Services soar in new company registrations in FY24

Construction sector saw a more than 15% jump with 11,560 new registrations in FY24. (Photo: Bloomberg)
Construction sector saw a more than 15% jump with 11,560 new registrations in FY24. (Photo: Bloomberg)

Summary

  • Experts said that while the central government has been encouraging large-scale manufacturing under the Atmanirbhar Bharat initiative, the services sector still contributes over half of India’s economic output

NEW DELHI : Services sector raced ahead in company registrations in the just-ended financial year, reflecting the rapid formalization of a segment with few entry barriers. While services accounted for 71% of the 185,300-plus new companies registered in FY24, industry made up less than a fourth, while the farm sector accounted for about 6%.

The latest figures for the services sector registrations are a sharp increase from 63% in FY21 and FY22 and 65% in FY23, corporate affairs ministry data showed. Within the services sector, community, personal and social services clocked the sharpest growth with 49,241 new registrations, nearly double the levels in the preceding year.

Experts said that while the central government has been encouraging large-scale manufacturing under the Atmanirbhar Bharat initiative, the services sector still contributes over half of India’s economic output.

“This, coupled with the fact that services sector has the lowest barrier to entry compared to industry or agriculture, we have witnessed an uptick in new company registrations. Another driving factor for increased organic interest in the services sector is the increasing share of digitally delivered services, which has witnessed exponential growth in global exports," said Anjali Malhotra, partner-regulatory at tax and advisory firm Nangia Andersen India.

Also read: Services sector, it’s time for a breather

The increased integration of India in the global services supply chain and a healthy pool of experienced professionals setting up startups, supported by government schemes, have also helped lift company registrations in the services sector, said Malhotra added.

Experts also consider rising compliance in Goods and Service Tax (GST) having an effect on company registrations. “The formalization of the economy has picked up in recent years including in the services sector, which is evident in the increase in GST registrations. Service providers crossing the sales threshold of 20 lakh need GST registrations, and this compliance effect may be getting mirrored in the company registrations as well. Besides, starting a venture in the manufacturing sector would not be at the same level of ease as in the services sector," said Suranjali Tandon, associate professor at National Institute of Public Finance and Policy (NIPFP).

In the case of trade in goods, the GST registration threshold is 40 lakh. GST registrations have grown from about 14 million in March 2023 to nearly 14.5 million in February 2024, showed data from GST Council.

The trading sector saw a 42% jump in new registrations with over 29,000 entities taking birth in FY24. Construction sector saw a more than 15% jump with 11,560 new registrations in FY24. Business services, however, saw 28% fewer registrations in FY24 with 27,853 new businesses getting formed. In the manufacturing sector too, fewer companies were registered in FY24—27,193 companies, 13% less than in the year before. Agriculture and allied sector saw 5.5% fewer registrations in FY24 at 10,751 new entities getting incorporated. All companies registered in FY24 together had paid up capital of 31,000 crore.

In FY24, about two-third of the gross value-added in the economy, adjusted for inflation, came from sectors such as utilities, construction, trade, hotels, transport, communication, finance, real estate services, defence and public administration, as per the second advance estimates from the statistics ministry.

New businesses

In terms of the size of new business registrations, micro businesses are at the forefront in entrepreneurship, with 87% of all new businesses registered in FY24 accounting for entities with paid-up capital up to 500,000. Paid-up capital represents the shares subscribed and paid for and can be raised up to the level of its authorized capital, and for further expansion, businesses could seek regulatory nod.

Only 27 new businesses were formed in FY24 with paid-up capital in the range of 100 crore to 500 crore, while only three new businesses had paid-up capital in the range of 500 - 1,000 crore and just two were above 1,000 crore, data showed.

The trend of small businesses organizing themselves under the legal form of a company suggests the advantages the formal sector offers, with large businesses preferring to engage with entities that are in the formal sector. Also, regulatory and tax compliance are being increasingly driven by data and technology, deepening formalization in the economy.

Maharashtra, Uttar Pradesh and Delhi continued to dominate in new business registrations and together accounted for 38% of new businesses incorporated in FY24, data showed.

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