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1 SERVICES March 2018

2 Table of Content Executive Summary...3 Advantage India Market Overview and Trends...6 Strategies Adopted Growth Drivers and Opportunities.. 17 Case Studies Industry Associations Useful Information....32

3 EXECUTIVE SUMMARY The services sector of India remains the engine of growth for India s economy and contributed 54.8 per cent of India s Gross Value Added in Key Driver of Economic Growth At constant prices, the sector is estimated to have registered 8.56 per cent growth rate in India had net service exports of US$ 67.5 billion in Net services exports during April-December 2017 reached US$ billion. India had 28.6 per cent of its population employed in the services sector in Global Technology Hub A large pool of skilled IT manpower has made India into a global outsourcing hub. It now commands a 55 per cent share in the global sourcing market. India achieved the second highest growth rate in services exports in the world in 2016 at 3.6 per cent yearon-year. The government s move to launch Startup India aims to create an inclusive ecosystem for entrepreneurs and push for innovation. are a big part of this system. The technology infrastructure required for such an ecosystem has increased the potential for the sector in India. Attractive Ecosystem Low setup costs make this sector an attractive investment destination and the 60.7 per cent share in India s FDI inflows in is a sign of the same. India also has reasonably well developed financial markets. All these factors make Indian services sector an attractive ecosystem for both the entrepreneurs and the investors. Note: E - Estimate Source: Economic Survey of India, DIPP, MOSPI, RBI 3

4 ADVANTAGE INDIA

5 ADVANTAGE INDIA India is the export hub for software services. It has a 55 per cent share in the US$ 178 billion global sourcing market. India is also becoming a destination for medical tourism as a result of cheaper but quality healthcare services. India has immense potential in tourism services and earned US$ 27.7 billion from tourism in sector has received the most FDI inflows between April 2000 and December 2017 reaching US$ billion. The sector received 60.7 per cent of the total FDI inflows to India in per cent FDI for any regulated financial sector activity under the automatic route. An already established technology base and infrastructure that will help in the creation of an ecosystem for other services. Large pool of skilled manpower, especially in the areas of IT & ITeS available at a relatively low cost and and a rapidly increasing youth population looking to migrate from agriculture to other sectors. ADVANTAGE INDIA Government of India is working to remove many trade barriers to services and tabled a draft legal text on Trade Facilitation in to the WTO in Government is promoting necessary services and will charge zero tax for education and health services under the GST regime. Skill India, a multi skill development programme has been started to equip the workforce with the necessary skills required by the sector. Source: WTO- World Trade Organisation Source: Economic Survey of India , DIPP, NASSCOM 5

6 MARKET OVERVIEW AND TRENDS

7 SERVICES SECTOR CLASSIFICATION sector Trade, repair, hotels and restaurants Transport, storage, communication and services related to broadcasting Financial services Real estate, ownership of dwelling and professional services Public administration and defence and others Railways Road transport Air transport Trade and repair services Hotels and restaurants Source: Indiabudget 7

8 FY12 FY13 FY14 FY15 FY16 FY17 FY18E , , , SHARE OF SERVICES SECTOR GROWS AT THE FASTEST CAGR India s services sector GVA grew at a CAGR of 6.93 per cent to US$ 1,266.1 billion in FY18E from US$ billion in FY12. Sector GVA at basic prices at current prices (in US$ Visakhapatnam port traffic (million tonnes) million) In terms of overall GDP India ranks 5th in 2017 and in terms of services GVA India ranked 13th as of Growth rate of financial, real estate and professional services is expected to reach per cent in FY18. Trade, hotels, transport, communication and services related to broadcasting are expected to grow at per cent in FY18. 1,400 1,200 1,000 CAGR 6.93% 51.8% 52.5% 52.8% 54.0% 55.0% 54.0% 53.0% 52.0% % % 50.0% 50.6% 50.0% 49.0% 48.0% % % Growth of India's Sector (GVA at basic price) sector GVA as a percentage of total GVA Note: E Estimate, CAGR - Compound Annual Growth Rate, Exchange Rate used is average for the year Source: Indiabudget, MOSPI (Second Advance Estimates of National Income and First Revised Estimates of National Income ) 8

