1. Prologue
  2. Service sector Definition?
  3. FDI in Multibrand Retail Trading
    1. FIPB
    2. FDI is not permitted in
  4. Tourism
  5. UNWTO report
  6. Indian Tourism challenges:
  7. Medical Visa?
  8. Surrogacy and medical visa
  9. R&D Services
  10. Global Innovation index
  11. Legal Services
  12. Challenges: legal profession
  13. FDI in legal services
    1. Bar Council of India
    2. LPO
    3. Free legal aid to Poor
    4. Legal Services Authorities Act ‘1987
    5. NALSA
  14. Accounting and Audit Services
  15. Accountancy: challenges
  16. Mock Questions


Economic Survey ch10 deals with service Sector. I’ve further divided into 5 parts (to include relevant stuff from India 2013 Yearbook and other sources)

  1. Intro to services, FDI in retail, tourism, legal services, accounting services
  2. Postal
  3. telecom and IT
  4. shipping, aviation and highways
  5. railways (including Railways budget)

Service sector Definition?

Services sector covers a wide array of activities for example

Complex Telecom, BPO, satellite mapping
Simple Barber, carpenter, plumber
Requiring heavy capital investment Aviation, shipping
Labor intensive Tourism
Infrastructure related Road, railways, ports, telecom
Social sector Education, health, sanitation
  • Thus, there is no one-size–fits- all definition of services. There is always some overlapping and some borderline inclusions.

Services as per National Accounts classification

  • trade, hotels, and restaurants;
  • transport, storage, and communication;
  • community, social, and personal services
  • financing, insurance, real estate, and business services*;
  • *Business services further includes: computer-related services, R&D, accounting services and legal services, and renting of machinery ( in order of their share in GDP.)

Services as per WTO and RBI’s classification

  • ^Above services (as per National accounts classification) + construction.

FDI in Multibrand Retail Trading

  • Brazil tops the ranks with retail sales accounting for 70 per cent of Brazil’s consumer spending, followed by Chile, China, and Uruguay
  • retail market contributes 14 per cent of India’s GDP but organized retail penetration remains low, indicating room for growth.

With FDI in multi-brand retail,

  1. agricultural products could get vastly improved access to markets
  2. at present the retail sector is largely unorganized and has low tax compliance. Hence with the growth of modern retail trade, government’s tax collection could also increase.

FDI in retail: Timeline

2006 51% FDI in Single brand retail
Jan 2012 100% FDI in Single brand retail
Sept 2012 51% FDI in Multibrand Retail, with conditions.

Conditions on FDI in Multibrand retail

  • Government will have the first right to procurement of agricultural products
  • State governments/UTs would be free to take their own decisions in regard to implementation of the policy as retail trade is a state subject.
  • Foreign investor must bring at least US $ 100 million investment.
  • He must invest 50% of FDI in backend infrastructure.
  • He must procure at least 30 per cent of manufactured/ processed products from Indian ‘small industries’. For this purpose Indian Small industries= those which have a total investment in plant and machinery not exceeding US $ 1million.
  • Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per Census 2011 and may also cover an area of 10 km around the municipal/urban agglomeration limits of such cities.

States/UT agreed to Multibrand retail?

  • Eleven states/UTs, viz. Andhra Pradesh, Assam, Delhi, Haryana, Jammu and Kashmir, Maharashtra, Manipur, Rajasthan, Uttarakhand, Daman and Diu, and Dadra and Nagar Haveli have agreed to permit establishment of retail outlets.


  • Foreign Investment Promotion Board. Looks after FDI approvals.
  • Made up of following Secretaries to the Government of India
Secretary under ministry
  1. Dept. of Economic affairs (CHAIRMAN)
  1. Dept. of Industrial policy and promotion
Commerce and Industry
  1. Dept. of Commerce
  1. Economic Relations
External affairs
  1. Ministry of Overseas affairs

FDI is not permitted in

  1. Lottery, Betting, Gambling, Casinos.
  2. Chit funds and Nidhi company
  3. Real Estate, Farm Houses
  4. tobacco products
  5. areas reserved for public sector: 1) Atomic Energy and  2) Railway Transport (other than Mass Rapid Transport Systems).
  6. Trading in Transferable Development Rights (TDRs)

^as per DIPP circular, plus

  1. Legal services
  2. Accountancy services.

^ as per Economic Survey ch10.


