Services Sector Development in India

8/3/2019 Services Sector Development in India

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Comparative study of service sector development



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A nation’s economy can be divided into various sectors to define the proportion of the population

engaged in the activity sector.

1. Primary Sector

The primary sector of the economy extracts or

harvests products from the earth.

2. Secondary Sector

The secondary sector of the economy

manufactures finished goods, automobile

production, Construction, etc.

3. Tertiary / Service Sector

The tertiary sector of the economy is the service industry. This sector provides services to the general

population and to businesses. Activities associated with this sector include retail and wholesale,

transportation and distribution, entertainment industry, restaurants, clerical services, media, tourism,

insurance, banking, healthcare, education and law.



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Investopedia Says:

Countries with primarily service-based economies are considered to be more advanced than countrieswith primarily industrial or agricultural economies.

Examples of countries with a heavy emphasis on the service sector include the United States,

Australia, Japan and the United Kingdom.

In the U.S., the Institute for Supply Management's (ISM) monthly index provides a measure of the

general state of business in the non-manufacturing sector. Because approximately two-thirds of U.S.

economic activity resides in the service sector, the index is considered a measure of the country's

overall economic health.

(Source : http://www.answers.com/topic/service-sector)

Services constitute over 50% of GDP in low income countries' and as their economies continue todevelop, the importance of services in the economy continue to grow. The service economy is also

key to growth, for instance it accounted for 47% of economic growth in sub-Saharan Africa over the

period 2000 – 2005 (industry contributed 37% and agriculture 16% in the same period).

Source: Massimiliano Cali, Karen Ellis and Dirk Willem te Velde (2008) The contribution of services to development: The role of regulation and trade

liberalisation London: Overseas Development Institute



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The service economy in developing countries is most often made up of the following:

1.Financial services

2.Tourism

3.Healthcare and

4.Education

The export potential of many of these products is already well understood, e.g. in tourism,

financial services and transport, however, new opportunities are arising in other sectors, such

as the health sector.

For example :

1.Indian companies who provide scanning services for US hospitals

2.South Africa is developing a market for surgery and tourism packages

3.India, South Africa and Mauritius have experienced rapid growth in IT services, such as call

centres, back-office functions and software development.



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The Services Sector constituted a huge employment potential &contribution in GDP to Indian economy.

The Services Sector has been the most dynamic sector of the Indian economy, especially over the

last 2 decades as shown in the table below:

Year Agriculture # Manufacturing Y Services*1950-51 59.19 13.29 27.52

1960-61 54.74 16.61 28.65

1970-71 48.12 19.91 31.97

1980-81 41.82 21.59 36.59

1990-91 34.92 24.49 40.59

1999-2000 27.49 24.63 47.88

2008-2009 14.6 28.6 57.2

Notes: Among the following symbols:

# includes forestry and logging, fishing, mining and quarrying;

Y includes construction, electricity, gas and water supply;

*includes (a) transport, communication and trade; (b) banking and insurance, real estate, dwellings & business services; and

(c) public administration and defence & other services.

From a low level of 27.52 per cent of

GDP in 1950-51, the share of

services increased to 57.2 per cent in

2008-2009.

Source: Economic Survey



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CSO’s classification of the services sector falls under four broad categories, namely a) trade, hotels, and

restaurants; b) transport, storage, and communication; c) financing, insurance, real estate, and business

services; and d) community, social, and personal services. Among these, financing, insurance, real estate, and

business services; and trade, hotels and restaurants are the largest groups accounting for 16.7 per cent and

16.3 per cent respectively of the national GDP in 2009-10. The community, social, and personal services category

accounts for a 14.4 per cent share, while transport, storage, and communication accounts for a 7.8 per cent

share. Construction, which is a borderline services inclusion, has a share of 8.2 per cent (Table 10.3).

Source : Website: http://indiabudget.nic.in



This is a list of countries by Gross Domestic Product (GDP) sector composition based on

nominal GDP estimates and sector composition ratios provided by the CIA World Fact Book at

market or government official exchange rates with figures in trillions of United States dollars.

Source:

GDP (nominal): International Monetary Fund, World Economic Outlook Database, April 2011: Nominal GDP list of countries. Data for the year 2010. - IMF

GDP Sector composition: Field Listing - GDP composition by sector. - CIA World Factbook



Few main reasons in the growth of Services Sector in Indianeconomy:

Foreign consumers are showing interest in the country's service exports due to large

pool of highly skilled, low cost, and educated workers available in India.

The foreign companies have started outsourcing their work to India.

There are also signs of an acceleration in the growth of India’s manufacturing

sector. But to date, it has been the Service sector that has led the way; and their

sheer size within the economy means they will continue to have a critical role.

This is an unusual growth path. In terms of per capita income India remains a poor

country. Yet the services dependent profile of its economy is much closer to that

which has typically been associated with middle-income developing countries.



Key Points :

• Developments in India’s services sector potentially have worldwide significance.

The rapidly increasing importance of India’s economy, which could be the

third largest in the world by a significant margin in 2050, measured at market

exchange rates,

Changes in patterns of services production worldwide, in which India’s high-

end services providers are playing a major role.

• Services have been a major contributor to India’s strong recent GDP growth.

Rapidly increasing two-way trade in information technology and informationtechnology enabled services (IT – ITES) and other high-end services sub-sectors

has been a critical factor in India’s improved economic performance

‘[Information Technology (IT) and IT Enabled Services] can do for India what automotives did

for Japan and oil for Saudi Arabia.’

(Noshir Kaka, Principal, McKinsey & Company)



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Services Sector Development in India