'Service sector: India's engine of growth'

CHENNAI, NOV. 27. ``The service sector will continue to be India's engine of growth in the coming years. It now accounts for more than 50 per cent of India's GDP. The appreciable growth in this sector has been achieved not at the expense of the manufacturing sector but because the service sector has grown at a faster pace. This augers well for the economy as the lack of physical infrastructure poses a constraint for the growth of the manufacturing sector,'' FITCH Ratings says in its monthly research report.

FITCH Ratings India, formerly Duff & Phelps, has released its monthly `Economic Update', a research report highlighting and analysing the performance of different industries including infrastructure, the implications of growth in service sector and the Reserve Bank of India norms for classifying bank investments.

The agency welcomes the opening of India's insurance sector to private participation, with the granting of the first set of licences. This was preceded by the decision to allow 26 per cent foreign equity participation in this sector, according to a press release.

According to the report, six infrastructure industries recorded slower growth during the first half of the current fiscal, confirming a slowdown in the economic activity. The automobile sector continues to be at the receiving end of the slowdown, with sales dipping in October, a festive month. However, the steel sector received a minor boost as domestic demand showed some signs of picking up during the first half.

The recent RBI guidelines to classify and value bank investments, which has become effective from September 30 are likely to enable the banks to show better half-year profits, FITCH feels.

With FIIs being a major player in Indian bourses, the decision allowing them to invest in exchange-traded index futures in recognised Indian stock exchanges is likely to result in lowering of volatility in the Indian market, says the rating agency.

It points out that in continuation of the reform process, the Government de-reserved the garment sector from SSIs and allowed 100 per cent FDI in this sector in an effort to boost textile exports. It also cleared the direct to home (DTH) broadcasting services policy and allowed 49 per cent FDI. The DTH operators can now offer multichannel programmes direct to the subscribers.