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09

Services CHAPTER

The COVID-19 pandemic, the subsequent lockdown and social distancing measures
have had a significant impact on the contact-intensive services sector. During the first
half of the financial year 2020-21, the services sector contracted by almost 16 per
cent. Air passenger traffic, rail freight traffic, port traffic, foreign tourist arrivals, and
foreign exchange earnings all contracted sharply following the first lockdown which was
announced in March, 2020. As the economy gradually entered the unlock phase, most
of these indicators showed signs of recovery. Services purchasing managers’ index, rail
freight traffic, and port traffic have bottomed out and are rising steadily now, showing
a V-shaped recovery. Domestic passenger air traffic is also increasing gradually on a
monthly basis, although travel remains muted as compared to last year. Interestingly, in
spite of the global disruptions, FDI inflows into the services sector increased by 34 per
cent YoY during April-September 2020 to reach US$ 23.61 billion. The year 2020-21
witnessed many significant structural reforms. The space sector was opened up, telecom
related regulations were removed from the IT-BPO sector, and consumer protection
regulations were introduced for e-commerce.

Services sector’s significance in the Indian economy has been steady, with the sector now
accounting for over 54 per cent of the economy and almost four-fifths of total FDI inflows.
Meanwhile, the shipping turnaround time at ports has almost halved from 4.67 days in
2010-11 to 2.62 days in 2019-20. India is home to 38 unicorns, adding a record number of
12 start-ups to the unicorn list last year. With the ongoing vaccination drive, the contact
intensive service sectors can expect to witness revival.

SERVICES SECTOR PERFORMANCE IN INDIA: AN OVERVIEW
Impact of COVID-19 on Services Sector

9.1 The year 2020 was a peculiar year marred by the COVID-19 pandemic and consequent
nationwide and worldwide lockdown measures implemented since March, 2020. The contact
intensive services sector was severely impacted, particularly sub-sectors such as tourism,
aviation, and hospitality. The first half of FY 2020-21 saw services sector contract by almost 16
per cent YoY (Table 1). This decline was led by a sharp contraction in all sub-sectors particularly
‘Trade, hotels, transport, communication & services related to broadcasting’, which contracted
by 31.5 per cent in H1 FY 2020-21. As per the first advance estimates, Gross Value Added (GVA)
of services sector is estimated to contract by 8.8 per cent in 2020-21, whereas it grew by 5.5 per
cent in 2019-20 (Table 1). Sub-sectors ‘Trade, hotels, transport, communication & broadcasting
services’, ‘Financial, real estate & professional services’, and ‘Public administration, defence