Tushar K. Mahanti, ET Bureau Mar 14, 2009, 02.18am IST
If the economic downturn is hampering the growth of the service sector currently, the problems it was facing even before the crisis began are feared to delay its future turnaround. This, in turn, will compel our planners to revise downward the GDP growth projection further for the coming years.
The service sector has become the most important segment of economy in terms of its contribution to the gross domestic product (GDP) in recent years. According to the latest available National Accounts Statistics, the sector accounted for about 53% of GDP at factor cost in 2007-08.
Higher contribution to GDP apart, the sector has also been recognised universally as the prime driver of accelerated and diversified growth of the economy. What is more important is that it is second only to agriculture in terms of employment generation. That is, poor performance of the sector will not only bring down the GDP growth rate but will also result in huge job loss.
As such, when one looks at the service sector, he usually tends to concentrate on the big units and their problems ignoring the plight of the lakhs of smaller units whose contributions, when added up is quite sizable. According to the latest report of the National Sample Survey Organisation (NSSO), about 1.65 crore service sector enterprises were estimated to be working in India during 2006-07. The report covers all service sector enterprises engaged in the activities of hotels and restaurants, transport, storage and communication, financial intermediation, real estate, renting and business activities, health and social work and other community, social and personal service activities. It, however, excludes trading activities and the government and public sector enterprises.
Interestingly, 60% of them are in rural India as against 40% in urban sector. Uttar Pradesh has the highest share in total number of enterprises (14%) followed by West Bengal (13%), Andhra Pradesh (10%), Maharashtra (9%) and Tamil Nadu (7%). These five states together accounted for more than half of the enterprises.
About 3.35 crore persons were estimated to be working in service sector enterprises during 2006-07. The top five states in terms of their share of workers were Uttar Pradesh (12%), Andhra Pradesh (11%), Maharashtra (10%), West Bengal (10%) and Tamil Nadu (9%). These five states together accounted for 52% of total workers of the service sector in the country.
But if the number of enterprises varies widely among the states, their main problem seems to be the same. Across states, these enterprises were suffering from the scarcity of funds. As many as 216 units out of every 1,000 were reported to suffer from scarcity of capital. Rural India was the worst affected — 228 units out of every 1,000 service sector enterprises surveyed reported to have problem of capital as against 199 in urban India.
Their problem got multiplied as they did not receive any government assistance. About 85.7% of the surveyed enterprises have reported to have not received any assistance from the government. About 85% of those who received assistance got it as loans only. The urban sector units were the worst affected — 88.9% of them did not receive any government assistance. In contrast, about 83% of the surveyed units in rural areas did not get any assistance.
The plight of these units, however, was not confined to capital scarcity alone. They had to work under a number of other problems as well, including non-availability of power and skilled labour, labour unrest, harassment by local people, competition from large units and rising fuel and raw material cost.
Of these, the competition from large enterprises was considered the biggest problem. A huge 217 out of every 1,000 enterprises surveyed cited this as their major problem. Understandably, this problem was more intense in urban sector than in rural areas as the urban market was more easily accessible — 263 units out of every 1,000 in urban sector reported to have suffered from competition from large units as against 184 in rural areas.