UNWTO report

  • United Nations World Tourism Organization (UNWTO), HQ: Madrid, Spain
  • Its report: Tourism Highlights 2012 edition shows that
  • Tourism is It is one of the largest generators of employment across the world
  • women account for 70 per cent of the workforce in the travel and tourism industry
  • Hence it generates more inclusive growth than other sectors.
  • International tourist arrivals surpassed the 1 billion mark for the first time in history in 2012,

Indian Tourism challenges:

  1. Our tourism industry to overcome the ‘seasonality’ aspect and promote India as a 365 days destination.
  2. multiple taxes on hospitality- and tourism-related activities = tourism product expensive in the form of high hotel rates and high fares;
  3. State governments impose luxury tax on hotels= high price and low occupancy in hotels.
  4. Luxury tax on hotels in some states is very high and varies from 5 per cent to 12.5 per cent and in some cases it is applicable on printed room rates whereas the actual hotel rates offered to guests are much lower
  5. Tourism infrastructure needs immediate attention. Solution: there is plenty of scope for public private partnerships (PPP). User fees could be levied if monuments or tourist sites are developed by the private sector or through PPP.
  6. Both J/K and North East have huge tourism potential, but it remains untapped thanks to terrorism and extremism.
  7. Negative publicity:
    1. Often developed countries like US, UK issue “travel advisory” to their citizen, advising them not to visit India for some fear of terrorist attack / disease outbreak etc.
    2. Incidents of rape on foreign tourists and Indian Women, the lethargy of our law enforcement agencies.
    3. Incidents of malaria and dengue, government’s inability to provide even basic sanitation in tourist destinations.

All of above factors lead to negative profit after tax (PAT) for hotel sector (as per Centre for Monitoring Indian Economy’s (CMIE).

Medical Visa?

  • This is a new category of Visa.
  • Introduced to attract foreign tourists coming to India for medical treatment.

Surrogacy and medical visa

  • Issue related to surrogacy already covered in earlier article: click me

#1: only medical visa for surrogacy

  • foreign nationals who are expecting or have had a child through a surrogate mother in India, must apply for Medical visa (and not tourist visa).
  • These (medical visas) will be issued only after furnishing the certificates from respective surrogacy clinics.

#2: gays and unmarried couples= not welcome for surrogacy

  • Gay couples or singles/ unmarried / live-in couples will not be given visa to enter India for surrogacy.
  • Only Foreign man and woman are duly married and the marriage should have sustained at least for two years. (as per Home ministry’s circular)

R&D Services

  • Foreign investments come in R&D sector of a nation if there is
    • knowledge-oriented manpower is available
    • Government’s regulatory environment Is favorable
    • Government provides taxation benefits
  • Government funding of R&D accounts for two-thirds of the total funding.
  • Government support for R&D in India focuses on classical objectives for public R&D funding such as nuclear energy, defence, space, health, and agriculture

Global Innovation index

  • Prepared by World Intellectual Property Organization (WIPO) and the Institut Européen d’Administration des Affaires (INSEAD)
  • India is ranked 64th in the global innovation index (GII) in 2012
  • Research done by Indian institutions is not percolating down for commercial usage.
  • India’s capacity for innovation has been lower than that of other BRICS countries except Russia.
  • University–industry collaboration on R&D is very low in India, as compared to other BRICS nations except Russia
  • Though India scores better than all BRICS nations on availability of scientists and engineers, as compared to the population.
  • India has one of the lowest ratios of scientists and engineers per million people.
  • Part of this shortage is attributed to the lack of quality higher education institutions.
  • The Report estimates that India will have 25 per cent shortage of engineers in the country by 2025

Legal Services

India’s potential

  • 1.2 million registered advocates,
  • around 950 law schools,
  • 4 to 5 lakh law students across the country.
  • Every year, approximately 60,000–70,000 law graduates join the legal profession in India.

