Reasons for Service Sector

8/2/2019 Reasons for Service Sector

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REASONS FOR GROWTH IN

SERVICE ECONOMY

RAJ KUMAR(MBA2010-03)


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Background


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OVERVIEW-INDIAN

SERVICE SECTOR India stands out from other emerging economies because its growth has

been led by the service sector.

The Sector constitutes a large part of the Indian economy both in terms of

employment potential and its contribution to national income

The services sector contributes more than half of the GDP in India, i.e., 59 %(2011-12)

The Service exports in India have to grow up to US $ 310.9 billion

The sector covers a wide range of activities.


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ACTIVITIES COMPRISING

THE SERVICE SECTOR(a) Trade

(b) Hotels and restaurants

(c) Transport including tourist assistance activities aswell as activities of travel agencies and touroperators

(d) Storage and communication

(e) Banking and insurance

(f) Real estate and ownership of dwellings


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Cont

(g) Business services including accounting; softwaredevelopment; data processing services; business andmanagement consultancy; architectural, engineering and

other technical consultancy; advertisement and otherbusiness services

(h) Public administration and defence

(i) Other services including education, medical and health,religious and other community services, legal services,recreation and entertainment services

(j) Personal services and activities of extra-territorial

organizations and bodies.


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Sample Graph (3 colours)


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Sample Graph (3 colours)


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REASONS FOR GROWTH

IN SERVICE SECTOR Both demand and supply factors have led to this growth.

On the demand side, the high growth of services output

was mostly attributed to factors such as increasing inputusage of services by other sectors, mainly manufacturingsector (i.e. higher domestic demand); higher foreign demanddue to trade liberalization; and high income elasticity forservices.

On the supply side, the increased trade in servicesfollowing trade liberalization policies and other reforms inthe 1990s induced this growth.


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REASONS FOR GROWTH

IN SERVICE SECTOR

Production Specialization-

As an economy grows, productive activities become more specialized

and urbanization accelerates due to the rising level of income. In the

meantime, as a result of the increasing specialization of production, firmstend to outsource many service activities such as legal, accounting and

security services. This process is called the specializationsplintering.


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REASONS FOR GROWTH

IN SERVICE SECTOR Economic affluence

At the household level, Engels law shows that, as income rises,consumption of food and durable goods in turn becomes saturated over timeand demand for services such as healthcare, travel, communications and

finance increases. Growth in income also boosts demand for away-from-home consumption of food and services.


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REASONS FOR GROWTH

IN SERVICE SECTOR

Changing role of women:has an impact on service demand as well. More women in the

workforce could lead to an increase in demand for services,ranging from babysitting and catering to tuition and beautytreatments.

Cultural changes I.T. Revolution Conservation of natural resources


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REASONS FOR GROWTH

IN SERVICE SECTOR Development of markets Unbundling corporations Increased consciousness of health care

Economic liberalization Urbanization- urban residents are both consumers and

suppliers of services. It is expected that the service sector grows as the levelof urbanization increases in a society.

Export potential Service tax


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Cont

Regulatory policies of Govt.-

Historical experiences-

e.g.- Indias service industry may benefit from the countrys early andprolonged linkage with the West, in particular the UK.

Globalization and economic crisis.


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HOW GROWTH OF ONE SERVICE IS

CORRELATED TO GROWTH OF ANOTHER


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Documents

Reasons for Service Sector