13 Types of Service Sectors in India

Here is a list of thirteen different types of service sectors in India. The sectors are:- 1. Trade 2. Tourism, Including Hotels and Restaurants 3. Shipping 4. Port Services 5. Storage Services 6. Telecom and Related Services 7. Real Estate Services 8. IT Services 9. Accounting and Auditing Services 10. Research & Development Services (R&D) 11. Legal Services 12. Consultancy and 13. Construction. And also glance over the below given article to get an idea about the importance of service sectors in Indian economy and its role in economic development.

Service Sectors in India: Importance and Role of Service Sector in Indian Economy

Service Sector in India # 1. Trade:

Trade is an important segment in India’s GDP. The GDP from trade (inclusive of whole­sale and retail in the organized and unorganized sectors) at constant prices increased from Rs.4,33,967 crore in 2004-05 to Rs.6,71,396 crore in 2009-10, at a CAGR of 9.1 per cent. The share of trade in the GDP, however, remained fairly stable at around 15 per cent in the last four years.

The last decade has witnessed acceleration in the growth rate of real GDP. It has been in the range of 8-9 per cent during the last five years. This fast growth means rising dispos­able income of the population, in particular that of the middle class. With the growth in consuming population, the retail business also got a boost. There are no official estimates of the size of retail trade in the country, though such estimates have been made by some institutions.

Quoting a NSSO Survey, the International Council for Research on Interna­tional Economic Relations (ICRIER) study of 2008 places employment in the retail trade at 35.06 million, which constitutes 7.3 per cent of the workforce in the country. On the basis of employment intensity in retail trading, the contribution of the retail sector in the GDP is estimated in the range of 10 tol2 per cent. A large number of small and decentral­ized traders dominate the Indian retail scene. One estimate puts their number at 1.3 crore. The organized corporate sector has started showing interest in the retail business. With fast growth in the GDP and rising disposable income of the consuming classes, the modern format of retailing (i.e. organized retailing) is attracting domestic and foreign investment.

Service Sector in India # 2. Tourism, Including Hotels and Restaurants:

Tourism is one of the major engines of economic growth in most parts of the world including India. Since tourism does not fall under a single heading in the National Accounts Statistics, its contribution has to be estimated. In 2007-08, the contribution of tourism to the country’s GDP, and to total jobs (direct and indirect) in the country was estimated at 5.92 per cent, and 9.24 per cent respectively.

In absolute numbers, the total number of tourism jobs in the country increased from 38.6 million in 2002-03 to 49.8 million in 2007-08. According to the UN World Tourism Organization, tourism provides 6 per cent to 7 per cent of the world’s total jobs directly and millions more indirectly through the multiplier effect in this sector. Tourism also plays an important role in the country’s foreign exchange earnings, as its share in India’s export of services accounted for 13 per cent of the total export of services in 2009-10.

The hotels and restaurants sector is an important sub-component of the tourism sector. Availability of good quality and affordable hotel rooms plays an important role in boost­ing the growth of tourism in the country. Presently there are 1593 classified hotels with a capacity of 95,087 rooms in the country. The hotels sector comprises various forms of accommodation, namely star category hotels, heritage category hotels, timeshare resorts, apartment hotels, guest houses, and bed and breakfast establishments.

The share of the hotels and restaurant sector in the overall economy increased from 1.46 per cent in 2004-05 to 1.69 per cent in 2007-08, and then decreased to 1.53 per cent and 1.45 per cent in 2008-09 and 2009-10 respectively. The CAGR in the GDP contributed by the hotels and restaurants sector was 8.5 per cent in 2004-05 to 2009-10.

Various financial and fiscal incentives have been announced by the Government for the hospitality sector including a five-year tax holiday under the Income Tax Act for two, three, and four star category hotels located in all United Nations Educational, Scientific and Cultural Organization (UNESCO) World Heritage sites (except Mumbai and Delhi) for hotels starting operations from 1 April, 2008 to 31 March, 2013; a five-year tax holiday announced in 2007-08 for two, three, and four star category new hotels and convention centres coming up between 1 April, 2007 and 31 July, 2010 in the National Capital Terri­tory of Delhi and some neighbouring districts of the National Capital Region.