9 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar SERVICE SECTOR PMI The services sector is the key driver of India s economic growth The Nikkei India Purchasing Managers' Index (PMI) grew to in March 2018 from in February Nikkei India PMI (Monthly) Source: Nikkei 9

10 TELECOM, IT-BPM SHOWCASE WORTHY PERFORMANCE IN FY17 The segment Trade, repair, hotels and restaurants remains the largest contributing subsector to services sector GVA. Performance of India's Sector FY18E (Share of total sector GVA at current prices) Sub-sectors that are performing well in FY18 are: Aviation India s air passenger traffic doubled to nearly million in 2017 from million in Tourism Foreign Exchange Earnings from tourism rose 20.8 per cent year-on-year to US$ 27.7 billion in Information technology-business process management (IT-BPM) Software exports are expected to grow 7-8 per cent and the domestic market is expected to expand by per cent in FY18.* 26.8% 34.4% 38.8% Trade,hotels,transport,communication and services related to broadcasting Financial, real estate & professional services Public Administration, defence and other services Note: E- Estimate, *According to NASSCOM Source: Indiabudget, Economic Survey

11 India s Trade India s services exports grew per cent year-on-year to US$ billion during April-December As a result of pick up in some sectors such as transportation and business services, services exports grew by 5.7 per cent in Business services exports and financial services exports, which account for 20.2 and 3.1 per cent of the total services, recorded a growth of 13.6 and 3.1 per cent in the year respectively. Travel accounts for 14.2 per cent of the total services exports, and it recorded a growth of 9.3 per cent due to a significant rise in foreign tourist travels. Transportation services exports increased by 13.2 per cent in as compared to per cent in which reflects improving merchandise trade activity. Due to higher payments in two major service categories- travel and miscellaneous (mainly software and financial services), India s service imports recorded a growth of 13.0 per cent in Despite a growth of 5.7 per cent in services exports, growth in services imports led to a decline in net services receipts by 3.2 per cent. Trade Performance of India s Major in Visakhapatnam port traffic (million tonnes) (US$ billion) Service Exports Service Imports Source: Economic Survey , RBI 11

12 Sector Computer Software & Hardware Construction Trading Hotels & Tourism Telecommunic ations Information & Broadcasting 916 1,517 1,966 2,338 3,652 5,564 8,684 HIGH FDI INFLOWS INTO THE SECTOR The share of the services sector is 60.7 per cent of the FDI equity inflows during Visakhapatnam port traffic (million tonnes) FDI Equity Inflows to the Sector in (US$ million) In , growth rate of FDI inflows reduced to 8.7 per cent (US$ 43.5 billion) due to negative growth in trading, computer hardware and software, construction and hotels and tourism To ensure that India remains an attractive investment, the Government has brought about a number of reforms such as the abolition of the Foreign Investment Promotion Board (FIPB) and the introduction of composite caps in the FDI policy which permits 100 per cent FDI under automatic route for any financial sector activity which is regulated by any financial sector regulator 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Source: Economic Survey

13 PERFORMANCE OF INDIA S SERVICES SECTOR: SOME INDICATORS Sector Indicators Unit Period IT- BPM service revenues US$ billion IT- BPM Exports US$ billion Domestic US$ billion Airline Passengers (Total) Million Aviation Domestic Million International Million Telecom Telecom Connections (wireline and wireless) Million Tourism Shipping Foreign Tourist Arrivals Million Foreign Exchange earnings from tourism US$ billion Gross tonnage of Indian shipping Million GT No. of ships Numbers Ports Port Traffic Million tonnes Source: Economic Survey

14 KEY PLAYERS Banking and Financial Tourism and Hospitality Telecommunication Healthcare IT and ITeS Aviation Source: Company websites, Aranca Research 14

