SERVICE SECTOR

Introduction
Service is that portion of economy which produces the intangible goods. The service industry is
the backbone of social and economic development. Service sectors contribution is very higher in
the world economy providing higher output and employment. Service sectors growth is higher
than the other contributor in the economy. Service sector is the most dynamic and larger part of
the Indian economy in terms of employment potential and economy contribution to the national
income. Services sector has very dynamic and wide ranges of activity to perform such as
communication, trading, transportation, financial, real estate and business services, as well as
other services like personal, social and community counseling. Service sector can be classified in
to three broad categories like, the public sector, private sector, and the household sector. Public
and household sectors are recognized as the most organize part of the economy, as all the
information regarding the transaction are available with the documentation proof are made
publically after regular intervals. Whereas the third part of the economy is unorganized sector i:e
household sector. It includes all unincorporated enterprises including all type of sole
proprietorship and partnership managed by the individuals. As private sector and public sector
are organized sector, various budgets documents or reports and the accounts provided by
companies is the basis for the estimate of public sectors. The annual reports of the companies are
main sources of information for the private companies or the private sector.

Importance of Service sector

The difference between service and product can also be classified according to the marketing
requirements. Contractual nature of the market deal makes the difference wider. A vehicle may
be purchased as a product but if the similar is working to a school used for carrying children or
towards a factory attractive its human resources starting their home on the way to target and
back, the value is consequent by the contractual obligation between the holder and the additional
party. The worth of the medium is as well based on the stream of services provided more than a
phase of time as per the terms of the agreement. Hence in this method service is incredible which
has extra contractual transaction with particular skills (Coaching, tuition, counseling, repairing,

software development, animation, digitalizing, e- content development, e-publishing, e-ticketing

and many more).Based on value, examination and product can be notable. Petrol, water, gas,
electricity could be tangible products except their division and delivery system happen to a part
of service. Several people use service and product interchangeably. If a specialized similar to
doctor, consultant, software engineer, scientist, lawyer or an accountant provide his consultancy
without the utilizing of any physical means, after that it will be a service in the type of personal
service(without the use of equipments or products) otherwise it will be termed as industrial or
manufacturing like.

Service sector since 1980s has shown the growth in the Indian economy. In the late 1980s all
most every components of the service picked the pace and during 2005-08 it increased
significantly. Communication, banking, and insurance were the most grown sectors of the service
sector. All most every sub-sector of the service sector have shown growth and from there
communication tremendous potential for the growth in the phase of the global economic crises

which shows the resilience of the service sector. Composition of the service sector shows that
trade remains continue as the main sub-factor with a huge part of share and the other factors
banking, insurance and communication have registered sharp increases over the last years. The
ownership of dwelling and business service that include it services and construction have
remained the highest even though they have declined due to the post financial crises period.

Service sector shown the growth not only from liberalization an initiative action to form
structural reforms and increased per capita income and also from the inbuilt linkages with the
industrial sector. Telecommunication, banking, and business services sector have on the whole
gained in this regards. Fairly the healthy growth of the construction, and real estate sector
reflective of rapid urbanization.
The growth of the service sector in the GDP was at 10.1 percent in 2009-10 and 9.6percent in
2010-2011. (?). Agricultural sector mainly have the dominant employer followed by the service
sector and it has been increasing by every year and while that decreasing in the primary sector.
The measurement of the FDI inflow has encountered the problem to differentiate activities
between service and the good in sector such as computers and hardwares and softwares,
telecommunication, and construction. Nevertheless the share of the four sector combined,
computers, hardware and software, telecommunication and housing and real estate
predominantly consisting of services, in FDI equity.
Detail Analysis of Service Sector
Trade in GDP is an important segment of Indian economy. In the last decade India has seen the
increase of rate in the growth of GDP. This fast growth means rising disposable income of the
population, in particular that of the middle class. With the growth in strong population, the retail
business too got a boost up. There are no authorized estimates of the amount of retail trade in the
country, although such estimates have been made by a number of institutions.

Services are widely used by people day to day in all aspects of life. From finance to fast food,
education to entertainment, travel to telephone, advertisement to amusement parks, travel to
telephone, market research to maintenance services, and retailing to recreation.. .and so on.
Today services are more and more being used by corporate as well as household sector. The
volatile growth in this sector started in the 20th century, particularly after the end of World War
II. Due to huge scale demolition during the war set of economic activities, had to be received out
to carry the war tom economies back to strong point. This resulted in a number of new projects
fuelling the demand for financial services.

Health and education

Health and education are the most important services in India as they are the most challenging
and largest sector of the economy and very vital in the countries overall development or
progress. For the healthy and productive workforce and stabilized population the need of a strong
and well-defined health care sector is fulfilled. Ministry of health and family welfare is
responsible for implementation of various programmes in the area of health and family welfare
prevention and control of major communicable diseases as well as promotion of indigenous and
traditional systems of medicines.