Other in­centives include: relaxation of external commercial borrowings (ECB) to reduce the liquidity crunch being faced by the hotel industry for setting up new hotel projects; allowing FDI up to 100 per cent under the automatic route for the hotel and tourism- related industry; delinking of credit to hotel projects from commercial real estate by the RBI, thereby enabling hotel projects to avail of credit at relaxed norms and reduced interest rates; and an investment-linked deduction under section 35AD of the Income Tax Act announced in the Union Budget 2010-2011 for establishing new hotels of 2-star category and above, all over India, thus allowing 100 per cent deduction in respect of the whole or any expenditure of capital nature. Government also has a voluntary scheme of granting approval to bona fide tour operators, travel agents, tourist transport operators, and adventure tour operators who satisfy certain criteria specified in terms of turnover, infrastructure, and manpower.

India’s share in international tourist arrivals is a paltry 0.58 per cent in 2009. In fact, at 11.07 million, outbound Indians in 2009 were more than double the inbound tourists, though foreign exchange outgo due to outbound Indians is much less than the foreign exchange inflow from inbound tourists. These facts show that this high potential sector with multiplier effects on income and employment generation is still relatively untapped.

Service Sector in India # 3. Shipping:

Shipping plays an important role in the economic development of the country, especially in India’s international trade. The Indian shipping industry also plays an important role in the energy security of the country, as energy resources, such as coal, crude oil, and natural gas are mainly transported by ship. Further, during crisis situations, Indian ship­ping contributes to the uninterrupted supply of essentials, and can serve as second line of defence.

Approximately, 95 per cent of the country’s trade by volume, and 68 per cent in terms of value, is being transported by sea. Though India is one of the largest mer­chant shipping fleets among the developing countries, it was ranked eighteenth in the world in terms of dead weight tonnage (DWT) as on 1 January, 2010. Leaving the ‘flags of convenience’ countries, India’s share is low at 1.17 per cent, while China’s is around three times higher than India’s.

Indian shipping tonnage (capacity) was practically stagnant at around 7 million gross tonnages (GT) till the beginning of 2004-05. However, the tonnage tax regime introduced by the Government of India in that year boosted the growth of the Indian fleet as well as its tonnage.

The Indian fleet presently stands at 10.16 million GT and 1040 ships (as on 01 January, 2011), with the Shipping Corporation of India, a public- sector undertaking, having a major share of 35.3 per cent in India’s shipping tonnage. Of this 9.1 million GT with 340 ships caters to India’s overseas trade and the rest to coastal trade. The gross foreign exchange earnings/savings of Indian ships during 2007-08 were at a record level of 14,589 crore. Net foreign exchange earnings/savings of Indian ship- ping companies, after accounting for financial costs at Rs.8952 crore were around 61 per cent of gross earnings/savings.

In order to facilitate growth of the Indian shipping industry and make it competitive at international level, the government has initiated several measures like bringing acquisi­tion of all types of ships under open general license; allowing 100 per cent FDI in the shipping and port sectors; cargo support to Indian shipping lines by providing for central­ized shipping arrangements through the Chartering Wing (Tran chart) of the Ministry of Shipping; introducing tonnage tax system during 2004-05; formulating a Cruise Shipping Policy of India in June 2008; and establishing the Indian Maritime University in Novem­ber 2008.

Service Sector in India # 4. Port Services:

Being the gateways of international trade, ports play a vital role in the overall economic development of the country. India is blessed with a long coastline with 13 major ports and around 200 non-major ports. While around 72 per cent of the total cargo handled by volume was through India’s major ports and the rest through non-major ports till 2008- 09, with the development of private ports the share of major ports fell to 67 per cent during 2009-10.

Despite the recessionary trend and decline in exports, during the years 2008-09 and 2009-10, traffic at major ports attained a growth of 2.2 per cent and 5.74 per cent respectively over the 2007-08. Some recent developments in the port services sector include the finalization of a model concession agreement for awarding projects on pub­lic private partnership (PPP) basis in 2008 and introduction of web-based port commu­nity systems.

The ranking of ports in the world in 2008 places Singapore, followed by Shanghai and Rotterdam at the top, with Madras and the Jawaharlal Nehru Port Trust (JNPT) in the 70th and 71st positions in terms of total cargo volume. In terms of con­tainer traffic also, Singapore followed by Shanghai are at the top, while the JNPT ranks 25th.

