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Services sector likely to contract by 8.8 per cent in FY21 despite record 34 per cent jump in FDI inflows: Survey

Overall, the services industry contracted for five months since the onset of the coronavirus pandemic in March as demand slipped.

Published: 30th January 2021 03:15 AM  |   Last Updated: 30th January 2021 10:03 AM   |  A+A-

Bengaluru international airport, Kempegowda International airport

Image of Bengaluru Airport used for representational purposes (Photo | T Vinod Kumar, EPS)

By Express News Service

BENGALURU: India’s services sector, which accounts for 54 % of the country’s economy, is estimated to contract 8.8% in FY21 as sub-sectors such as tourism, aviation and hospitality were marred by the Covid pandemic and subsequent lockdowns, the Economic Survey 2021 said. 

The contact-intensive services sector contracted by almost 16% in HIFY21 with a huge impact on air passenger traffic, rail freight traffic, port traffic, foreign tourist arrivals, and foreign exchange earnings following the first lockdown announced in March 2020. 

However, the foreign direct investment inflow into the sector has seen a 34% year-on-year jump during  April-September 2020 to reach $23.61 billion led by the country’s IT/ ITeS sector, which received $17.55 billion foreign investments, a 336% annual increase, despite the pandemic.

Overall, the services industry contracted for five months since the onset of the coronavirus pandemic in March as demand slipped. The recovery signs, according to the Survey, are gradually apparent in various service sub-sectors with ‘measured opening-up of economy since June 2020’ even as the travel continues to remain muted.

Services purchasing managers index, rail freight traffic, and port traffic have bottomed out and are rising steadily now, showing a V-shaped recovery, the Economic Survey 2020-21 added.

In terms of services sector exports, IT/ITeS showed remarkable resilience, with a majority of the software firms showing signs of rebound from the second quarter of FY21, on account of the increased revenue from their financial, banking and insurance, retail, life sciences and health care units, the Survey noted. 

It added the relaxation in regulations such as Other Services Providers (OPS) norms as well as introduction of Consumer Protection Act2020 helped the industry’s growth. 



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