Chapter 15

SERVICESECTOR
IN INDIA
1. Introduction
Different persons perform different activities for earning their liveliho0d. bome people are engaos
in agricultural operations, some are engaged in industrial activities, transportation, education, health,
banking, insurance, communication, hotels, government administration, armed forces, maintenance of law
and order, etc. Allthese economic activities are broadly classified into three major groups on the basie at
the common characteristics. These aroups of economic activities are known as sectors of economu. Thoc.
sector.
sectors are named as primary sector, secondary sector and tertiary
Indian econe.
The service sector has emerged as the most dynamic and dominating sector of
The service sector is playing significant role in promoting economic growth of India. The growth rate of
service sector has remained highest among all other sectors of Indian economy. It is the main driver of GDP
growth in India. It contributed about 53.8 per cent in national income of India in year 2016-17. This sector
is an important net foreign exchange earner and is the most attractive sector for foreign direct investment
inflows. India's service sector covers a wide variety of activities, viz., trade, information technologu
transport, communication, financial activities, real estate, construction, travel and tourism, media and
entertainment, consultancy, research and development, etc. The service sector is making significant
contribution in foreign trade of India. In year 2015, India was the eighth largest service exporter country in
the world. The share of India's service exports in global service exports was 3.3 per cent in year 2015.
Government of India has taken various policy initiatives to further promote service exports from India,
viz., launching 'Service Exports from India Scheme'; organising global exhibitions on services; promoing
multilateral, regional and bilateral service trade agreements with other nations, etc. The contribution of
service sector in employment has remained a major challenge for Indian economy. In year 2015-16, the
contribution of service sector in employment in Indian economy was 32 per cent. Some economists term
the growth of service sector as jobless growth as its contribution in national income is 53.8 per cent, while
its contribution in employment is just 32 per cent. So the sustainable growth of service sector has been a
challenge for Indian economy. Serious efforts need to be made to promote the contribution of service
sector in employment.
I2. Main Groups of Economic Activities/Economic Sectors
(1) Primary Sector: This sector includes all such activities as are undertaken by using natua
resources, such as agriculture, animal husbandry, forestry, fishing, poultry farming, mining, etc.
these activities are directly based on natural factors such as rainfall, climatic conditions, sol,e
Similary, fishing, animal husbandry and poultry are based on biological processes of animas.
known as
the same way, mining is based on minerals and ores. This sector is also economic
of
agriculture and related activities. In all countries, in the initial stages
development, primary occupations remain dominant, But as a country heads towa
 India
Sector
in 221
Service

