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India’s new service-sector surveys mark a pivotal step toward evidence-based policymaking and a more productive, equitable economy
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This is the first part of a two-part series on India’s data evolution.
Data deficiency often impedes efficient policymaking, especially in large and heterogeneous economies such asIndia. The poor availability and quality of Indian socioeconomic data have long been flagged as barriers to timely and quality research, making policy design an arduous task. While data collection is an expensive exercise in a large economy, with substantial survey costs, it cannot excuse outdated data architecture. Recognising this, the Indian government, through the Ministry of Statistics and Programme Implementation (MoSPI), has recently taken commendable steps t to modernise its data systems.
Two-third of the market produces only about 1 percent of value added while the top 3 percent generates 70 percent of the value.
From better interfaces to launching new surveys and data labs, MoSPI’s interventions mark a notable shift towards a more transparent and responsive statistical architecture. The quarterly labour surveys and the reintroduction of the consumption expenditure surveys add to the public discourse and facilitate informed policymaking. Recently, the government has introduced two new surveys: the Pilot Study on Annual Survey of Service Sector Enterprises (ASSSE) and the Forward-Looking Survey on Private Sector Capex Investment Intentions (PSCII). This two-part series discusses how these two surveys fill critical data gaps and deliver crucial inferences for policymakers.
The services sector has been the major growth driver in India since the 1991 reforms, accounting for nearly half of the Gross Domestic Product (GDP). The service sector is also a major employer, generating over 40 percent of Indian jobs. Until recently, there was no comprehensive database on India’s service sector. While data on the unincorporated services sector was available from the Annual Survey of Unincorporated Sector Enterprises (ASUSE), it failed to capture the entire sector. Recognising this gap, the National Statistics Office (NSO) has introduced the Pilot Study on Annual Survey of Service Sector Enterprises (ASSSE), which will look at the business characteristics of the incorporated service sector firms. This timely move enables granular study and analysis of the sector and aids strategic policymaking.
Government skilling initiatives in service MSMEs could spur productivity through higher skills, raising value added and in turn, the relative wages.
The pilot study was conducted in two phases before launching a full survey一the first, to verify and establish an appropriate sample frame; the second, to collect key statistics on firm attributes. The Goods and Services Tax Network (GSTN) served as a sample frame to conduct this survey on incorporated service sector enterprises. Phase I surveyed 10,005 enterprises, of which 5,020 enterprises were selected for Phase II. Amongst these, only 4,086 enterprises were operational. While most non-farm, non-manufacturing services were included, some activities like finance/insurance, public administration and defence, etc. were excluded. However, given the massive size of the service sector一nearly 6.85 lakh enterprises一the sample size of 5,020 is insignificant and is thus intended to be only indicative of broader characteristics.
At the national level, around 83 percent of service enterprises are private limited companies, and over 29 percent of firms operate across multiple states or union territories. This implies that one-third of these firms are subject to differing state-specific regulations and bear varying costs for running the same business,thus highlighting the need for a uniform pan-India business regulatory framework. Since trade and commerce fall under the State list, it is their prerogative to design business-conducive frameworks. While initiatives such as the Jan Vishwas Act, 2023, enhance ease of doing business, robust centre-state collaboration is imperative to boost all-India service sector performance.
In terms of size, the distribution is skewed towards the smaller firms, with almost two-thirds of them generating output less than INR 100 million. On the other hand, less than 3 percent have output exceeding INR 5 billion. While this might not be the correct sectoral representation due to sampling bias, the value-added shares reveal an interesting attribute. Two-thirds of the market produces only about 1 percent of value added, while the top 3 percent generates 70 percent of the value, revealing the productivity chasm. This uneven distribution holds across the service industries, i.e., trade, construction, and other services. Another striking feature is that the larger firms absorb a relatively lower share of input and produce more output, implying some sort of economies of scale. However, this can only be verified when the full-fledged surveys are launched.
Table 1: Percentage share of economic indicators by different size classes of output (2022-23)
Source: ASSSE
The ASSSE also collected data on employment and wage bills. As Table 2 shows, small firms employ over 9 percent of the workers, while the large firms employ about 37 percent. This is a more definitive indicator of economies of scale一larger enterprises generate 70 percent of the value added with only 37 percent of the labour power. Moreover, the large firms also pay a greater share of wages, which is in line with neoclassical economic theory. Higher productivity of labour at these firms allows them to bargain for a higher wage. This also raises the question about the skill differential across the service industries.
Table 2: Percentage share of employment indicators by different size classes of output (2022-23)
Source: ASSSE
Across the three service industries, there is a productivity differential between the small and large firms. Besides the trade industry, this added productivity is also rewarded with a higher wage. This underscores the need for further capital investment in the sector, not just to boost sectoral productivity but also to narrow wage disparities. Moreover, the existence of a skill premium is corroborated by the fact that relative wages are highest in the other services sector, which includes all skill-heavy services like information technology, real estate, administrative, etc. Thus, even within the services sector, there is considerable labour heterogeneity and returns to skill exist.
The heavy concentration of firms in the smaller size segment implies there are no significant entry barriers and disproportionate costs associated with small-scale operations.
The varied nature of firm size is an indicator of a healthy sector. The heavy concentration of firms in the smaller size segment implies there are no significant entry barriers and disproportionate costs associated with small-scale operations. However, these smaller firms do operate with a limited quantity of capital, such asland, building, machinery, and technological infrastructure. Capital deepening is a requisite to enhance these firms’ productivity by unlocking labour potential and allowing factor substitution. This, in turn, will foster a more balanced market structure with a higher median level of value added.
The ASSSE, along with the ASUSE and Annual Survey of Industries (ASI), can now provide a more granular and detailed picture of the non-agricultural sector. This will not only benefit industrial policy but will also shape developmental priorities. For instance, the existence of the skill premium in the services sector will draw in skilled talent, but the relatively lower wages in small firms could impede that flow. Government skilling initiatives in service MSMEs could spur productivity through higher skills, raising value added and, in turn, the relative wages. This would initiate the cycle for attracting skilled workers to even smaller enterprises. To facilitate these changes, quality data collection and timely data dissemination should remain a top priority for the government.
Arya Roy Bardhan is a Research Assistant at the Centre for New Economic Diplomacy, Observer Research Foundation.
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Arya Roy Bardhan is a Research Assistant at the Centre for New Economic Diplomacy, Observer Research Foundation. His research interests lie in the fields of ...
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