15 STRATEGIES ADOPTED

16 STRATEGIES ADOPTED Banking and Financial In May 2017, financial services company JM Financial Ltd. voiced plans to extend its real estate lending business and set up an affordable housing finance unit - JM Financial Home Loans Ltd. The company is expected to secure the licence for the new unit from National Housing Bank (NHB) in a period of six months. Tourism and Hospitality Players are trying to ensure convenience for their customers by providing all services available on a single portal. For example, makemytrip.com and a host of other websites provide a comprehensive basket of offerings which include outbound and inbound travel for leisure and business trips, hotels and car booking, holiday packages within India or abroad, etc Players are opting for many channels to maximise sales and ensure convenience for their customers. For example, Thomas Cook and Kuoni India launched their online portals to compete with others. On the other hand, makemytrip.com is planning to go for the offline channel to complement its existing portal and has already launched mobile apps for maximising sales. Indian LCC S are looking forward to increase their ancillary services, without tampering their business models. This includes services like lounge access, priority boarding, customer loyalty memberships and customer meals Healthcare In April 2017, IFFCO has invested 26 per cent stake in a start-up firm Gramin Health Care (GHC), an affordable and easily accessible service for farmers to educate them about basic health General Atlantic Partners and TPG voiced intentions to bid jointly for acquiring the healthcare assets of Fortis for US$ 1.80 billion Education and Training As the Indian education industry opens up to new innovative ways of learning, Educomp has decided to explore this opportunity by offering its various online and supplemental solutions to help institutions to leverage the most of technology Source: Company websites, Media sources, Aranca Research 16

17 GROWTH DRIVERS AND OPPORTUNITIES

18 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY , , , , , , , , INDIAN BANKING SECTOR DRIVING GROWTH IN THE SERVICES SECTOR During FY06 17, deposits grew at a CAGR of per cent from US$ 325 billion in FY06 to US$ 1,669 billion in FY17. As of the third quarter of FY18, deposits have reached US$ 1,716 billion. Strong growth in savings amid rising disposable income levels are the major factors influencing deposit growth. Growth Visakhapatnam in deposits over port the traffic past few (million years tonnes) (US$ billion)* 1, , CAGR 11.71% Access to banking system has also improved over the years due to persistent government efforts to promote banking-technology and promote expansion in unbanked and non-metropolitan regions. At the same time India s banking sector has remained stable despite global upheavals, thereby retaining public confidence over the years. 1, , , Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY), have also increased. As of March 28, 2018, Rs 78, crore (US$ billion) were deposited, while million accounts were opened Note: CAGR - Compounded Annual Growth Rate, 1 FY 18 as of third quarter, 2 CAGR is up to FY17, Exchange Rate used is average for the year Source: Reserve Bank of India (RBI), Aranca Research; 18

19 AVIATION DRIVING GROWTH IN SERVICES WITH INCREASING PASSENGER AND FREIGHT TRAFFIC Witnessing a growth of per cent over the previous year, total passenger traffic stood at a million in FY17, which was recorded at million in FY16 in India. Passenger traffic and freight traffic during April February 2018 reached million passengers and 3.05 million tonnes respectively. Growth in passenger traffic has been strong since the new millennium, especially with rising incomes and low-cost aviation; during FY06-17, passenger traffic grew at a CAGR of per cent in the country. Freight traffic on airports in India is expected to cross 11.4 million tonnes by Growth in import and export in India will be the key driver for growth in freight traffic as 30 per cent of total trade is undertaken via airways. Airports across the globe are planning on increasing their spending on new technology to keep up with surging passenger traffic, which is expected to double to 370 million by The anticipated double digit growth would make India as the world s 3rd largest aviation market by Fliers would soon be able to use biometric details for security checks at airports after good feedback from a pilot project Visakhapatnam Passenger traffic port traffic in in India (million (million) tonnes) 1 FY06FY07FY08FY09FY10FY11FY12FY13FY14FY15FY16FY17FY18 Freight traffic in India (million tonnes) 1 FY06FY07FY08FY09FY10FY11FY12FY13FY14FY15FY16FY17FY18 Notes: CAGR Compound Annual Growth Rate, FY Indian Financial Year (April March), 1 From April 2017 to February 2018 Source: Association of Private Airport Operator, Airports Authority of India 19

