Q1 Performance Of Indian Service Industry

Q1 Performance Of The Indian Service Industry At A Glance

India has one of the most rapidly expanding service sectors in the world with the least portion of services employment, contributing to around 66% of the Indian GDP. According to data analysis, India has had a 9.2% growth in the service sector in the year 2015-16 but in the year 2014, it had the smallest share of services employment in the world. Following this, the Government made several amendments to develop India’s commercial services exports share in the global services market and this has facilitated multi-fold growth in the GDP.  If you look at the manufacturing industry too, about 34% of the manufacturing jobs are service oriented functions. The dollar’s value of final demand for manufacturers comes up to $1.48 in other services and production, thereby boosting the importance of services in the economy and in employment generation.

India’s distinctive competencies and competitive advantage formed by the knowledge-based services makes it a truly unique emerging market. Backed by several government initiatives, the services sector in India has the potential to unlock a multi-trillion dollar opportunity which can create a symbiotic growth for all nations. Here’s a look at how the Indian service industry performed in Q1, 2017.

Information Technology

Information Technology Sector Q1 PerformanceThe technology companies are regularly on the dominating-edge in view of atypical and contemporary ways to meet the demands of tech-savvy customers. Let us have a look at what is forthcoming in 2017.

Current Status

The worldwide information technology services market is expected to reach $938 billion and the global information technology spending is expected to reach $3.5 trillion in 2017. The estimation is that it will have 26 billion internet connected devices and over 4 billion internet users by 2020. In India, however, the IT-BPM sector is currently valued at $143 billion and is expected to hit $155 billion this year, whereas the export market that was worth $108 billion in 2016 and the domestic market worth $52 billion contributes 9.5% to the GDP.

Demand Procurers

Considering the current position of information technology, there are things that are expected to create demand in the future and they are as follows

  • Digital evolution across different industries.
  • Increasing internet penetration and smart devices.
  • Mainstream approval of frontier technologies such as artificial intelligence, machine learning, robotics, automation, virtual reality, etc.
  • The expense of key technologies such as 3D printing, solar power, sensors, drones, etc. is declining drastically.
  • Increasing demand of profitable IT services in the developing economies such as Africa, ASEAN countries, etc.

Growth Enablers

 To transform India into a knowledge empowered economy.

  • Rising popularity of ICT enabled services.
  • Tech savvy young demography.

 Healthcare Services

Healthcare Sector Q1 Performance

Healthcare has become one of India’s largest sectors both in terms of revenue and employment. The Indian healthcare sector is growing at a fast rate due to its strengthening coverage, services and increasing expenditure by public as well as private players.

Current Status

The global healthcare market has had a turnover of $7 billion in 2015, whereas the Indian healthcare market had a turnover of $110 billion and is expected to touch $280 billion by the year 2020. Healthcare delivery constitutes 65% of the overall Indian healthcare market.

According to data analysis, the total worth of Foreign Direct Investment (FDI) in hospital and diagnostic centres from April 2000 to September 2016 is $4 billion. The net worth of medical tourism in India is $3.9 billion as of 2016 and is expected to reach $8 billion by 2020.

Demand Procurers

  • Large ageing population
  • Increase in chronic and communicable diseases
  • Increase in healthcare costs in the western world and disposable income aiding affordability of healthcare services.

Growth Enablers

National health policy 2017 This policy comprises the following:

  • Health card for access to primary health care facility anytime, anywhere.
  • Free drugs and diagnostics and healthcare to victims of gender violence.

In addition to this, the Ministry of AYUSH is currently working to turn India into a global hub for knowledge, research, practice and developmental projects on all forms of traditional medicines.

 Start-ups and SME’s

Startup Sector Q1 PerformanceHealthcare has become one of India’s largest sectors both in terms of revenue and employment. The Indian healthcare sector is growing at a fast rate due to its strengthening coverage, services and increasing expenditure by public as well as private players.

Current Status

The SME sector, the silent engines of economic growth, is the backbone of any great economy and India is no different. The sector represents 38% of the country’s GDP (out of which 8% comes from manufacturing while 30% comes from services) and serve as the building blocks of growth of India contributing towards economic growth and employment generation:

  • The SME sector contributes about 45% to the total manufacturing output
  • They also contribute about 40% to total exports
  • Provides employment to more than 100 million people (40% of working population)

The sector has always been riddled with issues like inadequate and timely access to risk capital, non-availability of skilled labour and technology, ineffective marketing and distribution networks, and stringent regulations and compliance requirements that made it difficult for SMEs to grow and thrive. A company’s growth and success are dependent on various factors, one of which is its ability to tide over short-term working capital requirements. This requirement is dependent on timely invoice payments from customers. However, a 2016 survey by Atradius on B2B Payments in APAC showed that Indian businesses on an average face a delay of 65 days to get payments from the day of Invoicing. When these payments get delayed, it makes it hard for the company to stay afloat as it affects their cash flow. A possible way around this problem is to avail a working capital loan from banks or financial institutions.

