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I Introduction:
The document is about the Implication on contribution of service sector to GDP due to FDI in service sector. The paper dwells the importance of service sector in India for the GDP growth.Service Sector of India is one of the fastest growing sector. The services sector covers a wide array of activities ranging from services provided by the most sophisticated sectors like telecommunications, satellite mapping, and computer software to simple services like those performed by the barber, the carpenter, and the plumber,highly capital-intensive activities like civil aviation and shipping to employment-oriented activities like tourism, real-estate, and housing; infrastructure-related activities like railways, roadways, and ports to social sector-related activities like health and education.
We took our research further taking 3 sectors of service sector which is Hotels Restaurants, Banking and Railways where we interpreted the results through relevant data and facts.
II Literature Review
As per Economy Survey, before 1991, the GDP of India was comparatively low. Due to the welcome of Foreign Direct Investments (FDI), there has been lot of growth in sectors, viz., IT, banking and financial sector, telecommunication and infrastructure. Many sub sectors of service sector opened up for foreign investment particularly during the period of 1991 to 2015. India’s services sector has emerged as a prominent sector in terms of its contribution to national and states incomes, trade flows, FDI inflows, and employment.
According to the Article published in June 2014-15 in Hindubusinessline.com with the government taking steps to improvise ease of doing business and attracting investments, FDI inflows into the service sector grew by over 46% to $3.25 billion in 2014-15.The services sector, which includes banking, insurance, outsourcing, R&D, courier and technology testing, had received foreign direct investment (FDI) worth $ 2.22 billion in 2013-14.Services contribute about 60 per cent to India’s GDP and it receives high foreign inflows in this sector. According to timesofindia among the world's top 15 countries in terms of GDP, India ranked 10th in terms of overall GDP and 12th in terms of services GDP in 2012.
Hotels and Restaurants
As it is said in theprognosisglobal.wordpress.com there is 100 percent FDI in hotels and only 51 percent FDI are allowed under automatic route. Business.mapsofindia says that, as per the guidelines of FDI following are the sectors in hotels which has been receiving maximum amount of FDI inflows:
1.Restaurants
2.Beach Resorts
Automatic approval for foreign technology will be availed if 3 percent of the total expenditure occupies infrastructure development and also upto 3 percent of the net turnover is payable as marketing fee and 10 percent of the gross operating profit is payable as management fee.It contributes to 6.23 percent to the National GDP.
Railways
Indian Railways is the fourth largest rail freight carrier in the world and world’s largest passenger carrier. According to makeinindia.com recently the government has allowed 100% FDI in the railway infrastructure.Indian Railways envisages an investment of INR 8.5 lakh crore in the next five years.
100% FDI under automatic route is permitted in the following:
1.Construction,operation and maintenance of suburban corridor projects through PPP
2. High speed train projects
3.Dedicated freight lines
4.Rolling stock including train sets and locomotives/coaches manufacturing and maintenance facilities
5. Railway electrification
6. Signalling systems
7. Freight terminals
8. Passenger terminals
9. Infrastructure in industrial perks pertaining to railways lines/side including electrified railways lines and connectives to main railway line
10. Mass rapid transport system.
The FDI liberalisation in the sector would help in modernisation and expansion of the railway projects.According to estimates, the sector is facing a cash crunch of around Rs 29,000 Crore and allowing of FDI will help mop up resources. According to the article “The growth contribution of colonial Indian railways in comparative perspective “written by Dan Bogart, Latika Chaudhary, Alfonso Herranz-Loncán they say that Indian railways contributed 0.29 percentage points to the annual income per-capita growth from the mid-19th century to early 20th century larger than some other countries. According to Economic survey railways now contribute of about 1% in the total per capita income.
Banking sector
According to the presentation of “Foreign direct investment policy in baking sector in India-present status “ by the department of financial services –ministry of finance FDI is permitted through four distinct channels in the banking sector. In public sector banks FDI is permitted with a cap of 20 percent equity. In private sector FDI is permitted with a cap of 74 percent of equity. According to The Hindu the government rules in baking system have been changed to accommodate the private investor after liberalisation. According to the timesofindia the RBI has turned down the proposal from the government to allow upto 100 percent FDI in banks a move that may come as a damper for several private sector banks such as ICICI and HDFC bank.A few years ago, in the draft norms for new banks, the RBI had suggested limiting FDI to 49%, against the 74% cap. “According to the article “Role of banks in economic growth of a region” by Shalu Mahajan,he states that the contribution of banking sector to GDP is about 7.7 percent of GDP. Banking sector as intermediation as measured by total loan as a percent of GDP is 30 percent.