Introduction 

Service sector industries are those that provide intangible goods or services to consumers or businesses, such as education, health care, tourism, banking, and transportation. Service sector industries are also known as tertiary sector industries, as they are distinct from the primary sector (agriculture, mining, etc.) and the secondary sector (manufacturing, construction, etc.). Service sector industries are the largest and fastest-growing sector of the global economy, accounting for about 70% of the world’s gross domestic product (GDP) and 80% of the world’s employment in 2019. In this report, we will explore the market potential, government subsidies and incentives, marketing and sales, and investment required for service sector industries in India, with a focus on Andhra Pradesh and Telangana. 

Market Potential 

Global Market 

The global market for service sector industries is expected to grow at a compound annual growth rate (CAGR) of 5.4% from 2020 to 2027, reaching $63.8 trillion by 2027, according to a report by Grand View Research. The growth is driven by factors such as increasing urbanization, rising disposable income, technological innovation, and changing consumer preferences. Some of the key segments of the global service sector market are information and communication technology (ICT), health care, education, tourism, and financial services. The ICT segment is expected to dominate the market, owing to the rapid adoption of digital technologies and the growing demand for cloud computing, e-commerce, and cybersecurity services. The health care segment is expected to witness the highest growth, owing to the rising prevalence of chronic diseases, aging population, and increasing awareness and accessibility of health care services. The education segment is expected to benefit from the growing need for skilled and qualified workforce, the expansion of online and distance learning, and the emergence of new and innovative learning models. The tourism segment is expected to recover from the impact of the COVID-19 pandemic, as travel restrictions are eased and consumer confidence is restored. The financial services segment is expected to grow steadily, as the financial inclusion, digitalization, and diversification of the sector increase. 

Indian Market 

The Indian market for service sector industries is one of the most dynamic and diversified in the world, contributing to about 55% of the country’s GDP and 34% of its exports in 2019. The Indian service sector is expected to grow at a CAGR of 7.7% from 2020 to 2025, reaching $3.4 trillion by 2025, according to a report by India Brand Equity Foundation. The growth is driven by factors such as increasing digitalization, rising middle class, favorable government policies, and strong demand from domestic and international markets. Some of the key segments of the Indian service sector market are IT and IT-enabled services (ITeS), health care, education, tourism, and banking and insurance. The IT and ITeS segment is the largest and the most competitive in the market, accounting for about 45% of the service sector GDP and 55% of the service sector exports in 2019. The IT and ITeS segment is expected to grow at a CAGR of 8.5% from 2020 to 2025, reaching $350 billion by 2025, according to a report by NASSCOM. The growth is driven by factors such as the increasing demand for digital transformation, cloud computing, artificial intelligence, and data analytics services, the rising innovation and entrepreneurship in the sector, and the availability of a large and skilled talent pool. The health care segment is the second largest and the fastest growing in the market, accounting for about 10% of the service sector GDP and 5% of the service sector exports in 2019. The health care segment is expected to grow at a CAGR of 12% from 2020 to 2025, reaching $372 billion by 2025, according to a report by FICCI. The growth is driven by factors such as the increasing public and private expenditure on health care, the growing demand for quality and affordable health care services, the rising medical tourism and telemedicine opportunities, and the development of new and advanced health care technologies and infrastructure. The education segment is the third largest and one of the most promising in the market, accounting for about 8% of the service sector GDP and 4% of the service sector exports in 2019. The education segment is expected to grow at a CAGR of 10% from 2020 to 2025, reaching $180 billion by 2025, according to a report by KPMG. The growth is driven by factors such as the increasing population and literacy rate, the growing demand for quality and skill-based education, the expansion of online and distance education, and the reform and innovation of the education system and curriculum. The tourism segment is the fourth largest and one of the most affected by the COVID-19 pandemic, accounting for about 7% of the service sector GDP and 12% of the service sector exports in 2019. The tourism segment is expected to grow at a CAGR of 6.5% from 2020 to 2025, reaching $136 billion by 2025, according to a report by IBEF. The growth is driven by factors such as the recovery of the domestic and international travel demand, the promotion and development of various tourism products and destinations, the improvement of the tourism infrastructure and connectivity, and the enhancement of the safety and hygiene standards of the tourism sector. The banking and insurance segment is the fifth largest and one of the most stable in the market, accounting for about 6% of the service sector GDP and 3% of the service sector exports in 2019. The banking and insurance segment is expected to grow at a CAGR of 7% from 2020 to 2025, reaching $108 billion by 2025, according to a report by IBEF. The growth is driven by factors such as the increasing financial inclusion and literacy, the digitalization and innovation of the financial services, the diversification and expansion of the financial products and markets, and the strengthening of the regulatory and supervisory framework of the financial sector. 