The average turnaround time in major Indian ports was 4.38 days in the year 2009-10 and was relatively higher in some ports like Paradip, Kolkata, Vizag, and Kandla, while average output per ship-berth-day was 10,168 tonnes with more than double the average in the JNPT and around one fifth he average in Kolkata port.

With the average turn­around time in India already relatively high by international standards, the turnaround time of Singapore being less than a day, what is cause for further worry is the rise in average turnaround time and average pre-berthing time and fall in average output per ship-berth-day in 2009-10.

Service Sector in India # 5. Storage Services:

The warehousing services sector plays an important role in the economy of the country. Warehousing services are an important cog both in bound logistics, as raw materials, parts, and stores have to be stocked, inventory control maintained, and materials which do not meet specifications returned to suppliers, as well as outbound logistics as the goods produced have to be stored in different geographical locations before shipping/ dispatch as per demand/order inflows.

In India, the most important component of ware­housing is agricultural storage for agro-produce, food grains, fertilizers, manure, etc. Other components include industrial warehousing for industrial goods, import cargo, and ex­cisable cargo; inland container depots (ICDs)/container freight stations (CFSs) for facilitating import/export trade; and special warehouses for cold and temperature controlled storage. The warehousing sector also provides ancillary services like handling, transpor­tation, pest control, farmer extension schemes, dedicated warehousing at doorsteps, consultancy, and project execution.

The Government has established the Central Warehousing Corporation (CWC) with the objective of providing scientific storage facilities for agricultural implements and pro­duce and other notified commodities. Besides, with the same objective, 17 State Ware­housing Corporations (SWCs) were also set up under the Warehousing Corporations Act, 1962.

The CWC and the respective State Governments are equal shareholders of these SWCs. The commercial outreach with social objectives has resulted in the CWC operat­ing a large warehousing network across the country. As on 31 December, 2010, the CWC was operating 476 warehouses, with a total storage capacity of 102.24 lakh MTs and an average utilization of 85 per cent.

It made an entry into operation of public bonded ware­houses in the late 1970s, when the Central Board of Excise and Customs, acknowledging the expertise of the CWC in the field of storage and warehousing, identified it as a custo­dian for dutiable goods. The CWC has also diversified its business into CFSs/ICDs and also started Container Rail Transportation from Loni (UP) to Jawaharlal Nehru Port.

The expansion of the overall capacity of the CWC has been slow as it is cost intensive. The profits generated are being ploughed back to construct additional warehouses thereby strengthening the warehousing infrastructure throughout the country. At State level, the 17 SWCs meet the storage requirements and complement the work of the CWC. As on 31 October, 2010, these SWCs were operating a network of 1585 warehouses with an aggregate storage capacity of 214.41 lakh MT.

Major policy initiatives taken recently by the Government include construction of godowns under the seven-years guarantee scheme of the Government of India, most of them being managed by the CWC or SWCs; permission of up to 100 per cent FDI in the con­struction of warehousing infrastructure; and construction of warehouses under the Grameen Bhandaran Yojana of NABARD and the Rastriya Krishi Vikas Yojana. In the year 2007-08, the Government enacted the Warehousing (Development & Regulation) Act, 2007 to make the warehouse receipt fully negotiable.

Recently the Government took another major initiative for construction of godowns under its Private Entrepreneurs Godown (PEG) scheme. The CWC has constructed 0.9 lakh MT godowns during the year 2009-10 and has planned to construct additional capacity to the tune of 1.77 lakh MT during the year 2010-11.

Service Sector in India # 6. Telecom and Related Services:

The opening of the telecom sector in India has not only led to rapid growth but also helped a great deal towards maximization of consumer benefits as tariffs have been falling across the board as a result of increasing competition, with the telecom service price index falling from 100 in 2004-05 to 85.08 in 2007-08.

The telecom sector has grown from a level of 22.8 million telephone subscribers in 1999 to 54.6 million in 2003, and further to 764.77 million at the end of November 2010. Wireless telephone connections have contributed to this growth as the number of wireless connections rose from 3.57 million in March 2001 to 729.58 million by the end of November 2010.

Tele-density, which was 2.32 per cent, increased to 64.34 per cent in November 2010. However, there is a wide gap between rural tele-density (30.18 per cent in November 2010) and urban tele-density (143.95 per cent in November 2010). This shows that the market still has large untapped potential.

