India has the second fastest growing services sector with its Compound Annual Growth Rate at 9.0 per cent, just below China’s 10.9 per cent, during 2001 to 2012. Also, India ranked 12th in terms of services Gross Domestic Product (GDP) in 2012 among the world’s top 15 countries in terms of GDP. While services share in World GDP was 65.9 per cent and in employment was only 44 per cent in 2012, in India, they were 56.9 per cent and 28.1 per cent respectively.

GDP

Services constitute a 57 per cent share in GDP at factor cost (at current prices) in 2013-14, an increase of 6 percentage points over 2000-01. Despite deceleration, services GDP growth at 6.8 per cent was above the 4.7 per cent overall GDP in 2013-14. The growth rate of the combined category of trade, hotels, restaurants, transport, storage, and communications decelerated to 3.0 per cent while financing, insurance, real estate, and business services grew robustly at 12.9 per cent.

FDI

In 2013-14, FDI inflows to the services sector (top five sectors including construction) declined sharply by 37.6 per cent to US$ 6.4 billion compared to an overall growth in FDI inflows at 6.1 per cent resulting in the share of the top five services in total FDI falling to nearly one-sixth.

Exports

India’s increase in share in world services exports from 0.6 per cent in 1990 to 3.3 per cent in 2013 was faster than in merchandise exports. Exports of software services, accounting for 46 per cent of India’s total services exports, decelerated to 5.4 per cent in 2013-14, travel, accounting for a nearly 12 per cent share, witnessed negative growth of 0.4 per cent.

Services sector growth outpaces overall GDP, with implications for FDI composition and export performance policy. India's services sector grew rapidly and comprised the majority of GDP by 2013-14 while contributing less to employment; within services, finance, insurance, real estate, and business services expanded strongly as trade and transport categories slowed. Concurrently, FDI into top services subsectors declined sharply in 2013-14, lowering their share of total FDI, and services exports-though rising in global share over time-showed mixed results with software exports decelerating and travel exports contracting slightly.