The Case for Service Production Index

The services sector in India lacks an exclusive index, just for them, to measure its production.
This has caught the government of India's eye, and they are working on creating it for the
services sector. The government took recommendations from the technical advisory committee
(TAC), headed by C P Chandrasekhar, and initiated the creation process from transport sectors
like railways, air transport, postal services, banking, and telecommunication. The ministry of
statistics and programme implementation (MOSPI), recently came up with an index for
measuring the social sectors like health and education to create a service production index in
the lines of the Index of Industrial Production (IIP).

Peculiarity of Services Production

Services sector encompasses both market and non-market services and refers to
economic activities done by:
Wholesale and retail trade;
Transport and repair of transport vehicles;
personal and household goods;
hotels and restaurants;
storage and communications;
financial intermediation;

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 real estate, renting and associated business activities;
public administration and defence;
social security and social work;
education and health;
other community, social and personal activities;
To quantitate services production is unlike quantitating goods production:
1)Goods production is tactile while services are intangible and thus, there are no
ownership rights over services.
2)Services come into existence only when a client is demanding for it to be
carried out.

Why to develop index for service sector?

In 2014-15, this sprightly sector of the Indian economy contributed almost 52% to
the country's GDP. With the dawn of new and modern technologies, services
have an even more vital role to play and have a more significant share in the total
economic part. Manufacturers have expanded many of their routine services,
which has led to the dependence of all sectors on services increasing
multifariously. This has resulted in the growth of acknowledgment that index of
industrial production (IIP) alone does not suffice to assess the entire economy's
performance. Therefore, IIP along with a similar index for the services sector
should be established as the performance analyzer to have a thorough
evaluation of the Indian economy.

Why there is no index for services sector?

Every country has a different way of analyzing the services sector, but the
indicators which help in doing so, are insufficient.This reason poses a
considerable amount of difficulty as because of it, service indicators are
way less comparable between the countries.
No international guideline is provided for the establishment of an exclusive
index, just for the services sector.
Services belong to almost every constituent of economic activities, and
thus, the collection of necessary information is a strenuous task. The
inherent nature of the services sector itself doesn't aid in making things
any better. It can be easily seen in the case of many small and medium-

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 sized establishments that enter and exit the service market almost
incessantly.
Many non-service establishments also are known to provide services as
the secondary activity of manufacturing, which makes it challenging to
know the relevant information about them.

What should be the components of the exclusive services index?

Services sector index should be capable of assessing the changes in the volume
of their output over a period, and this index should be the weighted average of
the total output of the industries of the service sector. Only the products, be it
goods or services, that genuinely contributed to the services sector should be
included in its gross output. The products that are not major to the industries
might also be considered.
A more thorough services sector index is advised which should be able to be
further classified into two sub-indexes: 1)Market Services Production and 2) Non-
market Services Production. With the problematic availability and to add to it,
high complexity of data retrieval in this sector, the best way to approach it would
be to use the already existing data related to specific individual services. For
example, retail and wholesale trade can be encapsulated as one component to
form the index.

Global Practice

Many OECD Member countries are making vigorous attempts to assess their
services sector. For example, the United Kingdom (UK) had carried out tests with
its monthly index of services (IoS). The Republic of Korea (Korea), used
Services Activity Index (SAI) in the late 1980s and is now making significant
efforts to upgrade it. The US introduced a new quarterly services survey. The
Statistical Office of the European Communities, Eurostat requested the member
states of European Union (EU) to gather information, on a daily basis, related to
different services. Canada has started to enhance the collection of its services
data to improve the quality of its monthly GDP.

Constraints in Indian context

1. Lack of adequately dependable data to compile the services sector's index.

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 2. Sectors like Health still need to recognize its indicators. For example, the
education sector has indicators like teacher-student ratio and gross
enrolment ratio.
3. Base years are not feasibly identified due to the scarcity of data.

Conclusion

India's GDP is massively contributed by Services, and therefore, it is of utmost

importance to devise services sector's index to carry out a full assessment India's
economy.

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