The Internet, which is another growing mode of communication, is a worldwide system of computer networks. Broadband is often called ‘high speed’ Internet, because it usually has a high rate of data transmission. Broadband subscribers grew from 0.18 million in 2005 to 10.71 million as at the end of November 2010.

The number of Internet and broad­band subscribers is expected to increase to 40 million and 20 million, respectively by 2010. Introduction of BWA (Broadband Wireless Access) services will enhance the pene­tration as well as growth of broadband subscribers. Wi-Max has also been making head­way in penetration of wireless broadband connectivity across all sectors.

Service Sector in India # 7. Real Estate Services:

The real estate sector includes development of commercial and residential real estates, with participation and involvement of both Government agencies and private develop­ers. The GDP from the real estate sector (including ownership of dwellings) along with business services witnessed a growth of 7.5 per cent (at constant prices) in the year 2009- 10.

In terms of share, it accounted for 9.3 per cent of the GDP in the year 2009-10. Fiscal incentives for the housing sector provided in successive budgets together with liberal investment and credit policies and reforms brought the housing and real estate sector to the centre stage of the Indian economy.

The policy measures include permission for FDI in townships, housing, built-up infrastructure, and construction development projects, including SEZs, under the automatic route, which has attracted foreign investors into this sector. However, FDI is not allowed in real estate business.

The National Housing Bank (NHB) established with the objective of promoting housing finance institutions both at local and regional levels has conceptualized the reverse mortgage loan product exclusively for covering house-owning senior citizens. It has introduced the residential real estate price index (RESIDEX), which is an initiative towards providing the housing finance sector with an index which reflects the trends in the prices of residential proper­ties across the country.

The global economic crisis impacted the Indian real estate industry significantly. How­ever, various measures taken by the Government to boost the demand for residential properties, as also the relaxation in provisioning requirements by the RBI for banks and NHB for Housing Finance Companies (HFCs), has minimized the impact of economic crisis on this sector.

The sector has started recovering following the increasing activity in the Indian economy, however with a fundamental difference. Customers are now going for need based purchases rather than investment based on the euphoria and hype wit­nessed in 2007 and 2008.

Service Sector in India # 8. IT Services:

India has gained a brand identity as a knowledge economy due to its IT sector. The IT industry has four major components: IT services, business process outsourcing (BPO), engineering services and R&D, and software products. The growth in the services sector in India has been led by the IT sector which has become a growth engine for the economy, contributing substantially to increases in the GDP, employment, and exports.

This sector has improved its contribution to India’s GDP from 4.1 per cent in 2004-05 to 6.1 per cent in 2009-10 and an estimated 6.4 per cent in 2010-11. The industry has also helped expand tertiary education significantly. The top seven States that account for about 90 per cent of this sector’s exports have started six to seven times more colleges than other States.

The Indian IT industry has registered robust growth since 2004-05. According to NASSCOM, the year 2010-11 is characterized by broad-based growth across mature and emerging verticals. The overall Indian IT revenue has grown to US $63.7 billion in 2009- 10 and an estimated US $76.1 billion in 2010-11, translating into a CAGR of 22.5 per cent from 2004-05 to 2010-11.

The industry grew by an estimated 19.5 per cent in 2010-11 compared to the moderate growth of 6.2 per cent in 2009-10. Exports dominate the IT industry, and constitute about 77 per cent of total industry revenue. Total IT exports have grown from US $17.7 billion in 2004-05 to US $49.7 billion in 2009-10 and an esti­mated US $58.9 billion in 2010-11 registering a CAGR of 22.2 per cent from 2004-05 to 2010-11.

Though the IT sector is export driven, the domestic market is also significant with a revenue growth of US $ 14 billion in 2009-10 and estimated revenue of US $ 17.2 billion in 2010-11. The IT and BPO industry (excluding hardware) witnessed a quick rebound in growth and has been estimated to have grown by 19.5 per cent, aggregating revenues of US$ 76.1 billion in 2010-11 with exports at US$ 58.9 billion accounting for a major por­tion.

This sector has also led to employment generation. Direct employment in the IT services and BPO segment was 2.3 million in 2009-10 and is estimated to reach nearly 2.5 million by the end of financial year 2010-11. Indirect employment of over 8.3 million job oppor­tunities is also expected to be generated due to the growth of this sector in 2010-11. These jobs have been generated in diverse fields such as commercial and residential real estate, retail, hospitality, transportation, and security.