economic development, proportionate share of primarv occupations in the national

goes on diminishing. Those countries, in whose
income
national income, proportionate share of primary
occupations is large and a big chunk of population remains engaged in these
called underdeveloped countries. occupations, are
1 Secondary Sector: This sector includes various
manufacturing activities, which are
nerformed in factories. It includes all types of industries, such as large-scale industries,
small-scale industries, and cottage industries. It is also known as industrial
or
manufacturing sector. This sector adds utility to the products made by primary sector or
other synthetic products. For example, cotton is a primary product produced by primary
sector.
Manufacturing sector adds utility to cotton byconverting its form to cloth. Similarly, mining is a
pimary activity. Extracting iron ore is aprimary activity but converting iron ore into steel is a
manufacturing activity. Finished steel has more utility than iron ore. Thus, manufacturing sector
adds utility to primary products. This sector is more developed in developed nations, and less
developed in underdeveloped countries.
(3) Tertiary Sector: It is also known as service sector. includes all such activities as are
helpful in the production process of economy. These activities generate services for the
persons engaged in primary and secondary sector. Service sector includes services like
transportation, telecommunication, banking, insurance, trade, storage, communication,
travel and tourism, courier services, consultancy services, legal services, information and
technology, advertising agency, media, marketing, retail, etc.
Service sector also incudes certain services which are not directly helpful in the production process
but these are very essential for development, comfort and good quality of life. For example, we require the
services of doctors, teachers, security personnel, crèches, old age homes, beauticians, designers, boutiques,
domestic service providers (washermen, drycleaners, domestic servants), repair personnel, hotels,
RTeation centres, resorts, travel agencies, etc. In recent years, with the advancement of information
schnology, we enjoy services of internet café, ATM booth, call centres, auto vending machines, PCOs,
web shoppe, etc. In line with the global trend, the service sector in India is growing rapidly. India has
emerged as aservice led economy. Service sector in India is contributing more than half of India's GDP.
13. Interdependence of Various Sectors
Diferent sectors of Indian economy viz. primary sector, secondary sector and tertiary sector are
nter-dependent. Interdependence of different economic sectors means that either one sector
Sselling its output to other sectors or it is purchasing inputs in the form of goods and
ervices from other sectors.Output of primary sector becomes the input of secondary sector. In other
es primary sector gets market for its products by selling it to secondary sector and at the same time
ndary sector gets inputs from primary sector for further processing in industries. Similarly, service
OT is helpful to both primary and secondary sector as it provides services to both of these sectors. In
wOTds, primary and secondary sectors are dependent on service sector for essential services like
secondaryation, banking,
sectors is justinsurance, communication,
not possible without thesestorage,
services.trade,
In theetc.
sameDevelopment
way, primaryofand
prinmary and
secondary
ieate demand for service sector, i.e., because of demand by primary and secondary sectors, the
Ce-providers (like banks and insurancecompanies) areable to sell their services. Interdependence of
various sectors becomes clear from the following examples.
222
Indian Economy
(1) Farmers sell their produce to industries. Here, primary sector is supplying
secondary sector. So farmers are getting market for their products while material to
getting essential inputs for their industry.
industrialists
(2) Industrialists sell agricultural equipments, fertilizers, and pesticides to farmers. Here
Ssector is supplying material to primary sector. So industrialists are getting marketsecondary
for
products while farmers are getting inputs and equipments to enhance their productivity.their
(3) Transporters (Service Sector) carry the products of primary and secondary sectors to the
market place and bring the inputs from the market to the manufacturing place. Thus, service
sector is selling its services to primary and secondary sectors while primary and secondary
sectors get necessary facilities from service sector for marketing of goods and
procuring
inputs. For perishable products like milk, vegetables, fruits, bread, eggs, etc., the role of f
means of transportation (Service-sector) is very significant. For example, apples of Kashsi
and oranges of Nagpur are sold throughout India because of good transportation faciities
4. Meaning of Services
Services include all economic activities whose output is not a physical product. Aservice is generaly
consumed at the time it is produced, and provides value in forms such as convenience, amusement
timeliness, comfort, etc. Service is not a physical product. It is intangible in nature. In case of service, there
is no time gap between its production and consumption, i.e., services cannot be stored. It provides some
utility to the consumer. This utility can be in the form of comfort, conveniernce, entertainment, saving of
time, improvement in knowledge, health, etc.
5. Nature of Services/Features of Services
(1) Intangibility: Unlike products, services cannot be seen, touched or smelled. These are
intangible. These can gonly be felt. The services can't be seen, yet their benefits can be
utilized.
(2) Heterogeneity: Services lack in homogeneity. Like the behaviour of a bank employee can be
amiable towards one customer and harsh towards the other. So, it is not essential that the
services provided by a person or an orgamization are homogeneous.
(3) Non-Stocking: Services cannot be stored. For example, a transport company has atruck,
which remains idle on lst January on account of no work. Nowitis not possible to store the
service which it can render on that day and get double work done from it on 2nd January.
(4) Non-Transferability: Business services are of non-transferable nature. Thus, unike
products, there is no exchange of ownership in services. For example, when we buy aphysical
product, the ownership of the product is transferred from seller to buyer. But incase ot
services, like when we avail the services of a doctor, there is no change in ownership o
services from doctor to patient.
(5)) Customer Participation: To avail the benefit of services, the participation of customer is
indispensable. For example, atransport company is ready to take you on tour, abus is ready
and waiting for the passenger. Now if a passenger wishes to avail this service, he has to
travel in the bus. Without the participation of the customer, it is nottpossible to availIthe benefit
of any service. In some services, customers participate in the production and delivery process
of t h e services. For example, for reservation of seat in airlines/train o r at t h e theatre, customer

himself
uses internet, auto-vending machine or even ATM on his own. In customer
this way,
helps the service provider in the production and delivery of services.
 India

