How do tertiary sectors contribute to the Indian economy?

The tertiary sector of the economy (also known as the tertiary service sector or the service
industry) is one of the four economic sectors, the others being the secondary sector
(approximately the same as manufacturing), the primary sector (agriculture, fishing, and
extraction such as mining), and the quaternary sector (such as information technology, education,
financial planning).
The service sector consists of the "soft" parts of the economy, i.e. activities where people offer
their knowledge and time to improve productivity, performance, potential, and sustainability,
which is termed as affective labor. The basic characteristic of this sector is the production of
services instead of end products. Services (also known as "intangible goods") include attention,
advice, access, experience, and discussion. The production of information is generally also
regarded as a service, but some economists now attribute it to a fourth sector, the quaternary
sector.
The tertiary sector of industry involves the provision of services to other businesses as well as
final consumers. Services may involve the transport, distribution and sale of goods from
producer to a consumer, as may happen in wholesaling and retailing, or may involve the
provision of a service, such as in pest control or entertainment. The goods may be transformed in
the process of providing the service, as happens in the restaurant industry. However, the focus is
on people interacting with people and serving the customer rather than transforming physical
goods.
Ambulance service
Housemaid
The major growth in this sector also involves the transfer of funds from the governmental to the
contractual profit, non-profit and hybrid sectors of the economy.
For the last 100 years, there has been a substantial shift from the primary and secondary sectors
to the tertiary sector in industrialised countries. This shift is called tertiarisation. The tertiary

sector is now the largest sector of the economy in the Western world, and is also the fastestgrowing sector. In examining the growth of the service sector in the early Nineties, the globalist
Kenichi Ohmae noted that:

Investment management

FMCG

Professional services
o Accounting
o Legal services
o Management consulting

Consulting

Gambling

Retail sales

Franchising

Real estate

Education

Difficulty of definition

Bankers in Delhi, 1870

It is sometimes hard to define whether a given company is part of the secondary or tertiary
sector. And it is not only companies that have been classified as part of that sector in some

schemes; government and its services such as police or military, and non-profit organizations
such as charities or research associations can also be seen as part of that sector.
In order to classify a business as a service, one can use classification systems such as the United
Nations' International Standard Industrial Classification standard, the United States' Standard
Industrial Classification (SIC) code system and its new replacement, the North American
Industrial Classification System (NAICS), the Statistical Classification of Economic Activities in
the European Community (NACE) in the EU and similar systems elsewhere. These
governmental classification systems have a first-level hierarchy that reflects whether the
economic goods are tangible or intangible.
Testing telephone lines

For purposes of finance and market research, market-based classification systems such as the
Global Industry Classification Standard and the Industry Classification Benchmark are used to
classify businesses that participate in the service sector. Unlike governmental classification
systems, the first level of market-based classification systems divides the economy into
functionally related markets or industries. The second or third level of these hierarchies then
reflects whether goods or services are produced.

Theory of progression
Economies tend to follow a developmental progression that takes them from a heavy reliance on
agriculture and mining, toward the development of manufacturing (e.g. automobiles, textiles,
shipbuilding, steel) and finally toward a more service-based structure. The first economy to
follow this path in the modern world was the United Kingdom. The speed at which other
economies have made the transition to service-based (or "post-industrial") economies has
increased over time.
Historically, manufacturing tended to be more open to international trade and competition than
services. However, with dramatic cost reduction and speed and reliability improvements in the
transportation of people and the communication of information, the service sector now includes
some of the most intensive international competition, despite residual protectionism.

Issues for service providers

Surgery team at work

Service providers face obstacles selling services that goods-sellers rarely face. Services are
intangible, making it difficult for potential customers to understand what they will receive and
what value it will hold for them. Indeed, some, such as consultants and providers of investment
services, offer no guarantees of the value for price paid.
Since the quality of most services depends largely on the quality of the individuals providing the
services, "people costs" are usually a high fraction of service costs. Whereas a manufacturer may
use technology, simplification, and other techniques to lower the cost of goods sold, the service
provider often faces an unrelenting pattern of increasing costs.
Product differentiation is often difficult. For example, how does one choose one investment
adviser over another, since they often seem to provide identical services? Charging a premium
for services is usually an option only for the most established firms, who charge extra based upon
brand recognition
The service sector/Tertiary Sector consists of the "soft" parts of the economy, i.e. activities where
people offer their knowledge and time to improve productivity.
Service sector is having 59.9 % share in the GDP (2013-2014,provisional data, source
:Economic survey of India 2014). This sector is very important for development of the country as
we do not tax agriculture sector (55 % of the population) we get most our taxes from this
sector. the growth of India as the back office of the world has made Indian tertiary sector very
Important. The e-commerce market is also rising very well and this will increase the demand and
create job, more jobs mean more demand which means more production and consumption, which
means all the sectors will be beneficial.
Education as tertiary sector component is helpful in creating a human capital resource which
will e very good for the coming generation. in recent time the Gross enrollment ratio has
increased. today India has the maximum number of students studying.