India continues to be the dominant player in the global outsourcing sector. However, its future will depend on how the challenges related to its continued competitiveness are tackled. These include increasing competition, rising costs, talent shortfall, infrastruc­ture constraints, increasing risk perception, protectionism in key markets, and deterio­rating business environment.

Service Sector in India # 9. Accounting and Auditing Services:

Accounting, auditing, and book-keeping services are part of ‘business services’. The accounting profession in India is highly developed with the potential to become interna­tionally more competitive. As per the WTO data, in the $33.76 billion other business ser­vices exports by India in 2008, the share of legal, accounting, management, and public relations services was 17.4 per cent and in the $21.06 billion imports of other business services by India, their share was 17.9 per cent.

Indian accounting firms are increasingly getting integrated, and are providing associated services such as management consultancy, corporate finance, and advisory services, in addition to their core business of account­ing, auditing, and tax services. The accounting profession is structured in India as part­nership with few partners or proprietorship concerns.

The Indian accounting sector mainly comprises small and medium enterprises (SMEs), matching the existing economic struc­ture of India. The number of chartered accountancy firms with five or more partners is about 2000 out of more than 13000 firms. The remaining are practicing as proprietary firms or in their individual names.

The Chartered Accountancy Profession in India has globally benchmarked its qualification, training and standards (including convergence to global standards on IFRS) for increased mobility and has entered into qualification recognition arrangements with accounting bodies in UK, Australia, Canada and Ireland.

The cost and management accounting profession in India has attained great maturity with the quality of professional cost and management accounting services being on par with the best in the world. However, there is limited use of cost audit and cost manage­ment techniques in India. Scientific use of management accounting tools on a wider scale can bring about higher cost efficiency in operations and take the Indian accounting industry to greater heights.

There is need to tap outsourcing in niche areas like actuarial and accountancy services as there is good scope for outsourcing actuarial services and accountancy services to India including setting up back offices. But Indian service providers need high-quality training in tax laws of US and other countries besides laws related to insurance, pension, etc. Tie-ups to overcome the weakness of small size of domestic accountancy firms can also help India’s accounting sector grow manifold.

Service Sector in India # 10. Research & Development Services (R&D):

As per the Department of Science and Technology estimates, the national investment on R&D activities was Rs.37,777.9 crore in 2007-08. Though India, with a R&D share of 0.8 per cent in the GDP in 2007-08, is ahead of other developing countries like Mexico, Malaysia, and Chile, it lags behind countries like South Korea (3.5 per cent), Russia (1.1 per cent), China (1.5 per cent), and Brazil (1 per cent).

As per estimates in 2009-10, the sectors which attracted largest R&D expenditures include pharmaceuticals, electrical and non-electrical machinery, transport equipment, electronics, and plastics. R&D intensity (R&D as per cent of sales) for the pharmaceuti­cals sector was much higher than that for other sectors.

There is huge potential for R&D services, particularly in healthcare, biotech and elec­tronics. However, there are issues related to intellectual property rights (IPRs) in the sector. India has amended the IPR laws in the past two decades and its laws are fully compliant with WTO regulations. There is an impartial judicial process in India which implements the laws.

The Government has taken many measures to encourage R&D like enhancing the weighted deduction on expenditure incurred on in-house R&D from 150 per cent to 200 per cent for the manufacturing business and from 125 per cent to 175 per cent for payments made to national laboratories, research associations, colleges, univer­sities, and other institutions for scientific research, and allowing a 125 per cent weighted deduction for approved associations engaged in research in social sciences or statistical research, besides exemptions in the income from approved research associations in the Budget 2010-11. Equipped with these incentives, the private sector should take a cue from other countries and step up its R&D investments.

Service Sector in India # 11. Legal Services:

The legal systems in India, the USA, and in the UK are rooted in British common law, thus making Indian lawyers competent, without much additional training, to undertake standard legal work such as vetting of contracts, patent registrations, or reviewing of documents. India has an estimated 600,000 legal practitioners and is next only to USA in terms of numbers.