Andhra Pradesh and Telangana Market 

The Andhra Pradesh and Telangana market for service sector industries is one of the most promising and emerging in India, owing to their strategic location, abundant resources, skilled workforce, and supportive government initiatives. The two states together accounted for about 10% of the country’s service sector GDP and 8% of its service sector employment in 2019. The Andhra Pradesh and Telangana service sector is expected to grow at a CAGR of 9.2% from 2020 to 2025, reaching $410 billion by 2025, according to a report by CRISIL. The growth is driven by factors such as increasing investment, infrastructure development, innovation, and entrepreneurship. Some of the key segments of the Andhra Pradesh and Telangana service sector market are IT and ITeS, health care, education, tourism, and logistics. The IT and ITeS segment is the largest and the most dominant in the market, accounting for about 50% of the service sector GDP and 70% of the service sector exports in 2019. The IT and ITeS segment is expected to grow at a CAGR of 10% from 2020 to 2025, reaching $200 billion by 2025, according to a report by CRISIL. The growth is driven by factors such as the presence of global IT giants and leading IT hubs, such as Hyderabad and Visakhapatnam, the development of new and specialized IT parks and clusters, such as the Hyderabad Pharma City and the Andhra Pradesh Aerospace and Defence Park, the availability of a large and talented IT workforce, and the support of the state governments in terms of policies, incentives, and infrastructure. The health care segment is the second largest and the fastest growing in the market, accounting for about 12% of the service sector GDP and 8% of the service sector exports in 2019. The health care segment is expected to grow at a CAGR of 15% from 2020 to 2025, reaching $50 billion by 2025, according to a report by CRISIL. The growth is driven by factors such as the increasing demand for quality and affordable health care services, the development of world-class health care facilities and infrastructure, such as the AIIMS in Andhra Pradesh and the Telangana Institute of Medical Sciences and Research, the emergence of medical tourism and telemedicine opportunities, and the support of the state governments in terms of policies, incentives, and infrastructure. The education segment is the third largest and one of the most promising in the market, accounting for about 10% of the service sector GDP and 6% of the service sector exports in 2019. The education segment is expected to grow at a CAGR of 12% from 2020 to 2025, reaching $40 billion by 2025, according to a report by CRISIL. The growth is driven by factors such as the increasing population and literacy rate, the growing demand for quality and skill-based education, the expansion of online and distance education, and the presence of renowned educational institutions and centers of excellence, such as the IITs, the IIMs, the ISB, and the IIITs. The tourism segment is the fourth largest and one of the most affected by the COVID-19 pandemic, accounting for about 8% of the service sector GDP and 10% of the service sector exports in 2019. The tourism segment is expected to grow at a CAGR of 8% from 2020 to 2025, reaching $30 billion by 2025, according to a report by CRISIL. The growth is driven by factors such as the recovery of the domestic and international travel demand, the promotion and development of various tourism products and destinations, such as the Charminar, the Golconda Fort, the Tirupati Temple, and the Araku Valley, the improvement of the tourism infrastructure and connectivity, and the enhancement of the safety and hygiene standards of the tourism sector. The logistics segment is the fifth largest and one of the most emerging in the market, accounting for about 6% of the service sector GDP and 4% of the service sector exports in 2019. The logistics segment is expected to grow at a CAGR of 10% from 2020 to 2025, reaching $25 billion by 2025, according to a report by CRISIL. The growth is driven by factors such as the increasing trade and commerce activities, the development of new and modern logistics hubs and corridors, such as the Hyderabad-Delhi Industrial Corridor and the Chennai-Bangalore Industrial Corridor, the integration of the logistics sector with the national and international transport networks, and the support of the state governments in terms of policies, incentives, and infrastructure. 

