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Volume 6, Issue 6, June – 2021 International Journal of Innovative Science and Research Technology

ISSN No:-2456-2165

COVID-19 and Service Sector in India


Hemlata Sharma
Associate Professor,
Department of Economics, Kurukshetra University,
Kurukshetra. Haryana

Abstract:-This paper makes an attempt to analyse how This paper attempts to analyse service sector in the
the service sector has been affected by COVID-19 on light of ongoing pandemic in India. The paper is divided
services sector in India. Though, the exact impact of into four sections. Section II deals with growth and structure
COVID-19 can be measured only after the situation of Services in India. Section III examines the effect of
normalises. However, there is no doubt in the fact that COVID-19 on Service sector in India and section IV gives
COVID-19 has affected the service sector severely than conclusion.
estimated or predicted. Apart from trade, hotels and
restaurant, insurance, transport, IT Telecommunication, II. GROWTH AND STRUCTURE OF SERVICES
and real estate other key sectors such as Oil and gas, IN INDIA, 1991-92 TO 2016-17
insurance, manufacturing, education etc. will be
impacted as consumers will restrict outdoor activities to Table I shows the relative contribution of different
essentials in the foreseeable future. economic sectors in GVA (%). It is observed from the table
that during the post-reform period from 1991-92 to 2016-17,
Keywords:- COVID-19, Service Sector and India. the relative contribution of agriculture sector continues to
fall from 35.38 per cent during the period 1991-92 till 1996-
I. INTRODUCTION 97 to 17.66 per cent during 2012-13 to 2016-17. However,
for the manufacturing sector the fall in its contribution to
The service-led growth of India during the post total GVA has been moderate. The services sector witnesses
liberalization period is now well documented. The consistent and substantial rise in its share in GVA.
implementation of reforms in the service sector has led to ‘Construction’, ‘trade, restaurant and hotels’ and ‘transport
high growth in industries such as telecom, information storage and communication’ account for more than two third
technology, financial services and real estate. Economic of the services sector GVA for the entire post reform period,
Survey, 2016-17 observes that “The services sector has i.e. from 1991 to 2016.
emerged as the most dynamic sector of the world economy,
contributing almost one-third of world gross value added, As can be further seen from Table -I, major changes in
half of world employment, one-fifth of global trade and the structure of the services GVA happened from 2003-04 to
more than half of the world foreign direct investment 2007-08. During this period, the services sector has
flows”. However, the growth of this sector has moderated to contributed to more than half of the GVA of the economy.
7.7 per cent in 2016-17 compared to 9.7 per cent achieved in ‘Trade, hotels and restaurants’ continue to be the largest
2015-16, but it continues to be higher than the other two contributor to services GVA by accounting for about 21.19
sectors, namely, agriculture and manufacturing. Today, per cent of the services GVA. The sub-period from 2008-09
economic growth in all the states is led by the service sector. to 2011-12 appears to be the most vibrant and high growth
period for the economy as a whole, but more for the services
However, the COVID- 19 pandemic has impacted sector. The contribution of the services sector in GVA
adversely the services sector in India. There are only reached closer to 60 per cent.
predictions on the extent and severity of Impact of COVID-
19 since the pandemic is still continuing with increased It is also important to note that the ‘trade, hotels and
infections. restaurant’ has been the largest contributor to services GVA
except for the period 2012-13 to 2016-17. During this
period, the above said services sub-sector has been replaced
by ‘finance, insurance, real estate and business services’
contributing to 21.96 per cent of the GVA.

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Volume 6, Issue 6, June – 2021 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
Table I: Relative Contribution in GVA (%), 1991-2017
S.No. Sectors 1991-92 to 1997-98 to 2003-04 to 2008-09 to 2012-13 to
1996-97 2002-03 2007-08 2011-12 2016-17
1 Agriculture 35.38 29.47 23.37 19.48 17.66
2 Manufacturing 21.37 21.19 20.56 20.80 18.55
3 Services 43.25 49.34 56.07 59.71 63.79
3.1 Construction 8.48 8.53 9.90 10.37 8.70
3.2 Trade, restaurant and hotels
17.04 19.49 21.19 21.90 11.17
3.3 Transport storage and 7.78 8.84 10.17 11.04 8.80
3.4 communication
Finance, insurance, real estate
and business services 6.74 9.55 12.11 13.62 21.96
3.5 Community, social and
personal services 3.20 2.94 2.69 2.78 13.16
Source: Author’s calculation based on data from National Accounts Statistics and CSO.