20 INCREASING EXPENDITURE ON TRAVEL AND TOURISM IS A MAJOR DRIVER FOR THE SECTOR The travel and tourism sector forms a major part of the services industry; thereby increasing expenditure for obtaining this service is expected to drive growth in the overall services sector. The share of travel and tourism in India s GDP was 9.6 per cent in 2017; and is expected to grow at a CAGR of 7.2 per cent per annum between 2017E-2027 Overall, leisure travel and tourism spending inclined at a CAGR of per cent between E Visakhapatnam Travel and tourism port spending traffic (million (US$ tonnes) billion) Emergence of business hubs like Mumbai (Finance), Bengaluru (IT), Chennai (IT), Delhi (Manufacturing, IT) is likely to boost business travel as well Leisure travel spending grew to US$ billion in 2017E from US$ billion in E Business Travel and Tourism Spending (in US$ bn) Leisure Travel & Tourism Spending (in US$ bn) Notes: IT Information Technology, E Estimated Source: World Travel and Tourism Council, Make in India, Global Business Travel Association 20

21 STRONG GROWTH IN HEALTHCARE SERVICE SECTOR Healthcare has become one of India's largest sectors both in terms of revenue and employment. The industry is growing at a tremendous pace owing to its strengthening coverage, services and increasing expenditure by public as well private players 300 Healthcare Visakhapatnam Sector port Growth traffic Trend (million (US$ tonnes) Billion) CAGR: 16.5% During , the market is expected to record a CAGR of 16.5 per cent The total industry size is expected to touch US$ 160 billion by 2017 and US$ 280 billion by 2020 The Ministry of Health is focusing on development of technologies for the treatment of diseases like Cancer and TB Government is emphasising on the ehealth initiatives such as Mother and Child Tracking System (MCTS) and Facilitation Centre (MCTFC) 150 Indian companies are entering into merger and acquisitions with domestic and foreign companies to drive growth and gain new markets F 2020F Note: F - Forecast Source: Frost and Sullivan, LSI Financial, Deloitte, Aranca Research 21

22 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY EXPANDING TELECOM SUBSCRIBER BASE India is currently the second largest telecommunication market and has the 3rd highest number of internet users in the world Visakhapatnam Growth in port total traffic subscribers (million tonnes) India s telephone subscriber base expanded at a CAGR of per cent, reaching million during FY07 17 Tele-density (defined as the number of telephone connections for every 100 individuals) in India, increased from 17.9 in FY07 to as of January ,400 1,200 1, Telephone Subscribers (in million) Teledensity (in percentage) Note: CAGR - Compound Annual Growth Rate, 1 As of January 2018 Source: Telecom Regulatory Authority of India, Aranca Research 22

23 GROWING IT and IT-ENABLED SERVICES SECTOR IT and ITeS sector is the major driver of India s service sector. Market Visakhapatnam size of IT industry port traffic in (million India (US$ tonnes) billion) IT BPM industry revenues increased to US$ 154 billion in FY17 from US$ 143 billion in FY16. IT-BPM revenue in FY18 is estimated to be US$ 167 billion. 180 The contribution of the IT sector to India s GDP stood at 7.7 per cent in TCS is the market leader, accounting for about 10.4 per cent of India s total IT & ITeS sector revenue in FY16 The top 5 IT firms contribute over 25 per cent to the total industry revenue INR 8.4 lakh crore (US$ billion) as of 2017, indicating the market is fairly competitive The domestic revenue of the IT industry is estimated at US$ 38 billion and export revenue is estimated at US$ 117 billion in FY FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E Domestic Export Note: E estimate, IT Information Technology, E - Estimate Source: NASSCOM, Aranca Research 23

