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SERVICES SECTOR IN INDIA: TRENDS AND PATTERN

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 Volume 8, Number 2, April – June’ 2019
ISSN (Print): 2279-0977, (Online): 2279-0985
PEZZOTTAITE JOURNALS SJIF (2017): 8.98, SJIF (2018): 9.21
H5-Index: 2, H5-Median: 2, H-Citations: 4

SERVICES SECTOR IN INDIA: TRENDS AND PATTERN

Muhammed Aqib6 Dr. Jamil Ahmad7

ABSTRACT

Service sector has emerged as the most extensive and fastest-growing sector in India. It has become the lifeline
for a country's socio-economic growth as it contributes significantly to GDP growth, employment, trade, and
investment. The services sector holds the second position after agriculture to generate employment both in
several states and in the national economy. This present paper attempts to evaluate the services sector's
performance & contribution to the Indian economy using secondary data sources. The secondary data were
collected from various published sources like journals, books, reports, websites, etc. The objectives of the study
are to examine the significant relationship between different sectors and their growth performance in India.
Further, the study also discusses the economic policies and impacts of the services sector. The study will also
make and attempt to discuss issues relating to the performance of the Assam tea tourism sector and the foreign
and Indian tourists’ arrival in the state address the weakness by means of some valid and practical remedial
measures.

KEYWORDS

Services, Trade, Investment, Employment, Economic Growth, GDP etc.

I. INTRODUCTION

Service sector is the lifeline for the socio-economic growth of a country. It is the largest and fastest-growing sector,
contributes more to global output, and provides more people employment than any other sector. The service sector is
also known as the tertiary sector. The service sector in India is contributing more than half of India's Gross Domestic
Product. The service sector provides the basic facilities for the primary and secondary sectors. The primary and
secondary sectors produce tangible goods like food grains, vegetables, fruits, oil, consumer, and capital manufactured
goods. The service sector affords the basic facilities essential to produce to reach into the hands who need them. The
service sector includes banking, insurance, communication, transportation, telecommunication, trade, storage, travel
and tourism, courier services, consultancy services, and legal services—information and Communication Technology
(ICT) advertising agency, media, marketing retail, etc. The service sector has played a significant role in the
country's economic development. This sector is highly disordered because of the absence of a well–organized system
to maintain a regular and proper statistical record for the sector because many unorganized units dominate it. India's
services sector has always served the country’s economy well and currently accounting for about 60 percent of the
gross domestic product (GDP).

II. REVIEW OF STUDIES

India’s growth rate has been noteworthy after the liberalization and Economic Reform in 1991. The Service Sector in
India has played a central role in this growth story. The Indian service sector has capable of unprecedented growth
during the last two decades. Service-led growth is a common portent in the theory of economic growth. (Clark, 1940;
Kuznets, 1957; Chenery, 1960). However, traditionally, the service-led growth has been allied with the tertiary phase
of growth, where a significant part of the demand for service comes from the developed manufacturing sector (the
secondary sector). With industrialization, the secondary sector became a major contributor to GDP followed by the
tertiary and primary sectors, and the economies transformed into developed countries in a period of 75 to 100 years
(Kuznets, 1973). Gaur (2006) analyzed India's services sector's changing employment scenario from 1989 to 2001.
The study tested whether there is any correlation between the growth of GDP and employment trend. The analysis

6
Research Scholar, Department of Economics, A.M.U., Uttar Pradesh, India, [email protected]
7
Assistant Professor, Department of Economics, A.M.U., Uttar Pradesh, India, [email protected]

International Journal of Applied Services Marketing Perspectives © Pezzottaite Journals 3692 |P a g e

 Volume 8, Number 2, April – June’ 2019
ISSN (Print): 2279-0977, (Online): 2279-0985
PEZZOTTAITE JOURNALS SJIF (2017): 8.98, SJIF (2018): 9.21
H5-Index: 2, H5-Median: 2, H-Citations: 4
showed that the public sector provided more employment in comparison to private sector. Out of subsectors of the
services sector, the highest increasing trend in total employment was observed in finance, insurance, real estate and
sub-sector transport, and storage and communication showed the lowest growth. Jesim Pais (2014) examines India's
services sector's growth and structure through the analysis of the sub‐sectors within the services sector at a level of
disaggregation that has so far not been effectively analyzed in the literature. It categorizes sub‐sectors within services
that have contributed mainly to GDP growth. It also categorizes sub‐sectors that have contributed primarily to
employment growth. The quality of employment in the services sector is observed by analyzing the productivity
levels in different services.