Unfortunately, it has been observed that SME’s in India generally find it difficult to gain access to working capital loans due to rampant corruption and bureaucracy in certain sectors of the government. These problems gave rise to alternative financing solutions such as invoice discounting. Invoice or bill discounting is a practice where businesses sell their accounts receivables (invoices) to raise funds for their working capital requirements.

SME to Start-up Transition

Technology and access to capital have largely been the driving force behind this transition, giving birth to a new generation of SME’s in India known as the startups.

The superior tech-based value offering that startups are able to give customers and the development of mobile and internet has opened up a new demography making the market ready for innovative businesses.

India is the 3rd largest startup ecosystem in the world comprising of over 4000 tech based startups and is expected to have 10,000 other start-ups by the year 2020. The country currently has around 800 investors in the market that have provided the Indian startup ecosystem with around $4 billion funding in 2016 along with foreign investors.

Demand Procurers

  • Growing interest of global investors and Silicon Valley entrepreneurs.
  • Increasing demand for cost effective and high-quality services globally.
  • Growing investments in R&D and Engineering in India.

Growth Enablers

  • Start-up India and Digital India initiatives by Government of India.
  • Commoditization of consumer technology.
  • Global venture capital’s interest in Indian startups and availability of risk capital.

Media and Entertainment

Media & Entertainment Sector Q1 Performance

The Indian media and entertainment industry is a sunrise sector for the economy and is making high growth strides. It is on strong growth phase and is backed by rising consumer demand and improving advertising revenues. The industry has largely been driven by increasing digitalization and higher internet usage over the last decade. Internet has almost become a mainstream media for entertainment for most of the people.

Current Status

The key sectors of Media and Entertainment are Prints, films, television, Digital Advertising, Animation & VFX, Gaming, Outdoor Advertising, Radio & Music and this industry is now one of the industries identified by the government under the “Make in India” initiative.

India is the world’s second largest television market with 181 million television households in 2016 and 892 television channels (as on 30 Nov 2016). 100% FDI is allowed in the television sector.

Approximately 1,500 to 2,000 films are produced every year in more than 20 languages making the Indian film industry the largest in the world in terms of the number of films. There is a 100% FDI permit in the film sector under automatic route which has encouraged overseas studios to set-up presence in India/co-produce films.

Demand Procurers

  • Increase in incomes, thereby an uphill trend in lifestyle and affluence.
  • Increase in demography of young people with access to high internet & devices
  • Upcoming use of VFX in the movies.
  • Deployment of emerging technologies such a virtual reality, augmented reality, drone shootings, etc.

Growth Enablers

  • Ministry of information and broadcasting has set up the film facilitation office to facilitate efficient approvals and improving ease of shooting in India.
  • Setting up of “Centres of Excellence” with a state of art facilities by state governments to promote gaming, animation, media and entertainment sector.
  • Increased FDI limits

Logistics

Logistics Sector Q1 Performance

The Indian logistics industry is highly fragmented due to its dependence on multiple small regional players barring the small but evolving presence of large pan-India players. The logistics industry broadly comprises the following components: Transportation, Terminal Services, Storage and Warehousing and Value-adding activity.

Current Status

India spends around 14.4% of its GDP on logistics and transportation sector. Indian logistics is supposed to grow from $115 billion to $360 billion by 2032. The year 2017 is expected to be the year of fructification with results of all policy initiatives taken in 2016 is beginning to take shape.

Demand Procurers

  • Growing demand in rural and semi urban areas and increased focus on third party (3PL), 4PL and 5PL logistics.
  • Development of dedicated freight corridors, logistics parks, free trade warehousing, multimodal logistics parks and multimodal transport services.

Growth Enablers

  • Taxation and regulatory structure for making the sector competitive.
  • Investments in infrastructure for higher efficiencies.
  • Promotion of inland waterways and construction of 2000 water ports and linkages with railways and highways.
  • Logistics costs in India are 16-18% compared to china which is 8-10% and Europe which is 10-12% scope for significant reduction in cost.