Government Subsidies and Incentives 

Government of India 

The Government of India provides various subsidies and incentives to service sector industries, especially to the micro, small, and medium enterprises (MSMEs), to promote their growth and competitiveness. Some of the major schemes and programs are: 

• The Service Exports from India Scheme (SEIS), which provides duty credit scrips ranging from 5% to 7% of the net foreign exchange earned by service exporters. The scrips can be used to pay customs duties on imported goods or services, or can be transferred or sold to other service exporters. The scheme covers 12 service sectors, such as IT, health care, education, tourism, and financial services. 
• The National Digital Communications Policy (NDCP), which aims to provide broadband access to all, create 4 million jobs, and attract $100 billion investment in the telecom sector by 2022. The policy provides various incentives, such as rationalization of taxes and levies, simplification of licensing and regulatory frameworks, promotion of innovation and research and development, and creation of a digital infrastructure fund. 
• The National Health Protection Scheme (NHPS), which provides health insurance coverage of up to Rs. 5 lakh per family per year to over 100 million poor and vulnerable households. The scheme covers secondary and tertiary care hospitalization expenses, and is implemented through a network of empaneled public and private health care providers. The scheme also provides incentives to the health care providers, such as increased reimbursement rates, quality accreditation, and performance-based payments. 
• The National Education Policy (NEP), which envisages a transformational and holistic reform of the education system, with an emphasis on quality, equity, and innovation. The policy provides various incentives, such as increased public spending on education, enhancement of teacher training and recruitment, promotion of online and digital education, establishment of multidisciplinary and autonomous institutions, and integration of vocational and skill-based education. 
• The Champion Services Sector Scheme (CSSS), which identifies 12 champion service sectors, such as IT, tourism, logistics, and financial services, and provides them with focused support and incentives. The scheme provides various incentives, such as development of infrastructure and common facilities, creation of regulatory and institutional mechanisms, facilitation of market access and exports, promotion of branding and marketing, and provision of skill development and training. 

Government of Andhra Pradesh 

The Government of Andhra Pradesh provides various subsidies and incentives to service sector industries, especially to the MSMEs, to promote their development and employment generation. Some of the major schemes and programs are: 

• The Andhra Pradesh Industrial Development Policy (APIDP), which provides incentives such as reimbursement of stamp duty, power subsidy, interest subsidy, and patent registration subsidy to eligible service sector units. The policy covers 10 service sectors, such as IT, health care, education, tourism, and logistics. 
• The Andhra Pradesh Innovation and Startup Policy (APISP), which provides incentives such as incubation support, seed funding, mentorship, and market access to innovative and scalable startups. The policy covers startups across all sectors, and provides special incentives for women, SC/ST, and rural entrepreneurs. 
• The Andhra Pradesh Tourism Policy (APTP), which provides incentives such as capital subsidy, land allotment, tax exemption, and marketing assistance to tourism projects. The policy covers various tourism segments, such as heritage, pilgrimage, adventure, wellness, and rural tourism. 
• The Andhra Pradesh IT Policy (APITP), which provides incentives such as exemption from building regulations, electricity duty, and registration fees to IT and ITeS units. The policy covers various IT segments, such as software development, business process outsourcing, animation and gaming, and cloud computing. 
• The Andhra Pradesh Health Care Policy (APHCP), which provides incentives such as land subsidy, interest subsidy, and tax exemption to health care units. The policy covers various health care segments, such as hospitals, diagnostic centers, medical colleges, and medical devices. 

