and 1998-99 respectively.  The agricultural sector’s share has fallen from 30.93 per cent to 26.83 per cent in the respective years.
• Some economists caution that if the service sector bypasses the industrial sector, economic growth can be distorted. They say that service sector growth must be supported by proportionate growth of the industrial sector, otherwise the service sector grown will not be sustainable. It is true that, in India, the service sector’s contribution in GDP has sharply risen and that of industry has fallen (as shown above). But, it is equally true that the industrial sector too has grown, and grown quite impressively through the 1990s (except in 1998-99). Three times between 1993-94 and 1998-99, industry surpassed the growth rate of GDP. Thus, the service sector has grown at a higher rate than industry which too has grown more or less in tandem. The rise of the service sector therefore does not distort the economy.
• Within the services sector, the share of trade, hotels and restaurants increased from 12.52 per cent in 1990-91 to 15.68 per cent in 1998-99. The share of transport, storage and communications has grown from 5.26 per cent to 7.61 per cent in the years under reference. The share of construction has remained nearly the same during the period while that of financing, insurance, real estate and business services has risen from 10.22 per cent to 11.44 per cent.
• The fact that the service sector now accounts for more than half the GDP probably marks a watershed in the evolution of the Indian economy.

The entry procedure for an investor to enter in the Indian service sector is briefed herein-

Advertising and Films

100% FDI under the automatic route is allowed in Advertising sector

100% FDI under the automatic route is allowed in Film Industry including film financing,

production, distribution, exhibition, marketing and associated activities related to film industry.

Policy for FDI in Civil Aviation sector

(i) Airports:

(a) Greenfield projects- FDI upto 100% is allowed under the automatic route.

(b) Existing projects- FDI upto 100% is allowed. The investment upto 74% is under the automatic route and beyond 74% under the Government route.

Banking –Private sector

FDI limit in Private Sector Banks is 74 % including investment by FIIs. This will include FDI investment under the Portfolio Investment Scheme (PIS) by FIIs, NRIs and shares acquired prior to September 16, 2003 by erstwhile OCBs, and continue to include IPOs, Private placements, GDR/ADRs and acquisition of shares from existing shareholders. FDI as above upto 49% is under the automatic route and beyond that upto 74% on the Government route.

Banking- Public Sector

FDI and Portfolio Investment in nationalized Banks are subject to overall statutory limit of 20% under Government route as per section 3(2D) of the Banking Companies (Acquisition & Transfer of Undertakings) Acts 1970/80. The same ceiling is also applicable to the State Bank of India and its associate Banks.

Broadcasting

Terrestrial Broadcasting FM (FM Radio): Foreign investment, including FDI, NRI and PIO investments and portfolio investments are permitted up to 20% equity for FM Radio’s Broadcasting Services with prior approval of the Government subject to such terms and conditions 47 as specified from time to time by Ministry of Information and Broadcasting for grant of permission for setting up of FM Radio Stations.

Cable Network: Foreign investment, including FDI, NRI and PIO investments and portfolio investments are permitted up to 49% for Cable Networks under Government route subject to Cable Television Network Rules, 1994 and other conditions as specified from time to time by Ministry of Information and Broadcasting.

Direct–to-Home : Foreign investment, including FDI, NRI and PIO investments and portfolio investments are permitted up to 49% for Direct to Home under Government route. Within the limit of 49%, FDI will not exceed 20%. This will be subject to such guidelines/terms and conditions as specified from time to time by Ministry of Information and Broadcasting.

Business Services- 100% FDI under the automatic route is allowed in Data processing, software development and computer consultancy services; Software supply services; Business and management consultancy services, Market Research Services, Technical testing& Analysis services.

The FDI Inflows to Service Sector has helped the development of several industries in the service sector of the Indian Economy, such as Tele Communication, Financial and Non financial, Hotel & Tourism, and many others.

FDI Inflows to Service Sector has been phenomenal in the past few years. Since the onset of the liberalization of the Indian economy in 1991, the country has experienced a huge increase in the inflow of Foreign Investments. The service sector in India has tremendous growth potential and as such it has attracted huge Foreign Direct Investments (FDI).