III. OBJECTIVE OF THE STUDY

The main objectives of the present study are as follows:

 To examine the trends and patterns of various sectors and their growth performance in India.
 To Study the Impact of Service Sector in Indian Economy.
 To analyses the trends and patterns of growth in the services sector and employment in India.

IV. DATA SOURCES AND METHODOLOGY

The present paper has been focused on estimating the services sector's performance & contribution to the Indian
economy during the post-liberalization period, i.e., from 1991 to 2018. Data for the present study has been collected
from various secondary sources like RBI Bulletin, Economic survey, Handbook of Statistics, ASI, a various round of
NSSO on employment, and unemployment is a concern for the analyses. Some other information related to the
services sector is also collected from popular journals, magazines, articles, research papers, Newspapers, etc. To
analyses the different variables used in this study, simple statistical tools like percentage growth rate and compound
annual growth rates (CAGR) are extensively used.

V. CONTRIBUTION OF THE SERVICES SECTOR TO INDIA’S GDP

After India's independence, the Service sector's contribution to GDP was less than 30% for more than a decade. The
Service sector is the fastest-growing sector of India. The contribution of the Service sector to GDP is continuously
increasing in India. In the year 2018-19, this contribution increased to 62.50 percent of GDP. Table-1 shows that
over time the share of services in GDP has increased while agriculture has declined. The share of services has
exceeded the combined share of agriculture and industry in the last decade, making it the most crucial provider to its
output. In 2011-12, services, industries, and agriculture correspondingly accounted for 57.3%, 25.7%, and 16.9% of
India’s GDP. In 2007-08, service, industry, and agriculture also accounted for 55.43%, 22.97%, and 21.60% of
India's GDP. In 2018-19, service, industry, and agriculture correspondingly accounted for 62.5%, 23.13%, and
14.38% of India’s GDP. During the period of economic reforms, the share of service has increased very speedily. We
can observe (Table-1) that the rate of contribution of GDP for Agriculture and Industry is slowing down steadily.
Still, indeed, the Service Sector is on the successive fastest growing stage.

Table-1: Components of Gross Domestic Product (at Constant Prices)

Year Agriculture Industry Services

1991 35.13 21.56 43.32
1995 31.87 23.54 44.59
1999 29.17 22.09 48.74
2003 25.77 22.10 52.12
2007 21.60 22.97 55.43
2011 18.65 22.83 58.52
2015 15.37 23.26 61.36
2018 14.38 23.13 62.50
Sources: Handbook of Statistics on Indian Economy, RBI

International Journal of Applied Services Marketing Perspectives © Pezzottaite Journals 3693 |P a g e

 Volume 8, Number 2, April – June’ 2019
ISSN (Print): 2279-0977, (Online): 2279-0985
PEZZOTTAITE JOURNALS SJIF (2017): 8.98, SJIF (2018): 9.21
H5-Index: 2, H5-Median: 2, H-Citations: 4

Figure-1: Components of Gross Domestic Product (at Constant Prices)

sector wise GDP

100.00

50.00

0.00
1985 1990 1995 2000 2005 2010 2015 2020

Agriculture sector Industry sector Services sector

Sources: Handbook of Statistics on Indian Economy, RBI

Table-2: Region-wise GDP Growth (at Constant Price in Lakh)

Year North North East East West South

1993 328173 48595 171997 356391 285652
1998 431646 49312 239765 493311 402767
2003 544386 68260 308490 651207 582870
2008 790191 97124 472348 945279 918362
2013 1131227 132479 701453 1393222 1287872
2018 1645448 199539 1090647 2041833 1911788
CAGR 0.067 0.058 0.077 0.072 0.079
R square 0.992 0.978 0.994 0.996 0.998
Coefficients 0.065 0.060 0.073 0.070 0.077
P-value 0 0 0 0 0
Sources: Handbook of Statistics on Indian Economy, RBI
Table-2 shows that we have taken five major regions (East, West, North, South, and North East), including all Indian
states, where the table shows that region-wise GDP growth all over India. We have given data at the interval of five
years gap and is in Rupees Lakhs from the year 1993-2018. CAGR value is also computed for the data presented in
table-2. The results show that the southern region's performance is comparatively good among all regions with
CAGR of 7.9 percent, while the northeast has grown with CAGR of 5.8% and is low compared to other regions.