According to industry sources, Indian commercial law practice is approximately of the order of Rs.600 crore to Rs.650 crore per annum in revenues. The service providers are individual lawyers and small or family-based firms. In India, the practice of law is governed by the Advocates Act of 1961. Under this Act, foreign law firms are not allowed to engage in practice of law in India. Many foreign legal firms have set up liaison offices (currently permitted under the law), while a few have established referral relationships with Indian firms.

India has over 750 law colleges and about 30,000 lawyers graduating every year. The Bar Council of India, which lays down the standards of professional conduct and etiquette, as also standards for legal education, has been constituted under the Advocates Act, 1961.

In addition, there are also State Bar Councils that enroll advocates and enforce discipline. Government has constituted the National Legal Services Authority, under the Legal Services Authorities Act, 1987 to monitor and evaluate implementation of legal aid programmes and lay down policies and principles for making legal services available under the Act.

The National Litigation Policy has also been launched with the objective of reducing Government litigation in courts so that court time can be used for resolving other pending cases and average pendency time reduced from 15 years to three years, a goal set by the National Legal Mission.

India is ranked 41st, with a score of 4.8, in terms of judicial independence, according to the Global Competitiveness Report (2010-11) of the World Economic Forum. As regards efficiency of the legal framework in settling disputes, India is ranked 47th, with a score of 4.1. India rises to 37th position when it comes to the efficiency of the legal framework in challenging regulations, with a score of 4.2.

Over the years, the legal system in India has undergone changes with the increasing globalization of the Indian economy. This has enabled transformation of Indian lawyers into global service providers. Trans-border mergers, corporate restructuring, acquisi­tions, IPRs are some of the areas in which Indian lawyers have acquired expertise.

Since liberalization, Indian lawyers have been gaining dynamic experience in handling cases spanning fields such as banking, telecom, insurance, power, civil aviation, and transpor­tation, which were earlier largely under the purview of the public sector. In addition, they have acquired experience in areas related to taxation, mergers and acquisitions, joint ventures, IPRs, FDI, and special economic zones.

The conclusion of the Trade Related Intellectual Property Rights (TRIPS) Agreement and Information Technology Agreement has brought the necessary experience in newer dimensions of patent ser­vices, analysis and prosecution support and internet-based disputes and cyber-crimes.

India’s prominence in the legal process off-shoring (LPO) segment is being widely acknowledged in the global market. Potential exists for India to tap a significant share of world LPO business. India holds significant advantage in various parameters that work in favour of driving the LPO industry towards India. Off-shoring legal work to India saves about 80 per cent of the cost that may be incurred in a developed country like USA.

It is estimated that the cost of employing a fresh law graduate in the USA would be US $150,000 per annum as compared to US $15,000 per annum in India. On per hour basis, this works out to US $600 in the USA as compared to US $70 in India. Establish­ment cost to set up a legal firm in India is also low as compared to the USA or Europe. According to estimates, India is 40 times more cost-effective than in the USA in this regard.

Service Sector in India # 12. Consultancy:

Consultancy is essentially a knowledge-based profession with an underlying develop­mental role spanning a wide range of sectors. Not only do consultancy services play an important role in the development of the economy, but such consultancy exports enhance the visibility of Indian technical expertise abroad and boost the external sector in multiple ways, including foreign exchange revenues, promotion of export of technol­ogy and merchandise (especially capital goods and raw materials), and training of per­sonnel, while contributing significantly to national development in the host country.

Rev­enues of Indian consulting industry are estimated at US$ 4.41 billion in 2007. Though the consulting profession contributed only 0.44 per cent to the GDP in 2007, growth rates of the industry have been extremely promising over the last few years with a CAGR of about 73.68 per cent between 2002 and 2007. The Asia Pacific (APAC) consulting industry generated revenues worth US$33.5 billion in the year 2008 with India’s contribution at US$1.81 billion, i.e. a share of 5.4 per cent of the total APAC market.

The consultancy services market can be broadly categorized into management consultancy and engineering consultancy. Some of the commonly provided services across both fields of consultancy include detailed project reports, impact studies, evaluation/ assessment studies, advisory services, design and detailed engineering.

Consulting ser­vices in India are being provided by a host of entities, the major categories being indi­vidual consultants, consulting firms, R&D organizations, academic institutes, and pro­fessional bodies. Consulting firms are the dominant players (64 per cent) followed by individual consultants (22 per cent), R&D organizations (10 per cent), academic insti­tutes (3 per cent), and professional bodies (1 per cent).