Retail and E-commerce

Retail & E-commerce Sector Q1 Performance

The Indian retail and e-commerce industry is one of the fastest growing industries in the world. The retail industry in India is expected to grow to $1.3 trillion by 2020, registering a Compound Annual Growth Rate of 16.7% over 2015-20.

India is the fifth largest preferred retail destination globally and is among the highest in the world in terms of per capita retail store availability. India’s retail sector is experiencing exponential growth which changes the demographic profile, increasing disposable incomes, urbanisation, changing consumer tastes and preferences in the organised retail market in India.

Current Status

The aggregate revenue of the top 250 global retail players was $4.31 trillion in 2015 and in 2016 the turnover of E-Commerce market was $1.4 trillion.

In the Indian industry, the retail market is expected to reach $1 trillion by 2020 from $600 billion in 2015. Considering the current facts, the E-Commerce sales to reach $120 billion in 2020 from $30 billion revenue that was made in 2016. Retail and E-Commerce contribute almost 10% to GDP and 8% in the employment sector.

Demand Procurers

  • Retail market demand is driven by income growth, urbanization and attitudinal shifts of the consumers.
  • Young demography
  • E-commerce market is driven by robust investment in the sector and rapid increase in the number of internet and smartphone users.

Growth Enablers

  • Implementation of GST is expected to enable easier movement of goods across the country which definitely improves retail operations for pan-India retailers.
  • With the allowance of 100% FDI in single brand retail, investor sentiment will get further push.
  • There is an increase in smartphone penetration along with high-speed networks and there is also an improvement in logistics and supply chain sector.
  • Innovative Payment solutions

 References

  1. http://www.unmillenniumproject.org/resources/fastfacts_e.htm
  2. http://www.nsdcindia.org/
  3. http://www.deasra.in/
  4. India Services Sector: A Multi-trillion Dollar Opportunity for Global Symbiotic Growth,  Deloitte Publication, April 2017
  5. Make in India: Which exports can drive the next wave of growth, IMF working paper
  6. Ministry of Skill Development and Entrepreneurship
  7. Union Budget 2017: Focus on skill development, February 2017, Media India: http://mediaindia.eu/business-politics/union-budget-2017-focus-on-skilldevelopment/
  8. Union Budget 2017-18
  9. FDI in Services Sector, DIPP, From April 2000 – December 2015: http://dipp.nic.in/English/Publications/SIA_NewsLetter/Annualreport2015/Chapter6.2.i.pdf
  10.  India IT-BPM Overview, NASSCOM website http://www.nasscom.in/indian-itbpo-industry
  11.  Indian IT and ITeS Industry Analysis, ibef website, March 2017 http://www.ibef.org/industry/indian-iT-and-iTeS-industry-analysis-presentation
  12. India’s IT services exports touch $82 billion in FY15, Gadgets Now, Dec 8 2015 http://www.gadgetsnow.com/it-services/Indias-IT-services-exports-touch-82-billion-in-FY15/articleshow/50095779.cms
  13. MSME Sector: Epitomising Vitality, See more at: http://www.makeinindia.com/article/-/v/nurturing-a-manufacturing-culture
  14.  Media and Entertainment Industry, IBEF, Feb 2017, http://www.ibef.org/download/Entertainment-February-2017.pdf
  15. Media and Entertainment Industry, IBEF, Feb 2017, http://www.ibef.org/download/Entertainment-February-2017.pdf
  16. Ministry of Information and Broadcasting – Annual Report 2016-17 http://mib.nic.in/writereaddata/documents/Annual_Report_2016-17.pdf
  17. Indian logistics market to touch US$ 307 billion by 2020: Ram Kripal Yadav, May 2016, Business Standard
  18. LPI is an interactive benchmarking tool created to help countries identify the challenges and opportunities faced in their performance on trade logistics and what they can do to improve their performance.
  1. India jumps 19 places in World Bank’s logistics performance index, June 2016, Livemint
  2.  Grooming, cosmetic products set for exponential growth in India, July 2016: http://www.assocham.org/newsdetail.php?id=5792
  3. AYUSH industry set to roll therapeutic returns, April 2015: http://www.franchiseindia.com/content/AYUSH-industry-set-to-roll-therapeutic-returns.687

About kredx

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KredX is an invoice discounting marketplace connecting high growth businesses in need of quick working capital with investors looking to grow their money at minimal risk in a short tenure.

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