Sector
in 223
Sorvice

(6) Simultaneity: In service, both production and utilization go hand in hand. For example,
when a doctor is operating on a patient then doctor is providing services and at the same time
the patient is utilising the services of doctor.
16. Reasons for the Growth of Service Sector
(1) Increase in Income Level: Certain sections of people have become rich. They have
ctarted demanding services like hotels, resorts, entertainment, interior
security, private hospitals, private schools, coaching centres, etc. designing, personnel
iO Increase in Leisure Time: Certain sections of people have leisure time and they
sorvices of travel agencies, tour operators, restaurants, resorts, demand
hotels, etc.
Increase in Number of Working Women: Now more women are in
job, running
business, profession. So they need services of crèches, domestic servants, house keepers,their
etc.
IA) Product Complexity: Many products like water purifier, computer, microwave oven,
washing machine, dish cleaner, etc. are used by households. These complex products can
be serviced by specialised persons. So need of service providers has increased.
(B) Growth in Information and Technology: Growth in IT has led to an increase in various
types of services like call centres, internet café, ATM booths, software development, etc.
(6) Health Awareness: Now people have become more health conscious. It has led to increase
in demand for doctors, nurses, nursing homes, private hospitals, health clubs, yoga centres,
gymnasiums, slimming centres, etc.
(7) Increase in Mobility: Increase in mobility of people has led to increase in demand for
transportation and communication.
(8) Increase in Complexities: Now life has become more complex. So now people need more
services of lawyers, tax-consultants, chartered accountants, architects, property advisers,etc.
7. Role or Importance of Service Sector in Indian Economy
The service sector has emerged as the largest and fastest growing sector of Indian economy. Today,
the service sector is the largest contributor to our Gross Domestic Product (GDP). The share of service
SeCtor in GDP was about 53.8 per cent in year 2016-17. Importance of service sector in Indian economy is
discussed below:
(1) Aid to Primary and Secondary Sector: Service sector is important for rapid development
o primary and secondary sectors. Primary and secondary sectors need various kinds of
Services like transportation, storage, banking, insurance, trade, etc. Allthese facilities are
provided byservice sector.
) Creates Employment Avenues: Many people earn their livelihood in service sector. The
majority of new employment in the organised sector has come in the service sector like
software development, aviation, entertainment, brokerage houses, tourism, retail, BPOs, etc.
0) Contribution to National Income: In the recent past, the contribution of service sector to
national income has increased manifold. At present, more than half, i.e., 53.8 per cent of
national income is contributed by the service sector. This sector is the fastest growing sector of
Indian economy and this trend is likelyto continue in future.
(4) Provision for Basic Services: Certain basic services are very essential for the economy. It
ncludes hospitals, educational institutions, post offices, police stations, courts, public
tansport, telecommunication, banks, insurance companies, etc. In India most of these
 224
Indian EcConomy
services are mainly provided by the government.Now private sector has also
Some of these services. started providing
(5) Adds to Comforts and Leisure: Many services like hotels, tourism,
addto comfort and leisure of people. Now many people in India enjoy
entertainment. travel,
services such as etc.
in restaurants, going to movies, travelling to places of tourist interests. ete eating
(6) Improvement in India's Image: Certain services like software
Process Outsourcing (BPO), Information Technology Enabled development, Business
Services
accounts for more (ITES)
improved India's image in the world economy. Now India
global market in IT service and BPO market. than kirhave
(7) Increase in Exports: Because of good performance of service
increased substantially. As per World Trade Report sector, India'ss exports
published by World Trade have
India was the eighth largest service exporting country in
the year 2015. Organisation,
7.1 Contribution of Service Sector in National Income of
India
Service sector has emerged as the fastest growing
soctor bas contributed major share in national sector of Indiarfeconomy. In recent years, servico
income of India was 53.8 per cent in year 2016-17. income of India. The share of service sector in national
In all the developed countries of the world.
sector has the largest contribution in national spriee
income. As the
contribution of service (tertiary) sector tends to increase while the economy develops, the proportionate
decrease. In India, productivity of service sector has improved. Aftercontribution of primary sector tends to
national income has witnessed some favourable independence, composition of
sector in its national changes. In India, the percentage contribution of service
income is shown in Table 1.
Table 1. Contribution of Service Sector in
National Income
Year Service Sector Contribution
(in percentage)
1950-51 24.5
1960-61 26.4
1970-71 30.9
1980-81 36.6
1991 (Year of Economic Reforms) 40
2000-01 47.1
2010-11 57.8
2015-16* 53.4
2016-17* 53.8
[*Based on new series]
(Source: Monthly Economic Report, April 2017; Economic Survey, 2016-17)
Table 1shows that percentage contribution of service sector in national income is almost increasing
over the years. In year 1950-51, the contribution of service sector in national income was 24.5 per cent. In
year 1991, it increased to 40 per cent. In year 2016-17, the contribution of service sector in national
income was 53.8 per cent. Contribution of service sector in national income of India is more significant in
the post economic reforms period.
International Comparison of Contribution of Service Sector in GDP
In developed countries of the world, the service sector contributes major share in GDP. As the
economy grows, the share of service sector in national income tends to increase. Table 2 shows te
contribution of service sector in GDP of some developed and developing economies in year 2015.
 India 225
Sector
in
Service

Share of Service Sector in GDP of Different Nations (Year 2015)

Table
2. Percentage
Country Tertiary Sector (Service Sector)
Contribution

Germany 69
USA 78
UK 80

Japan 74
China 50
India 53
Pakistan 55

World Average 68

(Source: World Development Report, 2017)

Table 2 shows that share of service sector in GDP is more in developed countries in comparison to
loping nations. In USA and UK (both highly developed nations), the contribution of service sector is
Rner cent and 80 per cent respectively. In India also, service sector is the largest contributing sector in its
cOP In vear 2015, service sector contributed 53% in GDP of India.
22 Contribution of Service Sector in Employment
Service sector includes trade, information technology, transport, communication, financial
suces, real estate, construction, travel and tourism, media and entertainment, consultancy, research
and development, etc. Productivity of labour in service sector is more than the other two economic
Rcors, i.e.,agriculture (primary sector) and industry (secondary sector). Growth of service sector is
indicative of economic development of the country. In India, service sector is growing faster than the other
economic sectors and is a dominant source of quality employment. Over 70 per cent of growth in the
employment opportunities generated over the next 10 years will be in service sector. Percentage
contribution of service sector in India's employment is shown in Table 3:
Table 3. Contribution of Service Sector in Employment (in percentage)
Year Percentage Contribution
1901 15.7

1971 16.7

1991 (Year of Economic Reforms) 20.5

2000 25.8
2011-12 26.8

2015-16 32.0

(Source: Census Reports, NSSO Survey Reports)

been slable 3shows that the contribution of service sector in employment isincreasing, but its pace has
ow. In the post economic reforms period, i.e.,from year 1991 to year 2015-16,the contribution of
ervice sector
in employment improved from 20.5 per cent to 32 per cent. This pace of growth is
isergivticiecantly lower than growth of contribution of service sector in national income. Amongthe different
ea sub-sectors, contribution of trade, hotels, transport, storage, communication, financial services,
estate, information technology enabled services (ITES) in employment has been good. In order to
 226 Indian Economy
increase the contribution of service sector in employment in India, government needs to take serioue
measures.