The client sectors to which con­sulting services are provided include agriculture, banking and financial services, chemi­cals, education, energy, entertainment, environment, governance, public administration and policy, hospitality, infrastructure, manufacturing, real estate, retail, information tech­nology, telecommunications, transport, and utilities.

The Indian management consultancy market is one which is still in its nascent stage, with high growth and large entry of players being the key characteristics. Although it is still relatively small in revenue size as compared to the global management consultancy market, standing at US$ 1.5 billion in the year 2006-07, the Indian management consultancy industry has shown high growth partly due to the low base from which it picked up. Growth in management consultancy exports was also high with exports amounting to US$7.3 billion in the year 2006-07.

The Indian engineering consultancy market is experiencing a boom, with many large- scale development projects driving its growth. It is a more developed market as com­pared to the management consultancy market. Although it is still relatively small in rev­enue size as compared to the global engineering consultancy market standing at US$ 2.91 billion in the year 2006-07, the Indian engineering consultancy industry has shown a steady growth over the last few years.

Over the past decade, India has emerged as one of the fastest growing consultancy mar­kets worldwide. This is largely attributable to increased investment activities due to libe­ralization of FDI restrictions, entry of many new players into the Indian market, high growth in most key sectors, and India being an emerging economy and a low-cost sourcing destination.

Service Sector in India # 13. Construction:

The construction industry in India is an important indicator of development as it creates investment opportunities across various related sectors. The construction industry has contributed an estimated Rs.3,84,282 crore (at constant prices) to national GDP in 2010-11 (a share of around 8 per cent).

The industry is fragmented, with a handful of major companies involved in construction activities across all segments; medium sized compa­nies specializing in niche activities; and small and medium contractors who actually work on sub-contract basis and carry out the work in the field. The sector is labour intensive and, including indirect jobs, provides employment to more than 35 million people.

Creation of physical assets is an important outcome of construction activity. Prior to liberalization, the sector was dependent on Government spending on infrastructure as also construction activity undertaken by the private sector for housing complexes. The sector was given industry status in the year 2000. Since then, there are more initiatives by the Government to undertake projects on PPP basis. These initiatives have resulted in more private ownership of Build-Operate Transfer (BOT), Build-Operate-Own-Transfer (BOOT), and Build-Operate-Lease-Transfer (BOLT) projects. FDI is allowed up to 100 per cent under the automatic route in townships, housing, built-up infrastructure, and cons­truction of development projects (which include housing, commercial premises, educa­tional institutions, and recreational facilities).

The construction sector has major linkages with the building materials industry since they account for sizeable share of the construction costs (approximately 40 per cent to 50 per cent). The construction component, on an average, accounts for more than half of the investment required for setting up critical infrastructure like power projects, ports, railways, roads, and bridges.

The sector therefore is critical for enhancing the produc­tive capacity of the overall economy. With plans to enhance infrastructure investment to US $ 1 trillion, the construction sector is all set to become one of the growth engines of the Indian economy in the foreseeable future.

Construction services have been brought under the ambit of service tax since the year 2004. However, certain infrastructure projects like dams, roads, bridges, railways, and airports and projects awarded by Government/local bodies are exempt from service tax.

Construction service providers have been allowed to avail of Central Value Added Tax (CENVAT) credit on capital goods, inputs, and input services since 2004. Moreover, ex­cise duty on supply of goods to deem export projects is refunded. The existing VAT Act provides for deduction of sub-contractor turnover based on documentary evidence.

Some initiatives that could be taken in the construction sector include using the stan­dard contract document for all domestic civil engineering projects, setting up consor­tiums to bid effectively for international projects, and resolving the issue of precondition in most of the overseas tenders floated by clients wherein equipment to be supplied by the contracting company has necessarily to be sourced from an approved list of suppli­ers from developed countries.

Another area that needs consideration is the possibility of a double guarantee avoidance treaty on the lines of the double taxation avoidance treaty as overseas clients insist on bank guarantees to be issued under the contract being routed through a local bank operating in the country of project execution which results in Indian contracting companies being called upon to pay the bank guarantee charges to Indian banks as also to the local overseas banks which issue the final end guarantees to the client, based on the counter guarantees from the Indian banks.