Accordingly it is working in different programmes like

National Rural Health Mission (NRHM) in different parts of the country, conducting surveys and
studies etc. for information about the proper implementation. While education strongly influence
improvement in health, hygiene and demographic profile. To eradicate the illiteracy from the
country the ministry of human resource development is involved in achieving the full adult
literacy, laying down of national policies on education, meeting needs of secondary and higher
education for everyone, etc. India has reached an impressive demographic transition owing to the
fertility rate and infant mortality rate as well as gained high literacy rate in the country.

Information and Technology

In this globalization the economic liberalization has shown a rapid growth. Indian economy has
seen the change from the agricultural based economy to the knowledge based economy. The
knowledge based economy. The knowledge based economy creates disseminate and use
knowledge to improve its growth and development. Information Technology (IT) and IT- enabled
services (ITeS) industry. To make India leader in the field of the information revolution
department of electronic and information technology is working very hard and making continues
effort. It has been always the dominating sector in the economy. Many Indian companies have
acquired the international quality certification. Electronic governance as well as it education and
many other polices have been framed to make IT industry more powerful.

Media and Entertainment

Media and entertainment is another major and upcoming services industry. It is an intellectual
property- driven sector with small to large and small players extend all over the country. Music,
films, radio, broadcast, television, and live entertainment are that comes under it. To create
awareness and to educate peoples this service sector plays an important role. Through media and
entertainment government can easily reach people and spread their policies and make general
public aware about it. Laws, rules and regulation are formulated by the ministry of information
and broadcasting and they are responsible for it.
Hospitality and Tourism
Hospitality and Tourism has turn out to be the world's main employer and this sector is one of the
worlds largest economic services with more than 200 trillion dollar yearly. This sector is today
second major foreign exchange earner for India. A record 2.r3 million tourists made their way
from various parts of the world to India in calendar 2003, registering a rise of 15.3 percent over
2002, while as many as 4.5 million Indians traveled abroad accounting for a rough 30 percent.
Financial Services
The role of financial services in motivating and sustaining economic growth is well known. A
distinct feature of Indian Financial System is the dominance of public sector institutions in
practically all areas like banking, term lending and imiurance. At the end of March 2002, 97
commercial banks, 196 Regional rural banks 52 scheduled urban co-operative banks and 16
scheduled state co-operative banks were operating. With an emphasis on retail finance and
growing use of new technologies, Indian banks have repositioned themselves as universal
finance solution provider with capabilities ranging from investment banking to project financing,
and export financing on the corporate side, and from providing loans to selling insurance and
mutual funds on the retail side.

120

100

80

60

Insurance Industry
Non- Life Insurance
Life Insurance

40

20

0
2001 2002 2003 2004 2005 2006 2007 2008 2009

Comparative analysis
Services have long been the most important source of growth in rich countries. Now they are too
the major source of development in poor countries. Services have grow to be a larger share of
GDP in poor countries and productivity growth in services exceeds that in industry used for most
poor countries. This is largely explained by the rapid development of modern, commercial
servicesbusiness processing, finance, insurance, and communications. Modern service
productivity growth, in turn, is driven by the 3Ts: tradability, technology and transportability
The hold of services above industry is not a modern trend for the Indian economy but has been in
place since the beginning of 1950s. Such prevalence of services above industry might be an
product of the de-industrialization process pursued in British India (Bagchi, 1982). While the
decline of the primary sector, i.e., mainly agriculture, is in custody through the conventional
wisdom on development, the hold of services ahead of industry stands out because a departure
from the past. However, the Indian experience is not a separate case. A number of developing
countries such as Zambia, Chad, Sudan, Kenya and Pakistan have also undergone a similar phase
in their development process.

70
60
50
40

Agriculture
Industry

30

Services

20
10
0
1950-51

1960-61

1970-71

1980-81

1990-91

2000-01

2001-02

Moreover, the decline in growth of GDP has in general not been accompanied by a reduction in
share of services (Table 2). This observation runs counter to the established theories but is in
keeping with the growth experience of the developed world. The visible hand of the government
as reflected in planning and production in the economy as a whole could have contributed to
such a development.
60

50

40

30

service Growth
GDP Growth

20

Services Share

10

The services sector entered the decade of 1990s in the company of a growth of 5.3 per cent, still
lesser than the GDP growth of 5.6 per cent in 1990-91 (Table 2). In the subsequent year of the
stability of payments crisis when both agriculture and industry encountered a negative growth,
services posted a positive growth of 4.8 per cent, ensure an on the whole GDP growth of 1.3 per
cent. During the boom phase of 7 per cent plus GDP growth, i.e., from 1994-95 to 1996-97, the
growth in services as healthy over 7 per cent. In the following years till 2001-02, the services
growth remained higher than those of the additional sectors barring 2000-01 when it stopped to a
mere 4.8 per cent primarily gravitated by the negative growth in non-bank financial companies.

Overall, the services sector posted a growth of 7.6 per cent in 1990s up from 6.6 per cent in
1980s.