India ranks 11th in the world in terms of tertiary sector output.

Indias services sector is burgeoning: a sign of an economy on the high growth path. It has
become the mainstay of the growth process and has emerged as the most dynamic sector of the
Indian economy, particularly since last one and half decade. there is also issues of disparity in
income and slow growth of the sector , which if resolved can be helpful for the country.

Service Sector in India

IT and ITeS: Leading services segment

Indias technology and BPM sector (including hardware) is estimated to have generated
US$ 146 billion in revenue during FY15 compared to US$ 118 billion in FY14,
implying a growth rate of 23.72 per cent

The contribution of the IT sector to Indias GDP rose to approximately 9.5 per cent in
FY15 from 1.2 per cent in FY98

TCS is the market leader, accounting for about 10.1 per cent of Indias total IT & ITeS
sector revenue

The top six firms contribute around 36 per cent to the total industry revenue, indicating
the market is fairly competitive

Introduction
The services sector is not only the dominant sector in Indias GDP, but has also attracted
significant foreign investment flows, contributed significantly to exports as well as provided
large-scale employment. Indias services sector covers a wide variety of activities such as trade,
hotel and restaurants, transport, storage and communication, financing, insurance, real estate,
business services, community, social and personal services, and services associated with
construction.
Market Size
The services sector is the key driver of Indias economic growth. The sector contributed around
66.1 per cent of its Gross Value Added growth in 2015-16, thereby becoming an important net
foreign exchange earner and the most attractive sector for FDI (Foreign Direct Investment)
inflows.!
According to a report by leading research firm Market Research Store, the Indian
telecommunication services market is expected to grow by 10.3 per cent year-on-year to reach
US$ 103.9 billion by 2020.
The Indian digital classifieds industry is expected to grow three-fold to reach US$ 1.2 billion by
2020, driven by growth in horizontal classifieds like online services, real estate and automobiles.#

Out of overall services sector, the sub-sector comprising financial services, real estate and
professional services contributed US$ 305.8 billion or 20.5 per cent to the GDP. The sub-sector
of community, social and personal services contributed US$ 188.2 billion or 12.6 per cent to the
GDP.
Investments
The Indian services sector has attracted the highest amount of FDI equity inflows in the period
April 2000-March 2016, amounting to about US$ 50.79 billion which is about 17.6 per cent of
the total foreign inflows, according to the Department of Industrial Policy and Promotion
(DIPP).
Some of the developments and major investments by companies in the services sector in the
recent past are as follows:

Gadgetwood, an on-demand repair services & refurbishment company, has raised US$ 6
million from private equity fund Carpediem Capital, which will be used for expanding its
presence to other geographies, starting with the metros and moving to set up a presence
across 10 cities by 2017, and broaden the scope of its repairs capabilities to include,
laptops, wearable tech and LEDTVs.

Online food ordering and delivery service firm Swiggy, owned by Bundl Technologies
Private Limited, has raised US$ 15 million in a fresh funding round led by Bessemer
Venture Partners along with existing investors SAIF Partners, Norwest Venture Partners,
Accel Partners, and Apoletto Asia.

Factset, a US-based financial data and analytics firm, plans set up its largest global office
at Divyasree Orion Special Economic Zone (SEZ) in Gachibowli, Hyderabad.

LogixHealth Private Limited, a wholly-owned subsidiary of LogixHealthInc, USA, plans

to invest around US$ 15 million and hire 1,000 people for its upcoming facility in
Coimbatore.

Meru Cab Company Pvt Ltd, the Mumbai-based radio cab service, has raised Rs 150
crore (US$ 22.37 million) from Brand Capital, the investment arm of Bennett Coleman
and Co, which will be used to fund advertising and provide user incentives including
discounts and loyalty schemes.

SSG Capital Management Group, a Hong Kong based Private Equity (PE) investor, has
acquired a 40 per cent stake in the logistics company Future Supply Chain Solutions
(FSC), for Rs 580 crore (US$ 86.5 million) from existing shareholders including Future
Retail (FRL) and Fung Group, promoted by billionaire Victor Fung.

