India needs to speed up reforms and take faster policy decisions to quicken the growth in its services sector, said the Economic Survey.
The report pointed out that the country’s services sector that include IT-ITeS, shipping, ports, railways, tourism, hotels and restaurants among others had been growing at a steady rate of over 10% since 2005-06, but has shown “subdued performance” in the last three years.
“Going forward, the year 2014-15 seems to augur well for the services sector with expansion of business activity in India,” the survey stated, adding that the stable government and growing optimism could translate into investment and growth.
Services sector is the fastest growing sector of the Indian economy that clocked an annual growth of 9% between 2001 till 2012. The sector employed 26.9% of the workforce during 2011-12 that was up from 19.7% in 1993-94. “…some quick reforms, removal of some barriers and obsolete regulations in the services sector could help,” it said.
The survey said that the $105-billion IT-BPM sector is grappling with challenges around protectionism, wage inflation and currency volatility, which needs to be addressed.
Among its prescriptions, the survey advocated for a need to resolve issue of retrospective amendments of tax laws, offer “collateral-free” soft loans to support the sector’s cash needs, use of “net” instead of “gross” foreign exchange criterion for export benefits schemes and setting up a nodal department for services.
The sector-specific recommendations by the survey included need for disinvestment in public sector units in the services sector under both central and state governments. “Disinvestment in services-sector PSUs could not only provide revenue but will also speed up growth of services.”
The report called for building world class ports that could help reduce trade costs and turnaround time at ports. It also argued for an urgent need to develop a special financing scheme to increase the fleet of ships. It also called for allowing foreign direct investment in railways.