Liberalisation of the economy in the 1990s and encouragement of private investment in

industry and infrastructure have induced sustained high growth in services sector. A rapid
increase in expenditure on public administration and defence, social services, and rural
extension services also has an impact on the growth of services sector. Besides, IT software
and services has emerged as one of the fastest growing segments of the economy with a
compound annual growth of over 50 per cent during 1990s.

Table 1: Sectorial and Overall GDP Growth Since 1990-91

(Per cent)

Year

Agriculture

Industry

Services

GDP

1990-91

4.1

7.7

5.3

5.6

1991-92

-0.02

-0.6

4.8

1.3

1992-93

5.8

4.0

5.4

5.1

1993-94

4.1

5.2

7.7

5.9

1994-95

5.0

10.2

7.1

7.3

1995-96

-0.9

11.6

10.5

7.3

1996-97

9.6

7.1

7.2

7.8

1997-98

-2.4

4.3

9.8

4.8

1998-99

6.2

3.4

8.3

6.5

1999-00

1.3

5.3

9.5

6.1

2000-01

-0.2

6.3

4.8

4.0

2001-02

5.7

3.3

6.5

5.4

Source: Central Statistical Organisation.

Manufacturing Vs Services
Knowledge based business input appears to be highly significant whether we look at their
services or manufacturing sector. In fact there is no evidence that these services input are less
important for manufacturing output than fixed capital. There is therefore a convincing argument
that manufacturing sector in post-industrial societies rely on these services May in act be

beneficial to manufacturing. The manufacturing versus services dichotomy is then unhelpful. The
knowledge based services sector is an integral part of the economics system rather than an
unproductive or parasitic laggard. For example, Siemens corporation concentrate on the role of
IT in manufacturing in the modern age and go as far as calling for the term manufacturing and
even product to be redefined.
Service sector Vs Agriculture
In the last 10 years the growth in agriculture sector is about 2% where as the service sector grew
at about 6-8%. Therefore the govt thinks that service sector is better than agriculture sector. It is a
fair assumption, although it is like making a full circle. It is surprising to see this coming from a
govt that always used agriculture as top priority in all their policy making and politicking.
However, we should commend them in accepting it and at last recognizing the limitations of
agriculture sector.

In pure economic sense, the agriculture sector cannot grow more than 3-4%. It is not because of
lack of monsoons or irrigation projects, but due to an invisible equilibrium between demand and
supply that will tap the growth at 4%. There is already a balance between demand and supply,
and as a result if the supply grows the prices are falling. We see this all the time whenever there
are bumper crops, like a farmer in Chittoor giving eggplants (vankayulu) free or farmer in
Srikakulam dumping all cabbage on the road side. To some extent these problems can be
alleviated with better road network and better distribution of the produce, not only across the
state but the country. Also right choice of crops based on better forecast models help selecting

the right crop at right time. There is a long way before we address these issues. However, even
with these efforts, we cannot attain a growth of 4% , unless we increase the demand significantly.
The only way to increase this demand is to create vast pool of domestic consumers that are
independent of agriculture. This is where the manufacturing and service sector come in.

Conclusion
The growth of services as also the services-led growth of the Indian economy has been addressed
in the study from the angle of sustainability. For the purpose, the study has primarily focused
upon the inter-sectoral linkages as emanating from the input-output transactions tables for 199394 both at the aggregated level of 10 constructed national accounts categories and the most

disaggregated level of 115 activities. While the aggregative analysis presents a variation from the
disaggregated one, the Indian economy is found to be predominantly services-intensive at the
disaggregated level with 55 per cent (54 per cent) activities direct (direct and indirect) servicesintensive. The average services intensity stands doubled to 30 per cent of gross output with the
switchover to direct and indirect services-intensity from direct services-intensity. The range of
variation in services-intensity turns out the lowest among the three types of sectoral intensity
defined in the study. While services and agriculture do not seem to share much inter-dependence,
industry is observed to be the most services-intensive with 70 per cent (74 per cent) of its
activities being direct (direct and indirect) services-intensive. While 46 per cent (15 per cent) of
services activities stand out services-intensive, 23 per cent (23 per cent) of services activities
report industry-intensive. Thus, while the industrial activities seem to be predominantly
permeated with the services content, by the same token, they turn out to be the major pace setter
for services-growth. In other words, sustained services-growth requires a growing industry too.
Finally, the expansionary potential of services on non-services and services, in turn, has been
examined by computing the index of vertical integration, which provides a dimension-free
measure of the multiplier of each activity on the value added of the rest of the economy. Seven,
six and one respectively out of 13 services, 80 industrial and 22 agricultural activities are found
to have the largest expansionary potential. The top three activities in terms of the index value
turn out to be trade, banking and other transport services, all belonging to the services sector.
Clearly, the services sector stands out more growth inducing than industry or agriculture.
Therefore, for sustaining the overall growth process, the services-led growth augurs well for the
Indian economy in so far as the growth impulses originate in services vis--vis industry or
agriculture. However, since the value added indirectly induced on the rest of the economy falls
short of the direct value added by each activity including from services, the expansionary
potential of services-led growth may not be over-emphasised unless accompanied by growth
impulses from other sources.

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