8. Services Led Growth

In the post economic reforms period, the service sector has emerged as the most dominant and
dynamic sector of Indian economy. This sector is the main driver of GDP growth in India. In year 1950-51
the service sector accounted for 24.5 per cent of Gross Domestic Product (GDP), whereas the share of
agriculture sector in GDP was 61 per cent. In year 1991, service sector became the leading sector with
regard to its contribution in GDP In year 1991, the share of servicesector in GDP was 40 per cent which
was more than the contribution of other economicsectors. In post economic reforms period, i.e., after
1990-91,the share of service sector in GDP increased further. In year 2016-17, the contribution of service
sector in GDP was 53.8 per cent. Growth rate of service sector also remained highest in post-economic
reforms period. After 1990-91, the growth rate of service sector remained about 8 per cent. It was higher
than the growth rate of other economic sectors and also above the overall growth rate of GD.
The service sector has played significant role in foreign trade and in earning foreign exchange. India
emerged as eighth largest service exporter country in the world in year 2015. The share of India's service
exports in global service exports was 3.3 per cent in year 2015. In the same year, India's share in
merchandise exports stood at 1.6 per cent. It indicates that in service sector India's global position is better
than merchandise sector. The contribution of service sector in employment has also increased over the
period of time. In year 1991, contribution of service sector in India's employment was 20.5 per cent. It
increased to 32 per cent in 2015-16. The contribution of service sector in employment is less than the
contribution of service sector in GDP of India. So some economists term this growth as Jobless Growth'.
The contribution of service sector in foreign direct investment (FDI) equity inflows is increasing. In
2015-16, the share of servicesector in FDI equity inflows was about 55 per cent of total FDl equity inflows.
From above discussion, it is clear that service sector is playing significant role in promoting
economic growth of India. This sector is earning huge foreign exchange for the nation. Indian emerging
service sector has been an attraction centre for global investors. The service sector has played significant
role in upgrading the global image of Indian economy and in making it one of the most attractive
investment destination in the world.
Reasons for Jobless Growth in Service Sector
India's service sector has witnessed tremendous growth in last 2 decades, but its contribution in
employment has not increased proportionately. The contribution of service sector in GDP of India is about
53.8 per cent, whereas its contribution in employment is just 32 per cent. Following are the main reasons
for jobless growth in service sector:
(1) Lack of Well Defined Policy: In India, the service sector has not grown in a
well-coordinated manner due to lack of welldefined service sector policy. Unlike well defined
industrial policy in manufacturing sector, and agricultural policy in agriculture sector, no
service sector policy has been framed by government. In the lack of clear cut policy, the
growth of service sector has remained directionless.
(2) Higher Labour Productivity: The labour productivity in service sector is more than labour
productivity inother economic sectors. Higher labour productivity implies thata single person
can contribute more in production process. So service sector can be run with lesser number of
persons. So service sector has less employment potential in comparison to other economie
sectors.
 in India 227
Service Sector

