PRESANTETION

ON

SERVICE SECTOR IN INDIAN ECONOMIC

PRESANTED BY:-

Chaudhary Suresh (0805)

Dayma Hiral (0806)
Dave Ravi (0807)
Desai Ajay(809)
 Content
► Introduction
► Overview
► Reasons for growth
► Current scenario
► Activity comprising the service sector
► Service –before and after liberalisation
► Comparison
► Impact of service sector
► Sectoral growth
► Major service sectors
► Trends in service ,GDP and WPI
► Employment and service sector
► Service tax
► Effect of U.S. recession
 SERVICE

 Service is Intangible

 It is an economic activity that does not

result in ownership

 Creates value for the customer

Providers of services constitutes the Tertiary

sector of Indian economy
 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.
 Cont..
► 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%.
COMPARISON OF SERVICES AS A SHARE
OF GDP WITH OTHER COUNTRIES
S e r v i c e s a s s h a r e o f G D P i n 2 0 0 5

8 0

7 0

6 0

5 0

4 0

3 0

2 0

1 0

0
U n it U n it M ex R us In d i B ra z C h in
ed S ed K ic o sia n a il a
ta te in g d Fed
s om e ra t
io n
IMPACT OF SERVICES SECTOR ON OTHER
MACROECONOMIC VARIABLES

Looking at the magnitude of services growth and its inter-linkages with

other sectors of the economy, it is important to understand the impact
of services sector on other macroeconomic variables.

The following issues have been studied:

(i) Whether the robust growth of the services sector has added a
dimension
Stability to India's GDP growth.
(ii) Whether there has been a growing complementarily between services
and
industrial sectors of the economy.
(iii) Whether the services sector also experienced 'jobless' growth like
other
commodity-producing sectors.
(iv) Whether high growth of services sector had any inflationary impact
on the economy.
(v) Whether the imposition of services tax has boosted the Government’s
effort at mobilizing more resources
 SECTORAL GROWTH PERFORMANCE OF
INDIAN ECONOMY

Before understanding this first point let us see, the sectoral growth performance of
Indian Economy. There have been considerable increases in the service sector
during last two decades, and looking in the trend of last five years the GDP have
increased to 8%.
Three major service sectors that have seen
remarkable growth are communication,
transportation and financial services.
 Indian scenario-Services and
inflation

On the contrary, an examination of the NAS

(National accounts statistics) and price data
indicates that the contemporary growth process
is characterized by the co-existence of high
services growth with low and stable inflation
,thanks to the credible monetary policy, which
has kept the inflationary expectations at bay.
 Trends in Services, GDP and WPI –
Growth and Share (percent)
GDP growth Services Share of WPI index
growth services in
GDP
1971-72 to 3.16 4.22 40.69 -
1980-81
1981-82 5.64 6.44 44.38 -
to1990-91
1991-92 to 5.38 6.67 47.97 7.99
1995-96
1996-97 to 5.92 8.03 51.68 5.08
2000-01
2000-01 to 6.30 7.95 56.28 -
2004-05
2008-09 7.9 8 56 -
IS SERVICE SECTOR GROWTH A“JOBLESS
GROWTH”??

► The concern that the acceleration in GDP growth in India

in the post-reform period has not been accompanied by
a commensurate expansion in employment has received
a focused attention from the policy makers.

► It is generally argued that the growth in services sector

is a ‘jobless growth’.
 EMPLOYMENT AND SERVICES SECTOR –
NOT SO 'JOBLESS'

 India’s share of employment growth in the tertiary has been

higher than in manufacturing sector on Usual Principal
Status (UPS) basis. In the decades of eighties and nineties,
the fall in the share in employment in agriculture sector has
been increasingly absorbed by the tertiary sector.

 However, in 2004-05 compared to 1999-2000, there is a

change with the fall in employment share of the agriculture
sector being absorbed both by the manufacturing and
tertiary sectors with a higher share for the former.
THE TABLE PROVES THE ABOVE FACT

While the recent rise in share in employment growth in manufacturing sector is

a positive development, the importance of services in employment creation
needs to be noted, particularly when India is competitive in many labor-
intensive and skill-intensive services and there is a huge market even now.
Total employment (both organized and unorganized sector) trends as
captured in the NSSO surveys are indicative of the fact that services
sector has recorded a relatively faster growth in employment
 SERVICE TAX-A SOURCE OF REVENUE
► The number of services being taxed in India has increased
progressively from 3 in 1994-95 to about 92 in 2006-07 .
► The services tax was imposed at the rate of 5 percent, this
has now been increased to 12 per cent.
► There has also been a substantial growth in assesses base,
which increased from 3,493 in 1994-95 to 7, 74,988 in
2004-05.
► The collection of the services tax revenue has witnessed a
substantial expansion since 1994-95, rising from Rs. 407
crore in 1994-95 to Rs. 23,000 crore in 2005-06.
Services tax revenue as a
percentage of total tax
revenue
has also increased substantially
from 0.4 per cent in 1994-95 to 6.2
per cent in 2005-06 and is expected
to reach 7.8 per cent in 2006-07 .
The growth in services tax
collection has equally been
impressive. Growth in services tax
revenue has been facilitated both
by increase in rate of taxation as
well as increased number of
services being taxed.
In more recent years, after
recording a higher growth of 91.4
per cent in 2003-04, the growth in
services tax collection has come
down to 62 per cent in 2005-
06,which is also by and large,
impressive.
 SERVICE SECTOR-COMPONENT OF
INDIRECT TAXES
 Further, services tax is emerging as an important component of
indirect taxes.
 The share of services tax in indirect taxes has increased more than
twenty-folds from a mere 0.6 per cent in 1994-95 to 13 per cent in
2005-06 .
 On the contrary, following the rationalization of duty structure, the
share of indirect taxes has decreased over the years. Thus, it appears
that falling share of custom duty has been amassed by the services
 Almost 60 per cent of the GDP is contributed by the services sector
alone. The growth in absolute quantum of GDP and higher
proportion of services sector therein holds promise for a larger
revenue generation.
 EFFECTS OF U.S. RECESSION ON INDIAN
SERVICE SECTOR
► Not much effect as Indian Service Sector’s boom attributed to the hike in
internal consumption and the per capita income of Indian lot.

► Certain sectors led by IT/ITES which make substantial amount of export to

US are incurring losses.

► However, impact of US led recession which clicked from the sub prime crisis
would be partial and somewhat of short span on our economy.

► Services like tourism, health care education, engineering, communication,

transportation, finance, IT, banking will continue it boom.
THANK YOU