Table II: CAGR at 2004-05 constant prices (%), 1991-2017


S. No. Sectors 1991-92 to 1997-98 to 2003-04 to 2008-09 to 2012-13 to
1996-97 2002-03 2007-08 2011-12 2016-17
1 Agriculture 4.70 1.42 3.41 3.96 2.46
2 Manufacturing 9.93 3.90 9.86 7.46 7.45
3 Services 8.14 8.06 11.18 8.43 7.76
3.1 Construction 3.57 6.56 12.25 7.59 2.85
3.2 Trade, restaurant, and hotels 9.20 7.55 9.87 8.10 9.18
3.3 Transport, storage and communication 7.77 8.42 9.85 10.80 11.03
3.4 Finance, insurance, real estate and
business services 8.29 11.34 14.78 7.71 9.68
3.5 Community, social and personal
services 7.64 4.50 7.11 8.45 6.87
Source: Author’s calculation based on data from National Accounts Statistics and CSO.

Table II provides the compound annual growth rates at Of all the periods discussed, the growth rate of
2004-05 constant prices. It is seen that in sub-period from services GVA was highest (11.8 per cent) during the period
1991-92 to1996-97, the compound annual growth rate of the from 2003-04 to 2007-08. As in the previous periods
manufacturing sector (9.93 per cent) is highest among different individual sub-sectors of services outperformed the
agriculture (4.70 per cent) and ‘services sector’ (8.14 per average in terms of GVA growth, but during 2003-04 to
cent). Within the services sector however, there is a wide 2007-08, ‘finance, insurance, real estate and business
variation in the growth performance of different sub-sectors. services’ outperformed the average annual growth rate of
Between 1991-92 and 1996-97, the services that have grown services.
at a faster rate than the compound annual growth rate for the
entire services sector have been ‘trade, restaurant and hotels’ During the period from 2008-09 to 2011-12, the
(9.20 per cent) and ‘finance, insurance, real estate and average annual growth rate of all the sub-sectors of services,
business services’ (8.29 per cent). The services that have witnessed decline except, ‘transport, storage and
experienced lower than the average growth in the period communication’ and ‘community, social and personal
from 1991-92 to 1996-97, include ‘construction’ (3.57 per services’. However, during the period from 2012-13 to
cent); ‘transport, storage and communication’ (7.77 per 2016-17, the ‘construction’ sector has witnessed significant
cent); and ‘community, social and personal services’ (7.64 decline in its average annual growth rate followed by
per cent). ‘community, social and personal services’. Finally, there are
two services namely, ‘trade, restaurant and hotels’ and
In the second sub-period from 1997-98 to 2002-03, the ‘transport, storage and communication’ that stand out
pattern of growth in the services sector is more or less prominently in terms of high growth in recent years. Both
similar to first sub-period from 1950 to 1966. However, in these services have accounted for non-significant shares in
case of manufacturing sector significant fall has been the 1950s, 1960s right up to 1980s. It can be said that
witnessed in the average annual growth rate from 9.93 impressive progress in IT and IT enabled services and
percent in 1991-92 to 1996-97 to 3.90 per cent in 1997-98 to addition to existing stock of telephonic communication;
2002-03. particularly mobiles have played a key role in such a
growth.

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Volume 6, Issue 6, June – 2021 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
III. IMPACT OF COVID-19 ON SERVICE SECTOR cancelled. The imposition of section 144 has led to
IN INDIA cancellation of corporate events, conferences and even
weddings and family gatherings. The lockdown has left
Barclays has estimated the expected losses to the most of the hotels struggling with near record low
Indian economy at $234.4 billion. India’s service sector has occupancies. Many hotels have offered their rooms to
fallen to historical low due to lockdown. The IHS Markit healthcare professional or for quarantine at subsidised rates
India Services Business Activity Index was at 49.3 in March or for free out of social responsibility but how long they will
fell to 5.4 in April 2020. Workers in both formal and be able to continue them is a major concern. There are very
informal service sector are being laid off and situation does low chances that foreign tourists will come and ban on
not seem to normalize in coming months. international travel will be lifted in coming months.