(3) Increased Use of Information Technology Tools: Service areas like tour and rave
telecommunication, media and entertainment, research, banking., etc., are increasingly using
information technology tools. But, agriculture operations are still performed manually. So
due to digital revolution in service sector, lesser jobs are created.
(4) Capital Intensive Growth: Recent boom in service sector in India is due to huge inflow or
FDI in this sector. Foreign investors adopt capital intensive technology (based on the
technology of their home nation). Capital intensive technology is more efficient in
comparison to labour intensive technology. But at the same time, capital intensive
technology creates lesser jobs in comparison to labour intensive technology.
(5) Poor Quality Human Resource: To get employment in service sector one needs to have
some professional knowledge or skillsets, but in India, literacy rate is low. There is shortage of
professionally qualified skilled population. Computer literacy rate is very low. The illiterate or
less literate persons find jobs in agriculture sector, but they have less scope of employment in
service sector. Due to lack of professional knowledge, iliterate or less literate persons cannot
find jobs in service sector.
(6) Lack of Mobility: People living in rural areas have less mobility. They hesitate to shift to big
cities due to language problem, family attachment and high cost of living in urban areas. The
big cities have good potential for employment in personalised and community services; like
child care, old age care, domestic services, beauty care, retailing, etc. Such services don't
require rigorous training. But due to lack of mobility from rural areas to urban areas, they
remain unemployed although there are good avenues for their employment in urban areas.
9. Major Areas of Service Sector in India
Service sector has emerged as the most dynamic sector of Indian economy. The share of service
sector in Gross Value Added in India was 53.8 per cent in 2016-17. Service sector is playing significant
role in promoting economic growth. This sector is an important net foreign exchange earner and is the
most attractive sector for foreign direct investment inflows. In 2015, India emerged as eighth largest
service exporter in the world. India's service sector covers wide variety of activities, viz., information
technology and business process management (|T and BPM), financial services, tourism and hospitality,
wellness, consultancy services, research and development services, media and entertainment services,
shipping and port services, internal trade and retailing, postal services, real estate, services associated with
construction, communication,etc. The major areas of service sector in India are discussed below:
(1) Information Technology and Business Process Management (IT and BPM): Indian
information technology industry has earned good name in the world as it holds 55 per cent of
total global market. IT-BPM is the largest private sector employer providing 3.5 million jobs in
India. More than 38 per cent of India's service sector exports are contributed by this industry.
Indian IT-BPM industry has wide network across globe and has set up 640 offshore
development centres across 78 countries. India is one of the largest exporter of IT enabled
services (ITES) in the world. More than one-half of the Fortune 500companies prefer to
outsource their IT requirements to Indian IT companies. In India, Bengaluru, Hyderabad,
Pune, Noida, Gurgaon are emerging as major IT centres. With the availability of talented
workforce at lower cost and high global image, Indian IT-BPM has huge potential for growth.
Government is offering various incentives to start up units of this industry in the form of tax
228 Indian Economy
holiday, concessional loans, etc. Government is also developing IT parks in various parts of
the country and sector specific SEZ for the further growth of this industry.
(2) Financial Services: The financial services are provided by commercial banks, insurance
companies, non-banking financial companies (NBFCs), cooperatives, pension funds, mutual
funds and other smaller financial entities. Recently, Reserve Bank of India has allowed new
financial entities like Payment Banks, Payment Wallets, (viz. Paytm) also. Financial sector in
India is predominantly a bankingsector,and commercial banks account for more than 64 per
cent of total assets held by financial services firms. Government has introduced various
reforms to liberalise, regulate and promote faster growth and expansion of financial service
sector. RBIand government have taken various measures to facilitate easy access of Micro.
Small and Medium Enterprises (MSMEs) to finance, viz., setting up a Micro Units
Development and Refinance Agency (MUDRA), launching Credit Guarantee Fund Scheme
for Micro and Small Enterprises, issuing liberal guidelines to banks regarding collateral
requirements (security for taking loan), etc. After liberalisation, Indian financial sector has
grown at a rapid pace. India is fifteenth largest insurance market in the world in terms of
premium volume. India's life insurance sector is the largest in the world. Rising income level,
improving life expectancy and high economic growth rate are some of the factors which will
boost growth in insurance sector in the coming years.
(3) Tourism and Hospitality: India has geographical diversity, attractive beaches, hill stations
and 32 world heritage sites. In lndia, besides site scanning tourism, adventure tourism,
medical tourism, religious tourisn, sports tourisn, wellness tourisn, etc., are also popular.
Tourism and hospitality industry is a big employment generation source and third largest
foreign exchange earner for the country. About 8million foreign tourists visit India every year.
India has 52nd rank in tourism and travel competitive index. To meet the increasing demand
of skilled arnd trained manpower, government is promoting hospitality education to students
as well as certifying and upgrading skills of existing service providers. Government is
improving infrastructure at popular tourist destinations like strengthening air connectivity, rail
and road connectivity, etc. Hotel industry is given various concessions to improve hospitality
of tourists. Ministry of Tourism is spending huge amount on maintenance and beautification
of tourist resorts. All these initiatives create good opportunities for growth of this sector.
(4) Wellness: India has unmatched heritage in ayurvedic, yoga and naturopathy sector. These
sectors offer preventive and curative healthcare services. The demand for Ayurveda, Yoga,
Naturopathy, Unani, Sidhha, Homoeopathy (AYUSH) and herbal products is increasing in
domestic as well as in foreign markets. India is the second largest exporter of AYUSH and
herbal products in the world. These products provide holistic approach to health and solution
to emerging health challenges like depresion, tension, blood pressure, cholesterol, diabetes,
etc. Indian government has set up various research institutes for further growth of this sector.
Private corporate houses like Dabur, Himalayas, Vaidyanath, Patanjali, etc., are investing
huge funds in this sector. Yoga tourism is also increasing from foreign nations. The exports of
herbal medicines are increasing significantly. The Himalayan region is a rich source of
medicinal plants and India possesses ancient knowledge of natural herbs. All these ensure
good potential of growth of this sector.
(5) Consultancy Services: Consultancy services segment is emerging as one of the fastest
growing service segments in India. Alarge number of consultancy firms are operating in India
 India
Sector in 229
Service