Challenges: legal profession

FDI in legal services

  • FDI is not permitted in legal services.
  • In India the practice of law is governed by the Advocates Act of 1961.
  • Under this Act, foreign law firms cannot practice law in India.
  • International law firms cannot advertise and open offices in India.
  • Foreigners can neither be appointed as partners in Indian legal firms, they cannot sign legal documents and represent clients in India.
  • Indian advocates cannot to enter into profit-sharing arrangements with persons other than Indian advocates.

Advocates in India

  • To practice law, one has to get registered in the respective state bar council.
  • No person can enroll as an advocate on more than one state bar council.
  • State bar council can disciplinary action against the advocate for professional misconduct. He can appeal against it to Bar council of India and finally to Supreme Court.
  • There are two classes of advocates
  1. Senior advocate
If SC/HC is in opinion that given advocate deserves such distinction, because of his knowledge, virtue or standing. + his own consent.
  1. Other advocates
Those who’re yet to become “senior”

Bar Council of India

  • Statutory body under Advocates Act 1961 (by the way, Law Commission is non-statutory).


  • Bar Council of India consists of
    • members elected from each State Bar Council
    • Ex officio members (Attorney General of India and the Solicitor General of India)
  • Chairman and VC (elected amongst its members)


  • Professional conduct and etiquette for advocates.
  • Give policy direction to state bar councils
  • Lay down standards for legal education in India
  • Giving recognition to Law courses taught in universities
  • Promote and support law reform. (The Bar Council of India is opposed to entry of foreign lawyers/law firms in any manner.)

Ranga’s suggestion on legal services

  • India has benefited from opening up to foreign competition in many other areas
  • Indian lawyers are offering services across the world via legal process outsourcing (LPO)
  • Therefore, India should explore allowing foreign law firms greater access to the Indian market


  • Legal process outsourcing. Example drafting and reviewing legal documents, making applications for patents, and various paralegal and administrative tasks.
  • global financial crisis has increased recession-related litigations (e.g. loan recovery, contract disputes) in developed countries
  • Global financial crisis has also encouraged companies in 1st world, to outsource their legal work to India (given the low cost of legal professionals).

India’s LPO destination

Following factors have favored India as an LPO destination

  • geographical advantage (Indian time zone is distinct from that of the USA and Britain, allowing it to offer legal services round the clock)
  • language proficiency (emphasis on English education),
  • Indian legal system (which is inspired by the legal systems of the USA and UK). Therefore Indian legal professionals can do the outsourcing assignments given to them.
  • Robust IT sector to provide the necessary e-infrastructure for LPO work

Free legal aid to Poor

Funda.right 14
  • Equality before law and equal protection of laws
  • available to both citizen and friendly aliens)
  • Arrested / detained person has right to consult and be defended by a lawyer
  • Not available to alien or those under preventive detention.
  • Free legal aid to poor and weaker sections of society
  • Justice for all

Legal Services Authorities Act ‘1987

  • Free legal aid
  • statutory status to Lok Adalats
  • NALSA (National Legal services authority) to implement the provisions of the Act.


  • National Legal Services Authority (NALSA)
  • Provides free Legal Services to the poors and weaker section of society
  • organize Lok Adalats for amicable settlement of disputes.
  • Give direction to State Legal Services Authorities (I wonder if they’re called “SALSA” hahaha)
  • Runs “legal aid counsel” scheme to provide assistance to under trial prisoners who cannot get a lawyer.
  • Runs legal literacy program to provide basic and essential legal knowledge to vulnerable groups (runs Para-Legal Volunteers (PLVs) project)
  • Runs a newsletter “Nyaya Deep”.
  • Chief Justice of India is the Patron-in-Chief of NALSA.