24 GOVERNMENT POLICIES AND INITIATIVES SEIS is aimed at promoting export of services from India by providing duty scrip credit for eligible exports. Exports from India Scheme (SEIS) Under this scheme, a reward of 3 to 5 per cent of net foreign exchange earned is given for Mode 1 and Mode 2 services. In the Mid term review of FTP* , SEIS incentives to notified services were increased by 2 per cent. Aims at a One Nation-One license regime with no roaming charges and nation wide number portability National Telecom Policy 2012 Broadband for all with a minimum download speed of 2Mbps Liberalisation of spectrum and convergence of network, services and devices Unified licensing, delinking of spectrum from license, online real-time submission and processing National Tourism Policy 2015 Formulation of National Tourism Policy 2015 that would encourage the citizens of India to explore their own country as well as position the country as a Must See destination for global travellers Under Union Budget 2017, US$ million was allocated for promotion and publicity of various programmes and schemes of the Tourism Ministry. National Health Policy 2017 The Union Cabinet, Government of India, has approved the National Health Policy 2017, which will provide the policy framework for achieving universal health coverage and delivering quality health care services to all at an affordable cost. National Education Policy, 2016 The new 2016 National Education Policy (NEP) considers education as an utmost important parameter in the country. The 2016 NEP majorly focuses on quality of education as well as innovation and research in the sector. Note : FTP* - Foreign Trade Policy Source : Economic Survey 2017, Media sources 24

25 GOVERNMENT POLICIES AND INITIATIVES FDI Policy 100 per cent FDI is allowed under automatic route in scheduled air transport service, regional air transport service and domestic scheduled passenger airline. FDI over 49 per cent would require government approval. Approval of 49 per cent FDI in aviation for foreign carriers. 100 per cent FDI is allowed under the automatic route in tourism and hospitality, subject to applicable regulations and laws. The Government of India allowed 100 per cent FDI in the education sector through the automatic route since For the healthcare sector, 100 per cent FDI is allowed under the automatic route for greenfield projects and for brownfield project investments, up to 100 per cent FDI is permitted under the government route. FDI cap in the telecom sector has been increased to 100 per cent from 74 per cent; out of 100 per cent, 49 per cent will be done through automatic route and the rest will be done through the FIPB approval route. Government has allowed 100 per cent FDI in the railway sector for approved list of projects. FDI limit for insurance companies has been raised from 26 per cent to 49 per cent. Goods and Tax (GST) The GST rates are nil for education and healthcare services; 5 per cent for air transport of passengers in economy class, transport of goods by rail and vessel, supply of tour operator services (without ITC); 12 per cent for food and drinks at restaurants without air conditioner, heating system or license to serve liquor, while it is 18 per cent for those having them; 12 per cent for accommodation in hotels, inns, etc for rooms with tariff between INR , while it is 18 per cent for those between INR ; 12 per cent for air transport of passengers in other thane economy class; 28 per cent for entertainment events, cinematograph films, theme parks, water parks, etc, hotels and inns with room tariff above INR 7,500. Source : Economic Survey 2017, Media sources 25

26 CASE STUDIES

27 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY , , , , , ,255.3 HDFC BANK HDFC Bank Established in 1994, HDFC Bank is the 2nd largest private sector bank in India. HDFC was amongst the 1st to receive an 'in principle' approval from the RBI to set up a bank in the private sector 2,500.0 Visakhapatnam Net profit port US$ traffic (millions) tonnes) CAGR 21.13% Divisions Retail banking, Wholesale banking and Treasury operations 2,000.0 Size Number of branches and extensions (FY17): 4,715 Number of ATMs: (FY17) 12,260 1,500.0 Number of Employees (FY17): 84,325 Total Assets (FY17): US$ billion Recognition: 1,000.0 In 2017, HDFC bank received India s Best Bank award by Euromoney Awards for Excellence In 2017, HDFC bank was awarded the Best Domestic Bank in India award by Asiamoney India Banking Awards In 2016, HDFC bank was awarded India s Most Valuable Brand for the third consecutive year. - In 2016, HDFC received Bank of the Year award by Outlook Money. Source: Annual report, company website 27