at various levels. Technical

market, while management
consultancy constitutes about two-third of the total consultancy
consultancy constitutes abouttone-third of the total consultancy
market. Technical consultancy in
India, which mainly consists of engineering consultancy, is
much stronger than management consultancu in terms of size of
of clients, Consultancy capabilities, etc. Indian management consultancy firms, nuno
controlled by foreign consultancy market is mainiy
multinational consultancy companies. Although there are vast
opportunities tor the growth of Indian consultancu firms. but there are some hindrances
lack of strategic tie-ups, insufficient international experience of like
Indian consultants working
abroad, low competence image, lack of market knowledge regarding
opportunities abroad, etc. Solving these problems will help in increasing consultancy
share of lndian consultancy industry. Government has taken the global marke
various initiatives to help ne
consultancy industry, viz., promoting MarketingDevelopment
Access Initiative Scheme, initiatives for capacity developmentAssistance Scheme, Market
of domestic consultants,
promoting Make in India programme, development of smart cities, skill
liberalisation of industrial policies and procedures, etc. With these initiatives,development,
there is huge
potential for Indian consultancy firms in various areas, viz., construction,
power generation, renewable energy, water supply and sewerage, information transportation,
technology,
telecommunication, healthcare, manufacturing sector, bio-technology, nano-technology,
etc.

(6) Research andDevelopment Services: In terms of availability ofscientists and

engineers,
India is in a good position. Many MNCs have shifted their Research and Development base to
India due to availability of highly talented manpower at competitive rates. These R&D
centres develop products to serve the local market and also help the parent company in
making innovative products for the global market. India's R&D service market stood at US
$7.75 billion in year 2015. India's R&D service companies account for almost 22 per cent of
alobal R&D service market. FDI inflows in service sector in India are increasing at a great
pace. FDIinflows in service sector are more than 50% of total FDI equity inflows in India.
Government has taken many initiatives to promote research and development services in
India, viz., weighted tax deduction for R&D expenditure, promoting programmes like Make
in India, Start-up India, Atal Innovation Mission (AIM), etc. Government has also announced
plans to establish National Institution for Transforming Inia (NITI) to increase involvement
of entrepreneurs and researchers to promote scientific innovation. With the support of
government, R&D sector in India is expected to witness robust growth in coming years.
(7) Media and Entertainment Services: Indian media and entertainment industry consists
of various segments, viz., television, print media, radio, cinema, music, animation, video
games, digital advertising, etc. This industry has recorded significant growth in last two
decades, making it one of the fastest growing industries in India. India is second largest TV
market in the world after China. There are about 847 satellite television channels. India is
world's biggest producer of films with more than 1,00 films produced each year in all
languages. For promoting Indian cinema, government organises and participates in various
film festivals in India and abroad. For promoting and facilitating film shootings by foreign
flmmakers in India, government is settingup Film Facilitation Office (FFO) at Mumbai, Delhi,
Chennai and Kolkata. The animation, visual effects, gaming and comics sector is also
growing rapidly. For promoting skill development in this sector government is in the process
of setting up a National Centre of Excellence in Animation, Gaming, and Visual Effects.
 230 Indian Economy

(8) Shipping and Port Services: About 95% of India's trade byvolume and 68% in terms of
value is carried through sea transportation,. It reflects the significance of shipping and port
1,323 shis
services in Indian economy. Ason 30th April 2017, India had a fleet strength of
Shipping Corporation of India is the largest public sector shipping company in India. Despite
countries, India's share
having one of the largest merchant shipping fleets among developing
cent per cent as on 1st July 2016. Further
n total world weight tonnage was just about 1 per 2015, nearly 42 per centof Indian
the existing Indian fleet is also ageing. As on 31st December
need to increase India's shipping fleet, For
Tleet was over 20years old. So, there is urgent
encouraging the growth of Indian shipping industry and
for higher participation of Indian
various measures, viz., making fuel tay
ships in India's foreign trade, government has taken
trade, giving income tax concessions to
free for all lndian coastal vessels engaged in container
simplification with regard to ship registration.
Indian shipping companies; procedural
payment of fees online; establishing dry ports at
procuring journey permission, allowing financial assistance to port authorities to
Jawaharlal Nehru Port and at Kandla Port; providing
procure pollution free equipments, etc.
trade refers to movement of goods and services
(9) Internal Trade and Retailing: Internal
country. It includes self-employed persons
across different geographical regions in the
engaged in both wholesale trade and retail trade.
In India, internal trade is governed by
free flowof goods within the countryand
various government controls. It has hindered the
efficiency. Retail sector is an important
resulted in higher transportation cost and low and
component of internal trade. Retail sector
accounts for over 10 per cent of country'sGDP
about 8 per cent of employment in India. Due
to increase in income level, urbanisation and
grow at the rate of 12 per cent per annum.
change in life style, the retail market is expected to
retailing through physical stores by the year
Online retail is expected to be at par with the users, and increased investment in
internet
2020. VWith the rapid increase in the number of
world's fastest growing e-commerce
online retail sector, India is expected to become the
reach US $120 billion by year 2020.
market. Indian e-commerce sales are expected to
largest postal network in the world. It provides
(10) Postal Services: India's postal network is the affordable cost. The Department
access to postal services to all citizens in the çountry at very
disbursing wages to Mahatma Gandhi
of Posts of Government of India plays a crucial role in
beneficiaries. The Information
National Rural Employment Guarantee Scheme (MGNREGS)
computerisation and
Technology Modernization Project of Department of Posts is workingg for
administrative offices and branch
networking of all post offices, mail offices, accounts offices,
mail transmission and
post offices in rural areas run by gramin dak sevaks. In order to monitor
vehicles with
delivery more effectively, the department of posts has equipped mail carrying
significant role in
global positioning system (GPS) devices. This department is playing Jyoti
running Prime Minister Suraksha Bima Yojana, Prime Minister Jeewan Yojana, Atal
Pension Yojana, Sukanya Samriddhi Yojana, Kisan Vikas Patra, etc.
For promoting faster growth in service sector, government is providing various concessions and
facilities in the form of tax rebates, tax holiday, concessional loans, exemption from excise duty, liberl
foreign investment, easiness in doing business, developinge-biz portals, etc. Most of these sectors have
been opened for foreign direct investment through automatic or government route. These sectors have
also been opened for domestic private sector. Wide network of engineering colleges, research institutes h¡s
been set up to provide highly talented workforce to various service sectors. lnfrastructure has been
 India
Sector in
Service 231
to remove bottlenecks in the
strengthened
growth of service sector. The of 'Make in India'
will make Indian
economy a manufacturing hub for the world.success
It will All
boost
theseourwill
GDP helpper
programme