Figure-2: Region-wise GDP Growth

Region wise GDP growth (at constant price)

2500000
2000000
1500000
1000000
500000
0
1990 1995 2000 2005 2010 2015 2020

North North East East West South

Sources: Handbook of Statistics on Indian Economy, RBI

International Journal of Applied Services Marketing Perspectives © Pezzottaite Journals 3694 |P a g e

 Volume 8, Number 2, April – June’ 2019
ISSN (Print): 2279-0977, (Online): 2279-0985
PEZZOTTAITE JOURNALS SJIF (2017): 8.98, SJIF (2018): 9.21
H5-Index: 2, H5-Median: 2, H-Citations: 4

Table-3: State-wise GDP Growth Major State (at Constant Price in Lakh) (Lakh Person as on 31st March)

Year/ Tamil Uttar West

States Andaman Bihar Delhi Gujarat Haryana Karnataka Nadu Tripura Pradesh Bengal
1991 486 31586 91076 52499 26714 73434 83506 2163 131475 53148
1995 793 34233 68170 74230 32465 93313 109583 3297 152690 74011
1999 1162 48867 95747 99856 44552 130894 147074 4476 185169 108046
2003 1395 52925 121521 126392 59951 187460 189919 5606 206815 147461
2007 1537 76076 184692 172396 98506 287838 278977 7299 257310 209899
2011 2403 114558 242523 241565 140468 357624 379806 10590 337101 272297
2015 3177 188531 337493 334712 210964 500357 494243 12544 434684 355498
2018 - 265709 429813 445644 262517 673096 627983 18116 524197 492028
CAGR 0.085 0.082 0.059 0.082 0.088 0.086 0.078 0.082 0.053 0.086
R Square 0.974 0.958 0.948 0.997 0.993 0.998 0.998 0.993 0.981 0.995
Coefficients 0.071 0.078 0.071 0.077 0.090 0.084 0.076 0.075 0.051 0.080
p-value 0 0 0 0 0 0 0 0 0 0
Sources: Handbook of Statistics on Indian Economy, RBI

Table-3, explains that we have taken major states who have been contributing the highest part to GDP growth in the
Indian economy. We have given data at the interval of four years gap and is in Rupees Lakhs from the year 1991-
2018. CAGR value is also computed for the data presented in table-3. We examine that the following states with the
highest growth are Haryana (8.8%) and Karnataka (8.6%), West Bengal (8.6%). Then, computed R square value
(goodness to fit) to the maximum value in these states Tamil Nadu (0.998), Karnataka (0.998), and Gujarat (0.997) in
the Service. Coefficient value evaluates that the government applies to scheme and policy over the time-period,
where Haryana (0.90), Karnataka (0.84), and West Bengal (0.80) states have contributed the highest growth
performance over the period in the services sector.

Figure-3: State-wise GDP growth Major State

State wise GDP growth Major state

800000
600000
400000
200000
0
1991 1995 1999 2003 2007 2011 2015 2018

Andman Bihar Delhi Gujarat Haryana Karnataka Tamilnadu Tripura Uttar Pradesh West Bengal

Sources: Handbook of Statistics on Indian Economy, RBI

VI. EMPLOYMENT IN THE SERVICES SECTOR

There has been a lot of discussion on the employment-generating capacity of the services sector. It has been
discussed that employment growth in the services sector has not been proportional to the sector's income growth
(Bosworth and Maertens, 2010) or the increase in its share in India’s GDP (Kocher et. al. 2006). The change in the
production structure from agriculture to services has not shown a corresponding change in the occupational structure
(Bhattacharya and Mitra 1990).

Over the years, the percentage of people employed in agriculture has declined, and employment in services has
increased. However, the broad pattern of employment has remained the same, with services having the highest share.
Table-4 explores that the percentage share of the services sector in total employment is increasing since 1991.
Though the employment percentage in the service sector is highest compared to other sectors, its share is rising
continuously. However, the manufacturing sector is the second largest employer after services for the Indian
population.

