Ramesh Singh Summary: Services Sector-2

Table of Contents
1. E-Commerce
2. Digital Financial Services
3. Space
4. Manufacturing versus Services
5. COVID-19 and the Services Sector
6. Way Forward
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E-Commerce

The e-commerce sector in India has recorded rapid expansion, accelerated further by the COVID-19 pandemic. Lockdowns, mobility restrictions and changes in consumer behaviour increased online penetration, drawing large numbers of consumers from tier-II and tier-III cities into online shopping and digital transactions.

• According to recent e-commerce trend reports, India's overall e-commerce market has grown significantly, reaching approximately $125 billion in 2024 and projected to touch $345 billion by 2030, with tier-2 and tier-3 cities continuing to drive a disproportionate share of growth - tier-3 cities alone contributed 38% of order volumes during the 2025 summer sales season.
• Studies on MSMEs adopting digital commerce and e-procurement platforms have consistently recorded substantial increases in revenues and margins, with early findings indicating up to doubling of revenues; continued government initiatives such as the MSME-TEAM scheme aim to onboard five lakh MSMEs onto digital networks, reflecting sustained policy confidence in e-commerce as a revenue driver for small businesses.
• The Government e-Marketplace (GeM) has grown into one of the world's largest public procurement platforms, crossing ₹5 lakh crore in annual procurement in FY2024-25 and ₹13.60 lakh crore in cumulative GMV since inception, with MSMEs and small enterprises making up a significant share of its over 23 lakh registered sellers; the government continues to actively onboard products from Self-Help Groups, tribal producers, artisans, weavers and MSMEs.
• The Open Network for Digital Commerce (ONDC) has moved well beyond its launch phase to become an active force in democratising digital commerce - now operational in over 616 cities with more than 7.64 lakh merchants onboarded, facilitating over 14 million transactions in a single month as of late 2024, reducing transaction costs and widening market access for sellers including those in remote and tier-2 and tier-3 areas.

Insights from Industry Reports

• According to Bain & Company's How India Shops Online 2025 report, high-frequency categories such as grocery, lifestyle and general merchandise are expected to drive the next wave of e-retail growth, accounting for nearly two-thirds of India's incremental e-commerce market by 2030 - with penetration levels in these categories projected to rise two to four times from current levels, fuelled by quick commerce expansion and rising discretionary spending.
• The Worldpay Global Payments Report 2025 affirms India's continued e-commerce momentum, noting that UPI now dominates with 64% of e-commerce transaction value in the country, and that global digital payments grew from $1.7 trillion in 2014 to $18.7 trillion in 2024, with total digital payment value projected to exceed $33.5 trillion by 2030 Worldpay - a trajectory in which India is a key driver, supported by rising smartphone adoption, mobile-first commerce and deepening acceptance of digital payment infrastructure.

Digital Financial Services

Digital financial services-banking, payments, lending, insurance and investment platforms delivered through digital channels-are transforming financial inclusion, service delivery and product personalisation. They are enabled by emerging technologies and supported by a strong institutional framework in India.

• The Jan Dhan-Aadhaar-Mobile (JAM) trinity, together with Unified Payments Interface (UPI) and supportive regulation, provides a foundation for rapid expansion of digital financial services.
• The pandemic accelerated digital adoption across banks, NBFCs, insurers and FinTechs. India's fintech adoption rate was estimated at about 87%, well above the global average (~64%).
• Neobanks and digital-only financial providers have expanded to meet demand for convenient, on-demand services, especially among younger, digitally-native customers.

Space

India's space programme has evolved from early mapping and experimental launches in the 1960s to a diverse, application-oriented programme today, including launch vehicles, earth observation, communication satellites, navigation systems and planetary exploration.

• Evolution: Over five decades, India has developed capabilities in satellite design, launch vehicles and mission operations, applying space technology to telecommunications, weather forecasting, navigation, disaster management and scientific research.
• Budget and scale: In 2019-20 India's space budget was about US$1.5 billion, smaller than those of leading space powers but applied with an emphasis on cost efficiency and mission value. India typically launches multiple satellites annually with a high success rate, though other countries have larger launch volumes.
• Key focus areas: Satellite communication (INSAT/GSAT series), earth observation for meteorology and disaster response, satellite navigation and growing commercial applications.
• Changing landscape and commercialisation: Globally the sector is shifting towards increased private sector participation and commercial activities. India, through ISRO and government policy measures, is promoting private involvement to expand domestic capabilities, foster innovation and capture commercial opportunities.

Manufacturing versus Services

While policy attention has focused on manufacturing exports, India's services exports have also undergone significant transformation. The services sector remains a major contributor to the economy and to export earnings, though its global market share growth has stabilised recently.

