GROWTH OF SERVICE INDUSTRY

• Affluence: increased per capita incomes (Rs 238.8 in 1950 to Rs 11934.5 in

1998) has led to rise in services like pest-control, personal security, interior
designing, beauty parlors, etc)

• Leisure time: people are spending time to travel or study for better careers and
hence an increase in travel agencies, hotels, resorts, adult education, distance
learning courses

• Life expectancy: increased life expectancy has led to more old-age homes,
healthcare centres

• Health consciousness: widespread health consciousness leading to services like

health clubs, gyms, dietitians
• Working women: leading to a need for day-care centers, packed food and home
delivery services

• New products: improvement in IT sector has led to services like ISPs, cyber-
cafes, cellphone service providers

• Product complexity: products that need specialised service personnel for

servicing leading to after-sales service agents

• Complex life: as routines are busier, there is a need for tax consultants, legal
advisors, investment advisors, property agents

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.,
55.8%(2007-08)and 60.7% as per the recent data.
► The Service exports in India have grown up from US $ 19.1 billion to US $ 73
billion in 2006.
► The sector covers a wide range of activities

REASONS FOR GROWTH OF 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 input usage of services by other sectors, mainly
 manufacturing sector (i.e. higher domestic demand); higher foreign demand due
to trade liberalization; and high income elasticity for services.

► On the supply side, the increased trade in services following trade

liberalization policies and other reforms in the 1990s induced this growth
► Economic affluence
► Changing role of women
► Cultural changes
► It Revolution
► Conservation of natural resources
► Development of markets
► Unbundling corporations
► Increased consciousness of health care
► Economic liberalization
► Migration
► Export potential
► Service tax

CURRENT SCENARIO

 Services sector in future providing about 70 per cent of the new job opportunities
in the economy

 Share of agriculture in total employment already falling, in the

coming years, the share of services would increase

 New employment possibilities in the services sector are construction, trade,

transport, storage, financial services, communication and personal services

 Employment in manufacturing would also expand, but its contribution to the total
increase in employment would only be around 17 per cent.

Thus, given the employment trends as emerging from diverse sources and the
employment potentials at the sectoral levels, it may be argued that a broad-based high
growth of GDP would lead to higher employment in the economy, with services sector
playing a lead role

ACTIVITIES COMPRISING THE SERVICE SECTOR

(a) Trade`
(b) Hotels and restaurants
(c) Transport including tourist assistance activities as well as activities of travel agencies
and tour operators
(d) Storage and communication
(e) Banking and insurance
(f) Real estate and ownership of dwellings
(g) Business services including accounting; software development; data processing
services; business and management consultancy; architectural, engineering and other
technical consultancy; advertisement and other business 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

SERVICE-BEFORE AND AFTER LIBERALISATION

► Before liberalization Services was the residual sector drawing refugees from
agriculture

► The share of services in GDP was 28.2% in 1950s and it rose consistently over the
period of the five decades and stood at 44.3% in the 1990s.

► The service sector's share finally rose from 43.69 per cent in 1990-91 to 51.16 per
cent in 1998-99.
► Service sector’s share in 2008-09 is 56%

► Between 1996 and 2005- the triple impact of India’s external liberalization,
domestic economic reforms and the rise of a global market for skilled services
facilitated by information technology makes itself felt, share of services in India’s
GDP grew from just over 40% to about 54%.