International Journal of Applied Services Marketing Perspectives © Pezzottaite Journals 3695 |P a g e

 Volume 8, Number 2, April – June’ 2019
ISSN (Print): 2279-0977, (Online): 2279-0985
PEZZOTTAITE JOURNALS SJIF (2017): 8.98, SJIF (2018): 9.21
H5-Index: 2, H5-Median: 2, H-Citations: 4
Table-4: Employment in Public & Private Sector by Industry (Lakh Person as of 31st March)

Year Agriculture % share Manufacturing % share Services % share

1991 14.47 5.45 74.32 28.01 176.56 66.54
1994 14.28 5.22 75.30 27.51 184.17 67.28
1997 14.45 5.12 79.70 28.22 188.3 66.67
2000 14.18 5.07 76.21 27.26 189.21 67.67
2003 14.01 5.19 69.17 25.62 186.83 69.19
2006 14.97 5.62 68.82 25.83 182.65 68.55
2009 13.80 4.85 74.90 26.31 196.00 68.84
2012 13.90 4.75 78.20 26.72 200.60 68.53
Sources: Economic Survey, Various Issues

Table-4 shows that Employment role in both the Public & Private sector (by Industry) in the Indian economy. We
examines that three major sectors Agriculture sector, manufacturing sector, and Services sector, contributed to
Employment generation in India. The services sector contributed the largest 66.54 percentage share (176.56 lakh
person) in 1991 to 68.53 percentage share (200.60 lakh person) in 2012, and the manufacturing sector contributed
28.01 percentage share (74.32 lakh person) in 1991 to 26.72 percentage share (78.20 lakh person) in 2012. The
agriculture sector contributed 5.45 percentage share (176.56 lakh person) in 1991 to 4.75 percentage share (176.56
lakh person) in 2012.

Figure-4: Employment in Public & Private Sector by Industry

EMPLOYMENT IN PUBLIC & PRIVATE SECTOR BY INDUSTRY

Agricuture Manafacturing Services

189.21

200.6
186.83
184.17

182.65
188.3
176.56

196
76.21
74.32

69.17

68.82
79.7

78.2
75.3

74.9
14.97
14.47

14.45
14.28

14.18

14.01

13.8

13.9

1991 1994 1997 2000 2003 2006 2009 2012

Sources: Economic Survey, Various Issues

Table-5: Employment in the Public & Private Sector by Sub- Sector of Services Sector
(Lakh Person as on 31st March)

Sources: Economic Survey, Various Issues

International Journal of Applied Services Marketing Perspectives © Pezzottaite Journals 3696 |P a g e

 Volume 8, Number 2, April – June’ 2019
ISSN (Print): 2279-0977, (Online): 2279-0985
PEZZOTTAITE JOURNALS SJIF (2017): 8.98, SJIF (2018): 9.21
H5-Index: 2, H5-Median: 2, H-Citations: 4
Table-5 shows that employment share in both (public & private) sub-sectors by the services sector from 1991 to
2012. The share of employment in all sub-sectors (electricity, gas & water supply, construction, wholesale & retail
trade, transport, storage & communication, finance, insurance, and real estate, community, social & personal service)
contributes to the services sector. Where, community, social & personal service contributed the highest 59.99 percent
share in 1991 to 57.28 percent share in 2012. Following other sub-sectors, finance, insurance, and real estate,
contributed 8.11 percent share in 1991 to 16.30 percent share in 2012, Transport, storage & communication
contributed 17.24 percent share in 1991 to 13.46 percent share in 2012. Construction, 6.84 percent share in 1991 to
4.74 percent share in 2012, electricity, gas & water supply, 5.39 percent share in 1991 to 4.39 percent share in 2012,
wholesale & retail trade 2.52 percent share 1991 to 3.84 percent share in 2012 in the services sector.

Figure-5: Employment in the Public & Private Sector by Sub- Sector of Services Sector

EMPLOYMENT IN THE PUBLIC & PRIVATE SECTOR BY

SUB- SECTOR OF SERVICES SECTOR
Elec. & Gas Water Sup. Const.
Wh. Sale & Retail Trade etc. Transp., Storage, & Communication
Fin., Ins., Real Estate. Etc Commu., Soci & Per.