  • Statutory body under Legal Services Authorities Act, 1987.
  • Lok Adalat is a forum where the disputes/cases pending in the court of law or at pre-litigation stage are settled/compromised amicably.
  • Lok Adalat’s award is final and binding on all parties and no appeal lies before any court against it.

Accounting and Audit Services

  • accountancy service providers in India are self-regulated through a combination of statutory bodies like the
    • Institute of Chartered Accountants of India (ICAI),
    • Institute of Cost and Work Accountants of India (ICWA)
    • Institute of Company Secretaries of India (ICSI).
  • Accounting, auditing, and book-keeping services are a part of ‘business services’
  • accounting profession in India is highly developed with the potential to play a greater role internationally.
  • As of Dec 2012, there are more than 50,000 active CA firms.

Accountancy: challenges

  • FDI is not allowed in this sector
  • foreign service providers are not allowed to undertake statutory audit of companies as per the provisions of the laws in India.
  • Indian regulations do not permit exceeding 20 professionals under one firm
  • number of statutory audits of companies per partner is restricted to 20.
  • These regulations need to be relaxed and FDI should be allowed to facilitate tie-ups and penetrate foreign markets- particularly US and EU.

Mock Questions

  1. As per the RBI definition, which of the following is a “service sector” activity?
    1. Transport
    2. Real Estate
    3. Construction
    4. All of above
  2. Which of the following ministries are represented in FIPB?
    1. External affairs
    2. Overseas affairs
    3. Both
    4. None
  3. Chairman of FIPB is
    1. FM
    2. PM
    3. Cabinet Secretary
    4. Secretary, Dept of Economic Affairs
  4. FDI is permitted in
    1. Chit Funds
    2. Nidhi Company
    3. Both
    4. None
  5. FDI is not permitted in
    1. Real Estate business
    2. Atomic Energy
    3. Both
    4. None
  6. Correct Statements
    1. Luxury tax falls under the purview of State government.
    2. Taxes on betting and gambling fall under Concurrent list
    3. both
    4. none
  7. Correct statements
    1. Government of India introduced Medical Visa for Indian patients seeking hospital treatment abroad.
    2. Medical Visa is mandatory for foreigners seeking surrogate mothers in India.
    3. Both
    4. None
  8. Who among the following cannot get Medical Visa for Surrogacy in India?
    1. Gay couples
    2. Live-in partners
    3. Couples who have been married for less than two years
    4. All of Above
  9. which of the following organization is directly associated with Global innovation index?
    1. APEC
    2. WTO
    3. World Bank
    4. WIPO
  10. As per the Global Innovation index 2012,
    1. University-industrial collaboration is lowest in India, among the BRIC nations.
    2. Given the various initiatives of Government and demographic dividend, the Engineer-shortage in India will be solved by 2025.
    3. Both
    4. None
  11. Correct Statements
    1. A Foreign law firm cannot practice law in India
    2. An Indian Advocate can register in the Bar councils of more than one state.
    3. Both
    4. None
  12. which of the following is a non-statutory organization?
    1. Bar Council
    2. Press council
    3. Law Commission
    4. None of Above
  13. Who among the following is an Ex officio member in Bar council of India?
    1. Attorney General of India
    2. Solicitor General of India
    3. Both
    4. None
  14. Who lays down the standards for legal education in India?
    1. UGC
    2. AICTE
    3. Bar council
    4. None of above
  15. Which Article of our Constitution guarantees that an arrested person has right to be defended by a legal representative?
    1. 19
    2. 21
    3. 22
    4. none of above
  16. Correct statements about Lok Adalats
    1. they’re statutory bodies
    2. Either party can approach HC, if unsatisfied with Lok Adalat’s award.
    3. Both
    4. None
  17. Nyaya Deep is a newsletter run by
    1. Bar council of India
    2. Law ministry
    3. Supreme Court
    4. NALSA
  18. What is the function of National Legal Services Authority (NALSA)
    1. Take disciplinary action against erring judicial officers
    2. Take disciplinary action against lawyers for professional miscoduct.
    3. Grant permission to foreign firms that want to open offices in India
    4. none of above