capitaincome, and exports. It will also generate huge employment opportunities. to

Indian economy trom adeveloping economy to a
transform
developed economy in the years to come.
9.1 Growth Rate of Major Service Areas in India
Toanalyse growth rate of service sector, various services are classified in three groups,
.le Transport and Communication, (ii) Financial, Real Estate and Business Services, viz. (i) Trade,
(ii) Community,
Social and Personal. Services. In table 4, growth rate of these major service area groups along with growth
rate of service sector as a whole and growth rate of GDP is shown.
Table 4. Growth Rate of Major Service Areas in
India (in per cent)
Service Areas 1990-91 2000-01 2010-11 2015-16 2016-17
1. Trade, Hotels,Transport
5.2 6.4 12.2 10.7 7.3
and Communication

2 Financial, Real Estate and 6.2 3.5 10.0 10.8 6.5

Business Services

3. Community, Social and 4.4 4.6 4.2 6.9 11.2

Personal Services

Service Sector (Total Services) 5.6 5.7 9.3 9.8 7.9

Gross Domestic Product (GDP) 4.7 4.4 8.4 7.9 7.1

(Source: Economic Survey Reports and Monthly Economic Reports)

Table 4 reflects that growth rate of servicesector as awhole has been consistently more than growth
rate of GDP since year 1990-91l. Among major service area goups, the second group, i.e., financial, real
estate and business services has registered significant growth. In year 2015-16,the growth rate of this
goup was 10.8 per cent. The growth rate of first service area group, i.e., trade, hotels, transport and
communication has also registered significant growth. In year 2015-16, this service area group achieved
growth at the rate of 10.7 per cent. In year 2016-17, among the major service groups, highest growth was
in community, social and personal services. In 2016-17, this sector achieved growth rate of 11.2 per cent.
The remarkable growth rate of service sector since 1990-91 in Indian economy has helped to achieve
higher growth rate of GDP The growth pattern in which service sector has major contribution in GDP is
called 'Service Led Growth'.
I10.Growth of Service Sector in India
Service sector has emerged as the largest and the fastest growing sector of India. The growth in
output of service sector has been higher than that of agriculture and industry. Growth of service sector is
dlear from the following points:
(1) Increasing Share in GDP: The contribution of service sector in GDP is continuously
increasing in India. In 1950-51, contribution of service sector to GDP was 29 per cent. In the
year 2016-17, this contribution increased to 53.8 per cent of GDP
(2) Increasing Share in Employment: The contribution of service sector in employment has
been increasing. In year 1970-71,the contribution of service sector to employment was 16
per cent. In year 2015-16, it increased to 32 per cent. Although this increase is not significant,
yet we find that the majority of new employment in the organised sector has come in the
service sector.
 232 Indian Economy
(3) Increasing Share in Exports: The contribution of service sector in exports is increasing
rapidly. In year 2015, India became 8th largest: service exporter in the world. India is exporting
software and infomation technology enabled services to mnany countries of the world
(4) Growth of New Types of Services: Service sector has expanded in new directions also,
Now many types of services have developed; like business process outsourcing IT
enabled
services. medical tourism, consultancy, courier services, interior designing, etc.
(5) Increase in Number of Service Providers: Apart from several indigenous agenciee
foneian service providers have also been allowed to enter in India in certain services. It ha
increased competition. For example, in case of telecommunication sector, earlier onlu pu
sector was providing telecommunication services. But now with privatisation and
alobalisation, many companies like Reliance-Jio, Tata Docomo, Airtel, Vodafone, etc.
entered in the Indian telecom market. As aresult, competition in telecommunication have
bas increased, thereby benefiting the consumers. Similarly in case of air travel, services
airlines likeSpicejet, Jetlite Airlines, Jet Airways, Go Air, Indigo Airways, Air many private
etc.. have been permitted to provide air services. As a result, competition Asia,Vistara.
in airlines has
increased. It has benefited the consumers as now airfares have come down.,
11. India as a Major Service Provider in the World
IT enabled services is one of the major areas witnessing
tremendous growth in India. Software
industry has emerged as one of the major area where India has comparative advantage over
because of availablity of talented software engineers in India. Following facts indicate other nations
that India is a maior
service provider in the world:
(1) India accounts for 65 per cent of global market in offshore IT services.
(2) India accounts for more than half of global Business Process
Outsourcing (BPO) market.
(3) India's consultancy professionals provide expertise in information technology,
financial and banking services to many countries of the world. advanced
(4) India is ranked as 8th largest exporting countries in services.
(5) In recent years, India has emerged as one of the preferred countries for outsourcing.
12. Comparison of Primary, Secondary and Tertiary Sectors
All the three sectors of economy are very important for the rapid development of the nation. But it is
not necessary that all these sectors will grow at the same pace. is possible that the growth rate
of these
sectors is differernt; their contribution to national income may also vary. With the change in level of
development, the share of different sectors in the national income changes. Generally, with increase in
level of development, the percentage contribution of secondary and tertiary sector increases.
As the nature of products of these three sectors is not the same, so for comparing production of
these sectors, we have to convert their production units in monetary values. It is done by multiplying
their output with the market price. For example, if a farmer has grown 100 quintals of wheat and the rate
of wheat is 1,500 per quintal then the market value of his produce will be 1,50,000. Similarly, if an
industrialist has produced 20 machines and the price of one machine is 10,000 then value ofhis
output will be 2,00,000.
In the initial stages of development, primary sector dominates other sectors of the economy, i.e., the
share of primary sector in the national income and in the employment is more than other sectors. As
 Sector in India 233
Service