114.94
113.91

113.65
110.63

110.54
107.12

114.9
110.3
31.55

31.47
30.79

30.18

27.62
20.42

32.7
31.4

18.03
16.54
16.16
15.55

27.3
14.48

26.7
12.22

12.18

11.88

11.49
9.97

9.92
9.78

9.87

9.63
9.45

9.49
8.89

27
5.69
5.42
4.93
4.81
4.63

9.5
9.3

8.8
7.7
6.4
4.5

9
1991 1994 1997 2000 2003 2006 2009 2012
Sources: Economic Survey, Various Issues

Overall, India's services sector employment is low compared to its GDP share, but it is growing. The services sector
has the largest employment share within the total organized sector employment, but the informal sector employment
share is small within services. Within the organized services sector, the private sector dominates employment in
services, and thus the public sector has not been very successful in creating organized services sector employment.

VII. CONCLUSIONS AND POLICY IMPLICATIONS

The present paper analyses that the service sector is very important for India, as it is contributing half of the GDP
growth in the Indian economy. It has been observed that the increase in employment increases with the development
of service sector. The study confirms that the services sector has grown at a significant rate in comparison to other
sectors. Its growth rate is found to be higher than the growth of overall GDP. The rising share of this sector in GDP
covers the poor performance of the agriculture sector. India's Service Sector (Tertiary Sector) constitutes 62.50% of
total GDP as compared to Primary (14.38%) and Secondary (23.13%) Sector in the Indian economy in 2018.

The employment percentage in the service sector and the industrial sector is rising while falling continuously in
agriculture. A large proportion of the Indian population is still engaged in the agriculture sector. The next largest
employer is the service sector, where trade, hotels & restaurants, and community, social & personal services are the
significant generators of employment. Thus, the service sector, which is dominant in its growth & shares, serves as
an engine of growth for the Indian economy. The paper highlights reform measures that will enable the services
sector to grow faster and create quality employment and attract investment. A developing country like India with a
large and young population needs to generate quality employment and move up the value chain.

REFERENCES

Ansari, M. I. (1995). Explaining the Service Sector Growth: An Empirical Study of India, Pakistan, and Sri Lanka.
Journal of Asian Economics, Vol. 6, No. 2, pp. 233-246.

International Journal of Applied Services Marketing Perspectives © Pezzottaite Journals 3697 |P a g e

 Volume 8, Number 2, April – June’ 2019
ISSN (Print): 2279-0977, (Online): 2279-0985
PEZZOTTAITE JOURNALS SJIF (2017): 8.98, SJIF (2018): 9.21
H5-Index: 2, H5-Median: 2, H-Citations: 4
Bhattacharya, B. B., and Arup Mitra. (1990). Excess Growth of Tertiary Sector in Indian Economy: Issues and
Implications. Economic and Political Weekly. 25: 2445–2450.

Bosworth, Barry, and Annemie Maertens (2010). Economic Growth and Employment Generation: The Role of the
Service Sector. In The Service Revolution in South Asia, edited by Ejaz Ghani. New Delhi: Oxford University Press.

Chenery, H. B. (1960). Patterns of Industrial Growth. American Economic Review, Vol. 57, pp. 415-26.

Gaur, G. L. (2006). Changing Employment Scenario in the Services Sector in India. Manpower Journal, 41(1): 234-
245.
Jesim Pais (2014). Growth and Structure of the Services Sector in India. Institute for Studies in Industrial
Development, Working Paper-160orki

Joshi, S. (2008). Growth and Structure of Tertiary Sector. New Delhi: Academic Foundation

Joshi, Seema. (2008). Service Sector in India's Economy: Performance, Problems, and Prospects. Paper Submitted at
Study Meeting on Expansion and Development of the Services Industry in Asia, Seoul, Republic of Korea, June 17–
20, 2008.

Kuznets S. (1973). Modern economic growth: Findings and reflections. American Economic Review, vol. 63, no. 3,
pp. 247-258.

Papola, T. S., and Sahu, P. P. (2012). Growth and Structure of Employment in India. Institute for Studies in
Industrial Development, New Delhi

Suparna, P. (2010). Issues in measuring GDP of health care services: the case of India. Journal of Income and
Wealth, Vol.32, Issue.1, Print ISSN: 0974-0309. Online ISSN: 0974-0295

Reserve Bank of India (2018-19), ‘Handbook of Statistics on Indian Economy.

Government of India, Economic Survey, Various Years. Ministry of Finance, New Delhi.

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