Government of Telangana 

The Government of Telangana provides various subsidies and incentives to service sector industries, especially to the MSMEs, to promote their growth and innovation. Some of the major schemes and programs are: 

• The Telangana State Industrial Project Approval and Self-Certification System (TS-iPASS), which provides a single-window clearance system for all industrial and service sector projects, with a time-bound approval process and a self-certification mechanism. The system covers all the statutory clearances and approvals required for setting up and operating a service sector unit, such as land, power, water, environment, and labor. 
• The Telangana State Innovation Policy (TSIP), which provides incentives such as incubation support, seed funding, mentorship, and market access to innovative and disruptive startups. The policy covers startups across all sectors, and provides special incentives for women, SC/ST, and rural entrepreneurs. 
• The Telangana State Tourism Policy (TSTP), which provides incentives such as capital subsidy, land allotment, tax exemption, and marketing assistance to tourism projects. The policy covers various tourism segments, such as heritage, pilgrimage, adventure, wellness, and rural tourism. 
• The Telangana State IT Policy (TSITP), which provides incentives such as exemption from building regulations, electricity duty, and registration fees to IT and ITeS units. The policy covers various IT segments, such as software development, business process outsourcing, animation and gaming, and cloud computing. 
• The Telangana State Health Care Policy (TSHCP), which provides incentives such as land subsidy, interest subsidy, and tax exemption to health care units. The policy covers various health care segments, such as hospitals, diagnostic centers, medical colleges, and medical devices. 

Marketing and Sales 

Marketing and sales are essential functions for service sector industries, as they help in creating awareness, generating demand, and retaining customers. Marketing and sales strategies for service sector industries depend on various factors, such as the nature, quality, and value of the service, the target market, the competitive landscape, and the customer feedback. Some of the common marketing and sales techniques for service sector industries are: 

• Creating a strong brand identity and positioning, which helps in differentiating the service from the competitors and conveying the unique value proposition to the customers. This can be achieved by developing a clear and consistent brand name, logo, slogan, and message, and communicating them through various channels and platforms. 
• Developing a comprehensive and integrated marketing mix, which consists of the four Ps: product, price, place, and promotion. The product refers to the service offering and its features, benefits, and quality. The price refers to the pricing strategy and the value perception of the customers. The place refers to the distribution channels and the location of the service delivery. The promotion refers to the communication and advertising methods and the message. The marketing mix should be aligned with the brand identity and positioning, and should be tailored to the target market and the customer segments. 
• Building a loyal and satisfied customer base, which helps in creating a positive word-of-mouth, generating referrals, and increasing retention and repeat purchases. This can be achieved by providing excellent customer service, delivering consistent and reliable service quality, and offering incentives and rewards to the customers. Customer service can be enhanced by providing timely and courteous responses, resolving complaints and issues, and soliciting feedback and suggestions. Service quality can be improved by adopting quality standards and certifications, conducting quality audits and assessments, and implementing quality improvement and control measures. Incentives and rewards can be offered by providing discounts, coupons, loyalty programs, and referrals schemes. 
• Leveraging the digital and social media platforms, which help in reaching a wider and more diverse audience, engaging with the customers, and enhancing the online presence and reputation of the service. This can be achieved by creating a user-friendly and informative website, maintaining an active and interactive social media profile, and using online tools and analytics to measure and optimize the performance. Website can be optimized by providing relevant and updated content, easy navigation, and secure payment options. Social media can be utilized by posting engaging and informative content, responding to comments and queries, and creating online communities and groups. Online tools and analytics can be used by tracking and analyzing the website and social media traffic, conversions, and feedback, and using them to improve the marketing and sales strategies. 

Investment Required 

The investment required for service sector industries varies depending on the type, scale, and scope of the service, as well as the location, infrastructure, and technology involved. However, as a general estimate, the following table shows the approximate investment required for different production scales (in terms of service output per hour) for some common service sector industries in India, as of 2020.