Services Sector Growing in India

Services Sector Growing in India


Services sector needs governmental care in the initial stages

Compared to the manufacturing and agriculture sector, services sector is picking up activity in India. This is a good news because in any developed country, the services component of the economy is sizeable. But the Indian government needs to groom services sector carefully, offering the needed incentives, and nourishing it to a level where it can grow on its own. Till then, it needs governmental care.

All the sectors should be included in the CSO data

Companies have been asked to create data base for their services exports. This follows a complaint that the data collection system is not working properly. In fact India’s export figures were exaggerated because of the poverty of data collection. An expert group set up to finalise the mechanism of data collection in RBI’s system. RBI data does not have sector-wise details and does not reflect the true value of exports. The Central Statistical Organisation (CSO) has started thinking about the requirement of having a regular index of service production in line with that of industrial production. This makes sense as services form the bulk of the economic output in India similar to any developed economy and services is also the fastest growing sector in India. But CSO is wrong when it wants to confine such an index to railways and air transport services alone. Services also include in addition to the above two sectors, hotels, trade, communication, restaurants, insurance, banking, business services, real estate, journalism, coaching, education and many other sectors. An index that caters to only a part of the vast services sector makes no sense.

Recovery in November is real or a false signal?

There is no need for stock market investors to pay service taxes on late payment fees made to the stock brokers provided such late payment is shown in separate account. In November, services sector expanded on new orders. HSBC India Composite Purchasing Managers’ Index rose from 50 in October to 52.3 in November. This is a good news in the midst of a slowdown in Indian economy and drop in industrial production. In October, the services sector contracted for the second straight month as new business grew at a weakest pace. In fact services sector touched an all time low in October in the last two years. Whether the recovery in November is real or a false signal will be revealed only in the coming months.

Stock market investors should be taxed

There is an opposition to service tax being extended to stock market investment. Analysts oppose this move as they say that stock market investment will drop. But I have a different opinion on this count. Poor people and lower strata of society are not the stock market investors in any country in the world. Only upper middle class and rich people enter stock markets with their surplus funds. Therefore to tax them is not only correct, but it is fair also. The amount of tax that an investor pays is negligible compared to the total amount of investment he or she makes in the market. Across the world, services sector growth has crashed. In August, India Services PMI fell to 53.8. China’s figures were 50.6. The drop in the Services PMI was due to new orders component showing lackadaisical performance.

Service tax is good, but it may swell the Swiss bank accounts of politicians

The government of India is considering levying service tax on healthcare and rail tickets in the coming budget. The government is also planning to extent service tax net to other sectors like capitation fee, donation in educational institutions, services of companies, marriage hall hiring fee, rent on vacant land on non-farm use, real estate, construction and many other sectors. As services tax in many sectors is imposed or widened, the government will get a good collection in the form of tax kitty. But as long as corrupt politicians rule the nation, the vast tax collection will be siphoned off by the politicians to swell their Swiss bank accounts and not used for the welfare of the people of India. In other words, the service tax enhancement will swell the Swiss bank accounts of the Indian politicians and bureaucrats.

Not paying service tax need not be a tax evasion

Very soon, big exporters of India can look forward to getting fast refund of the service tax paid by them in excess through electronic refunding. The government is also putting the service tax evaders under scanner. The government is also preparing ground for a TDS (Tax Deduction at Source) on Services. CBEC proposal will primarily impact on B2B service providers including IT majors like Infosys, TCS, Wipro, BPO and other consultancy services. There are more than 1.4 million registered service providers in India. Only 0.6 million out of them paid taxes. In the last two years, there has been an estimated 70% evasion of service tax. But we cannot say that those who do not pay service tax are all evaders. For example if a coaching centre is receiving an income of less than Rs.10 lakhs per annum, legally it need not pay any service tax.

India ranks 10th in the world in Service export

India ranks 10th in the Services export in the world, according to a WTO report. Central Board of Excise & Customs (CBEC) has provided some relief to the service sector by clarifying that the issue of invoices will hereafter be subject to the service taker certifying completion of services. But the CBEC refused to change the 14-day norm even after hectic lobbying by the advertising industry. Norms for point of taxation has been simplified to provide relief to the service providers.

Hospital bills will further shoot up

One area the government can increase its revenue is to levy sizeable tax on cricket matches, cricket players, fan tickets, cricket board, television channels showing cricket matches live and advertisers who advertise their product in cricket stadia and TV. The government is reviewing service tax collection on accrual basis. Many industry associations have called for maintaining status quo in this regard. In its 2011-12 Budget, the Finance Minister announced a shift in collection of service tax from receipt basis to an accrual basis with effect from April 1. The service tax levied on private hospitals will impact aged people further and shoot up the cost of hospital bills further.

Manufacturing and agriculture are equally important

India is 2nd fastest emerging country after China. Services sector playa s crucial role in its development. Therefore all incentives should be given for development of services sector. But at the same time it should not be forgotten that services sector alone cannot take the economic growth forward. For this manufacturing and agriculture sector should also contribute sizeably. Apart from this the ruling party should have honest people who do not loot people’s money and enrich their Swiss bank accounts.

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