28 PRIVATE SECTOR PIONEERS: IHCL The company was incorporated in 1902 and launched the first hotel in India, The Taj Mahal Palace and Tower, in Mumbai in 1903 Visakhapatnam Revenues port (US$ traffic million) (million tonnes) Taj Hotels Resorts and Palaces has 66 hotels in 42 locations across India and 16 hotels worldwide IHCL operates in the luxury, premium, mid-market and value market segments through various brands such as Taj, Taj Exotica, Taj Safari, Vivanta, Gateway Hotel and Ginger IHCL operates Taj Air, a luxury private jet service The company operates Taj Sats Air Catering Ltd, the largest airline catering service in South Asia IHCL s revenues stood at US$ million in FY FY11 FY12 FY13 FY14 FY15 FY16 FY17 Source: IHCL s website 28

29 TCS: AN EMERGING GLOBAL IT MAMMOTH Established in 1968, Tata Consultancy (TCS) is an Information Technology (IT) services, consulting and business solution company. The company provides end-to-end technology and technology-related services to global enterprises. The company s business is spread across the Americas, Europe, Asia-Pacific and Middle East and Africa (MEA). TCS accounts for nearly half of the Indian IT industry s combined market capitalisation In April 2017, TCS has approved a buyback plan for US$2.38 billion. The shares represent 2.85 per cent in the buyback of the total equity capital at US$42.39 per share. 11.7% Segment-wise revenue breakdown (FY17) 9.0% 16.1% 4.9% 2.9% 17.6% 38.0% Application development and maintenance (ADM) Enterprise solutions (ES) and consulting Infrastructure services (IS) Business process and services (BPS) Assurance services Engineering and industrial services (EIS) Asset leveraged solutions Achievements: 2017: Pega 2017 wins Partner Excellence Award 2016: Won 3 Silver Stevies at 14th Annual American Business Awards 2015: Gold, Silver and Bronze Stevie Winner at the American Business Awards 2014: Gold and Silver Stevie Winner at the American Business Awards 2013: Won Best Performing Consultancy Brand Award in Europe 2013: Received Red Hat North America Awards for System Integrator Partner of the Year Financial performance (US$ Billion) CAGR 21.6 % FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Revenue Operating Profit Source: TCS Website, Annual Report 29

30 INDUSTRY ASSOCIATIONS

31 KEY INDUSTRY ASSOCIATIONS Indian Banks' Association World Trade Centre, 6th Floor Centre 1 Building, World Trade Centre Complex, Cuff Parade, Mumbai , India webmaster@iba.org.in Directorate General of Civil Aviation (DGCA) Address: Aurobindo Marg, Opp. Safdarjung Airport, New Delhi Phone: Fax: dri@dgca.nic.in, dfa@dgca.nic.in Hotel Association of India (HAI) Address: B Som Dutt Chamber-I, Bhikaji Cama Place, New Delhi Phone: /14 Fax: National Association of Software and Companies (NASSCOM) Address: International Youth Centre Teen Murti Marg, Chanakyapuri, New Delhi Phone: Fax: info@nasscom.in. Association of Unified Telecom Service Providers of India (AUSPI) Address: B-601, Gauri Sadan 5, Hailey Road, New Delhi , India Tel: Fax: Website: Export Promotion Council (SEPC) Address: 3rd Floor, 6A/6, NCHF Building, Siri Fort Institutional Area, August Kranti Marg New Delhi Phone: , services.epc@gmail.com Website: 31

32 USEFUL INFORMATION

33 GLOSSARY CAGR: Compound Annual Growth Rate FDI: Foreign Direct Investment FY: Indian Financial Year (April to March) GOI: Government of India INR: Indian Rupee US$: US Dollar Wherever applicable, numbers have been rounded off to the nearest whole number 33

34 EXCHANGE RATES Exchange Rates (Fiscal Year) Year INR INR Equivalent of one US$ Q Q Q Exchange Rates (Calendar Year) Year INR Equivalent of one US$ Source: Reserve bank of India, Average for the year 34

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