development proceeds. the proportionate contribution of primary sector tends to decrease andthat of the
secondary and tortiary sectors tends to increase. In India also, in the initial stage of development, the share of
primary sector was more in terms of total production. With the development of industries and growth in
service sector, ashift has taken place. Now service sector is the largest contributor in the Indian economy.
Now service sector is contributing 53.8 per cent of our national income.
12.1 Contribution of F Different Sectors to GDP of India
Csatibution of diferent sectors to GDP of India is shown in Table 5.
Table 5. Contribution of Different Sectors to GDP of India (at constant prices, in percentage)

Year Primary Sector Secondary Sector Tertiary Sector

1950-51 55 16 29
1970-71 44 24 32
1990-91 35 24 41
2000-01 26 25 49
2010-11 14.2 28 57.8
2015-16* 15.4 31.2 53.4
2016-17* 15.1 31.1 53.8
[ based on new series with base 2011-121
(Source: Economic Survey, 2016-17)
Table 5 shows that earlier, primary sector was the dominant sector in India. In 1950-51, the share of
pimary sector was 55 per cent of GDP. In 2016-17, the share of primarysector was reduced to 15.1 per cent
ofGDP.Theservice sector, which was contributing 29 per cent of GDP in 1950-51, has expanded rapidly. In
u2ar 2016-17, the share of service sector was 53.8 per cent of GDP. Service sector is also the fastest growing
sector of lndia.

12.2 Contribution of Different Sectors to Employment in India

Among all the sectors, primary sector has been dominating in terms of providing employment. In
terms of contribution to GDP, some shift has taken place, i.e., earlier primary sector was the main
contributor to GDP, but now tertiary sector has gained dominance and it is the largest contributor to GDP.
But in terms of employment, primary sector is still dominating. Contribution of different sectors in
employment is shown in Table 6.
Table 6. Contribution of Different Sectors in Employment (in percentage)
Year Primary Sector Secondary Sector Tertiary Sector
1950-51 73 10 17
1970-71 73 11 16
1990-91 67 12 21
2001-02 61 17 22
2011-12 48.9 24.3 26.8
2015-16 46.2 21.8 32.0
(Source: Census Report, NSSO Survey)
234 Indian Economy
a lo Table 6 indicates that till date primary sector is dominating in employment generation and
Continues to be the largest employment providing sector in India. In the year 2015-16, 46.2 per cent of
employment was provided by primary sector. Secondary and tertiary sectors stillprovide employmento a
very small section of population. The contribution of service sector in employment in developed nationsis
significant. In USA, service sector is providing employment to 81 per cent of working population, in
England it is 79 per cent, in France it is 72 per cent, in Japan it is 70per cent, while in India only 32 per cent
of working population is getting employment in service sector. In India, about 46.2 per cent of working
population is engaged in primary sector producing only 15.1 per cent of GDP. In contrast, only 53.8 per
cent of working population is engaged in secondary and tertiary sector and is contributing 84.9 per centof
GDP Itreflects the income inequality among persons working in these sectors. It also reflects the problemof
under-employment and disguised unemployment in primary secto. It also reveals that secondary and
tertiarysectors have not been able to generate sufficient employment opportunities.

Questiens
II. Long Answer Type Questions hoIndian economy.
horioootBrolo