Indian services sector sees 7.2% growth in Q1 FY25, led by real estate and E-commerce expansion

India's services sector continues its robust performance, recording a 7.2 per cent growth in Q1 FY25, as per the latest Monthly Economic Review for August 2024. This expansion is driven primarily by strong growth in real estate and the increasing digitalisation of the e-commerce sector, both of which have contributed significantly to the sector's overall momentum.

Real Estate Sector: Improved Transparency and Market Growth

One of the key factors behind the services sector's growth is the improvement in India's real estate market. The JLL Global Real Estate Transparency Index 2024 highlighted India as the top global improver, with its Tier-I cities entering the 'transparent' zone for the first time. Enhanced data coverage, streamlined regulations, and improved digitisation of land records have been pivotal in this achievement.

These developments have spurred increased institutional participation, with four listed Real Estate Investment Trusts (REITs) driving growth in commercial assets. Additionally, the adoption of standardised valuation processes and regulatory oversight by bodies like the Reserve Bank of India ( RBI ) and the Securities and Exchange Board of India ( SEBI ) have bolstered investor confidence in the sector. The growing transparency and regulatory framework have placed Indian real estate on the global map, attracting both domestic and foreign investment.

E-Commerce: Driving Digital Growth and Employment

The e-commerce sector continues to be a key driver of growth within the services sector, providing employment and enhancing consumer welfare. A recent study by the Pahle India Foundation revealed the widespread adoption of online shopping, with 85 per cent of consumers shopping online weekly. The rise of e-commerce has led to a 42 per cent increase in management positions among online sellers, highlighting the sector’s contribution to employment generation.

Digital tools are also playing an increasingly important role in the operations of e-commerce businesses. More than 58 per cent of online sellers now use digital marketing tools, while 54 per cent have adopted retail operations management software. These technological advancements have significantly improved sales and profitability for many businesses, with 50 per cent of sellers reporting increased sales.

Outlook for the Services Sector

The services sector’s growth trajectory remains positive, supported by robust demand in key areas like real estate and e-commerce. The increasing transparency in real estate and the ongoing digital transformation in the e-commerce industry are likely to continue driving the sector’s expansion in the coming quarters. Additionally, the rise in foreign tourism and digital transactions further adds to the optimism surrounding the sector’s future performance.