• India's share of global services exports had been rising but has now shown signs of stabilisation rather than continuous acceleration.
• The rupee depreciation in 2015 should have provided competitiveness for services exports, but outcomes have been mixed, influenced by global demand patterns and regional slowdowns.
• To achieve higher long-term growth rates (aims of 8-10% GDP growth), exports-both services and goods-need to scale up rapidly.
• Comparisons with China's manufacturing export trajectory underline the scale of the challenge: India's services exports would need a substantial increase in global market share (estimates suggest a material rise, e.g., near 15% world share in some scenarios) to mirror China's export performance.
• Improving competitiveness in services requires focused policy action, skills enhancement, adoption of new technologies and wider market access.

Global Negotiations

International negotiations-multilateral, regional and bilateral-are important for expanding India's services trade and securing market access for Indian providers.

WTO Negotiations

• The 11th WTO Ministerial Conference concluded without a Ministerial Declaration or major breakthroughs on services; however, India identified positive multilateral developments for services trade.
• India has supported measures to strengthen services and service providers from Least Developed Countries (LDCs) and to increase their participation in services trade.
• Members agreed to continue the practice of not imposing customs duties on electronic transmissions (e-commerce) until the next Ministerial Conference.
• India, alongside other developing members, has extended preferential treatment to some developing countries in services through measures such as market access, technical assistance, capacity building and visa fee waivers for LDC applicants for business and work purposes.
• India proposed a global agreement to promote services trade and has advocated Trade Facilitation in Services (TFS), aimed at simplifying temporary movement of skilled workers and easing regulatory barriers to cross-border services delivery.
• The World Bank and other international agencies highlight that services are a growing share of the global economy but that trade in services still faces significant barriers both at borders and within countries.

Bilateral and Regional Agreements

• India has signed or negotiated comprehensive trade agreements that include services chapters with partners such as Singapore, South Korea, Japan and Malaysia, and participates in ASEAN services and investment arrangements.
• India participated in RCEP negotiations but opted out because of concerns over specific sectoral impacts and requests for concessions; the proposed RCEP would have been one of the largest regional FTAs.
• Ongoing bilateral and regional talks on services span partners including Canada, Israel, Thailand, the EU, EFTA, Australia, New Zealand, United States (through the India-US Trade Policy Forum), China (via the India-China Working Group on Services), and Brazil (under the India-Brazil Trade Monitoring Mechanism).

COVID-19 and the Services Sector

• The government launched the Atmanirbhar Bharat Abhiyan to convert COVID-19 challenges into opportunities and to support self-reliance across sectors.
• The relief and stimulus package announced under the campaign included measures worth about ₹20 lakh crore, targeting diverse sectors and aiming to revive demand and production.
• There was a special emphasis on supporting MSMEs, including startups, recognising their role in employment generation and supply-chain resilience.
• The government revised the definition and eligibility criteria for MSMEs, removing the formal distinction between manufacturing and services MSMEs to enable easier scaling and access to capital and listing opportunities.
• Key financial support measures introduced for MSMEs included arrangements for collateral-free loans, provisions for subordinate debt, and the establishment of a Fund of Funds to catalyse equity funding-measures expected to particularly benefit the services sector.
• These initiatives are intended to accelerate MSME growth, enhance their role in economic recovery and contribute to the government's aim of increasing self-reliance.

COVID-19

Way Forward

• India should consolidate its position as a global export hub for software services; the IT outsourcing market is projected to grow at around 6-8% for the period 2021-26.
• The services sector should treat the COVID-19 shock as an opportunity to innovate and diversify into new sub-sectors such as telemedicine, online education, digital entertainment and remote professional services.
• Policy measures to expand services include developing competitive advantage through adoption of new technologies and skill development, focusing on service quality, exploring new destination markets and harnessing India's large pool of relatively low-cost skilled manpower in IT and ITeS.
• Address structural dependence on imports by leveraging domestic talent and capacity; promote value-added services and indigenous capabilities.
• Indian diplomatic and trade missions should actively promote services exports, particularly in IT and allied segments, and support startups in accessing overseas markets.
• Targeted government interventions-especially supporting startups, improving ease of doing business, ensuring fair competition and resolving regulatory bottlenecks-can strengthen the sector.
• Risks to the sector include external demand shocks and weak prospects in advanced economies; policy must therefore combine domestic reforms with active market-diversification strategies.

Software Services

Conclusion: The services sector is central to India's growth and export strategy. Realising its full potential requires coordinated policy action-improving digital and physical infrastructure, skill upgradation, regulatory facilitation, greater participation in international trade negotiations, and targeted support for MSMEs and startups-to convert structural advantages into sustained export and employment gains.