A. Trade According to the report by CII, Hotels across all over


India is one of the most affected economies due to the India were negatively affected in key performance indicators
COVID-19. According to a UN report for India the trade i.e. occupancy, ADR and RevPAR. The overall occupancy
impact of the coronavirus epidemic for India is estimated to in the branded hotels segment in 2020 is estimated to decline
be about 348 million dollars with the worst hit chemicals by 16.7 - 20.5 percentage points over 2019, while ADRs are
sector (129 million dollars), followed by textiles and apparel estimated to decline by 7% to 8% for the year. As a result,
( $64 million), automotive sector ( $34 million), electrical RevPAR will witness a significant decline of 31% to 36.2%.
machinery ( $12 million), leather products ($13 million), Therefore, the overall revenue of the Indian hotel sector is
metals and metal products ($27 million) and wood products set to decline by anywhere between US$ 8.85 billion to US$
and furniture ( $15 million). In the recent years, there has 10 billion. Apart from actual business loss, the hotel owners
not been much growth in our exports. During FY20, India’s will also incur losses due to fixed operating expenses, debt
exports contracted 4.8% to $314.3 billion while imports repayments, interest payments etc.
shrank 9.1% to $467.2 billion. The severity of impact can be
seen through the fact that 29 of 30 items each in export and Travel and hospitality industry is expected to have a
import baskets contract. Now due to pandemic and resultant revenue loss of Rs 5-trillion over the next year making while
lockdown there may not be buyers for our products in the 35-40 million jobs vulnerable. Because of this hotel have
international market. Moreover, countries all over the world incorporated difficult measures to mitigate their losses.
are adopting protectionist measures. It is going to be tougher These measures include booking cancellations without
for India because we are dependent on agriculture and refund, providing customers with credit notes, encouraging
intermediate exports and supply chain disruption, demand employees to take paid leave, laying off contractual staff
shock and the looming recession are bound to impact trade and shutting down certain sections of the hotels.
even further.
If hotels are struggling the restaurants are also not
The worst affected entity is MSME sector. Due to better off. Dine-out joints, cafes and restaurants are fighting
lockdown, production is halted and laborers employed in to maintain their existence. Although deliveries from
MSMEs are moving to their native lands. According to CII, restaurants are exempted in lockdown, the same is not
the MSME sector add 13-15 million jobs annually. This sufficient for their survival. The restaurant industry in India
sector is a key component of the Indian economy but Indian with an annual turnover of over Rs 4 lakh crore and direct
MSMEs are too small to sail through a pandemic like employee base of over seven million, is at jeopardy. This
COVID-19. Moreover, on the one hand government has has created a threat for those small scale industries and
asked MSMEs to shut down their operations and on the businesses across the country that depend on restaurants to
other hand they have to pay employees, apart from meeting survive. From farmers to manufacturers, to delivery boys to
costs for taxes, power, and other utilities. It is not online food app, the whole network dependent on
sustainable and will lead to layoffs. The layoffs will result in restaurants is on the verge of collapse. Many restaurant
lower demand pushing companies out of business. So if chains are now mulling to shut 20-30% of their branches as
demand from international market revives in near future it they are forced to reassess business strategies (CNBC TV-
will be very unlikely for India to cater them. 18). It is estimated that lockdown will cost around Rs 1
lakh crore to restaurant industry.
However, COVID-19 has also given some
opportunities for India. There are several manufacturers who C. Transport
are moving out of China and are showing interest to get Transportation sector has also been the primary
settled in India but how India reaps benefit of this victims of COVID-19. All modes of public transport are
opportunity is still uncertain. suffering due to lockdown. From rickshaw pullers to
airlines, all have been affected economically by the
B. Hotels and Restaurants pandemic. Whereas the loss of Indian railways is of the
Like all other sectors, the impact of COVID-19 on amount 12500 crore grounding of domestic and international
India’s hospitality sector is nothing short of severe. With the flights is expected to result in Loss as high as 3-3.5 Billion
halt of tourism, suspension of visas and global advisories US dollar. For all State Transports the fixed cost has
against travel, there are hardly any bookings being made for increased and revenues have almost been zero. However,
the future and those which were made earlier are being even after lockdown ends the problems of social distancing,