Vistra Group Ltd, a Hong Kong-based professional services provider, has acquired
IL&FS Trust Company Ltd, Indias largest independent corporate trust services provider,
which will enable Vistra to expand the platform to provide a broader suite of corporate
and fiduciary services and thereby gain a foothold in the Indian corporate services
market.

Pink Blue Supply Solutions Pvt. Ltd, a clinical supplies provider, has raised Rs 1.5 crore
(US$ 0.22 million) in a seed round of funding from TermSheet.io, a transaction-focused
service provider for start-ups and investors, which will be used to ramp up technology,
improve customer experience and operational capabilities, put in place smart supply
chain management across hospitals and clinics, and hire larger teams.

IcertisInc, a contract management software maker for enterprises based out of Pune and
Mumbai in India, has raised US$ 15 million in series B round of funding from Ignition
Partners and Eight Roads Ventures, which will be used to invest in marketing and expand
its global operations.

OfBusiness, an online marketplace for business-to-business (B2B) commerce, has raised

US$ 5 million in series A funding round led by Matrix Partners India, which will be used
to expand the team and build a technology platform for small and medium enterprises
(SMEs).

Credit Analysis and Research (CARE Ratings) has signed Memorandum of

Understanding (MoU) with Japan Credit Rating Agency, Ltd (JCR) to collaborate with
each other as strategic business partners.

Shuttl, an Indian bus aggregator platform headquartered in Gurgaon, has raised US$ 20
million in Series A funding from Lightspeed, Sequoia India and Times Internet Ltd.

Indian logistics platform Rivigo has raised US$ 30 million in debt and equity in Series B
financing round, led by SAIF Partners. The firm aims to use the raised funds to achieve
its target of scaling 10 times in the next 12 months.

Taxi service aggregator Ola plans to double operations to 200 cities in current fiscal year.
The company, which is looking at small towns for growth, also plans to invest in driver
eco-system, such as training centers and technology upgrade, besides adding 1,500 to
2,000 women drivers as part of its pink cab service by women for women.

Government Initiatives
The Government of India recognises the importance of promoting growth in services sectors and
provides several incentives in wide variety of sectors such as health care, tourism, education,
engineering, communications, transportation, information technology, banking, finance,
management, among others.
Prime Minister Narendra Modi has stated that India's priority will be to work towards trade
facilitation agreement (TFA) for services, which is expected to help in the smooth movement of
professionals.
The Government of India has adopted a few initiatives in the recent past. Some of these are as
follows:

The Government of India plans to significantly liberalise its visa regime, including
allowing multiple-entry tourist and business visas, which is expected to boost India's
services exports.

Mr Ravi Shakar Prasad, Minister of Communication and Information Technology,

announced plan to increase the number of common service centres or e-Seva centres to
250,000 from 150,000 currently to enable village level entrepreneurs to interact with
national experts for guidance, besides serving as a e-services distribution point.

The Central Government is considering a two-rate structure for the goods and service
tax(GST), under which key services will be taxed at a lower rate compared to the
standard rate, which will help to minimize the impact on consumers due to increase in
service tax.

By December 2016, the Government of India plans to take mobile network to nearly 10
per cent of Indian villages that are still unconnected.

The Government of India has proposed provide tax benefits for transactions made
electronically through credit/debit cards, mobile wallets, net banking and other means, as
part of broader strategy to reduce use of cash and thereby constrain the parallel economy
operating outside legitimate financial system.

The Reserve Bank of India (RBI) has allowed third-party white label automated teller
machines (ATM) to accept international cards, including international prepaid cards, and
has also allowed white label ATMs to tie up with any commercial bank for cash supply.

Road Ahead
Services sector growth is governed by both domestic and global factors. The sector is expected to
perform well in FY16. The Indian facilities management market is expected to grow at 17 per
cent CAGR between 2015 and 2020 and surpass the $19 billion mark supported by booming real
estate, retail, and hospitality sectors. The performance of trade, hotels and restaurants, and
transport, storage and communication sectors are expected to improve in FY17. Loss of growth
momentum in commodity-producing sectors had adversely impacted transport and storage
sectors over the past two years. The financing, insurance, real estate, and business services
sectors are also expected to continue their good run in FY17. The growth performance of the

community, social and personal services sector is directly linked with government expenditure
and we believe that the government will remain committed to fiscal consolidation in FY16.
Exchange Rate Used: INR 1 = US$ 0.0149 as on September 21, 2016
References: Media Reports, Press Releases, DIPP publication, Press Information Bureau, India
budget 2015-16
Note -!- The Economic Survey 2015-16; #- according to a report by Google India and KPMG.