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Volume 6, Issue 6, June – 2021 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
Crew safety, Paper tickets, uncertain demand for transport the workers may not soon return to their work. For
etc. will be there which will further make it difficult for developers, this could cause delays stretching a few months
normalcy to return and discourage usage of mass transit or more. This will lead to the vicious circle of no work, no
systems. People may avoid using public transport modes to labour; no liquidity, no project completion; no completion,
maintain social distancing. People are most likely to avoid no bookings to emerge.
shared auto rickshaws, e-rickshaws, app based taxi services
like Ola and Uber etc. It will add to the economic suffering Apart from labour the restrictions on logistics and
of the drivers in the wake of reduced demand resulting from transport have disrupted supply chains, creating a scarcity of
COVID-19. raw materials. So even if workers return they may not find
work in the absence of raw material. Moreover, Developers
According to ICRA COVID-19 is expected to impact can extend their projects to one year only otherwise there
transportation infrastructure as transportation infrastructure will be legal action against them they can’t avail FDI due to
has a strong correlation with the health of the economy and volatile global market. There are no new flat buyers,no site
thereby with the movement in GDP. Therefore, the visits and no negotiations for the last 60 days.
detrimental impact of Covid-19 on the overall economy
would in turn affect the movement of freight on the road A Naredco report foresees the Indian realty sector
stretches and the air traffic. enduring losses to the tune of Rs 1 lakh crore due to the
pandemic.
D. Telecommunications
Telecommunication is the only sector with minimum F. IT Services
losses and driven up demand during COVID-19. There has Due to COVID-19 Indian IT Services industry the
been higher dependency on digital tools such as sector is expected to grow at 3-5% in earlier expectation of
videoconferencing, collaborative applications etc. The MHA 6-8% (ICRA).The major reason for this is that 80% of IT
guidelines provided for telecommunications, internet Services export revenues generate from US and the
services, broadcasting and cable services, IT and IT-enabled Eurozone. The GDP growth fall of US and Euro zones from
services (ITeS) as essential services, which not only ensured 2.3% and 1.2% in CY2019e to 1.5% and 0.7% respectively
the continuity of service but also eased the movement of in CY2020 (Source: Moody’s Investor Services) will impact
employees working in telecommunication sector. During the IT services export revenue. Moreover, the travel restrictions
lockdown the overall traffic has jumped by 10% and to developed countries has impacted movement of IT
streaming platforms have witnessed a 20% spike. However, professionals. The IT offices are either closed or employees
there is considerable impact on Manufacturing of hardware are working from home which, has delayed the new
(due to supply chain disruptions and halting of production). commissioned as well as the projects in pipeline.
According Indian Cellular and Electronics Association
(ICEA), manufacturers may incur losses to the tune of IV. CONCLUSION
nearly INR 15,000 crore due to suspension of production.
This is not the only loss. There has been decline in the sales Though, the exact impact of COVID-19 can be
of new handsets, number of customers purchasing new sim measured only after the situation normalises. However, there
cards. Tariff hikes planned in aApril – June quarter have is no doubt in the fact that the impact of COVID-19 is
been delayed, 5 G spectrum auction is also likely to be severe as the demand has dampened and firms are laying off
delayed. workers. Even the big companies are cutting pays since the
situation doesn’t seem to improve in near future. Service
E. Real Estate sector is the major contributor of GDP growth in India, we
Real estate contributed nearly 6% to India’s GDP in cannot deny the emergence of recession if the current
2017.The sector creates tremendous opportunities for the situation prevails because the mental toll covid has taken on
skilled and unskilled workforce. migrant workers comprise people, may prevent them from returning to pre covid days
at least 80 per cent share of the total 44 million workforces even after vaccination.
in the construction sector. However, due to COVID-19
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Volume 6, Issue 6, June – 2021 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
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