IJESS Volume 3, Issue 12 (December-2013) ISSN: 2249- 9482

EMERGING TRENDS IN SERVICE SECTOR IN INDIA

Sushma Vohra*

ABSTRACT
Service sector is the lifeblood of our economy. Change in business environmental conditions and
increased dependency on service sector, in ongoing 21st century, the service sector has gained
utmost importance. Service is a product of human activity that aims at satisfying society's variety
of needs. Service sector is very large and accounts for about two-third of global economic
activities. It helps to integrate national economy with global economy, higher economic
efficiency, more employment, better customer choice and quality of life. The globalization and
liberalisation as a result of "New Industrial Policy" has opened new vistas for development of
service generating organizations. Today service sector is the most competing industry. The
service organizations active in enriching their strength have been found establishing their edge
and compelling the weaker organizations to make a final good bye. This makes it essential that
even in Indian conditions, the service-generating organizations have to make sincere efforts to
make themselves stronger and stronger. If they want to survive, they have to diversify their
activities in various profitable avenues such as banking, insurance, education, transportation
etc. to compete at national as well as at international level.

*Assistant Professor, Deptt. of Commerce, M.L.N. College, Yamuna Nagar

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IJESS Volume 3, Issue 12 (December-2013) ISSN: 2249- 9482
INDIAN SERVICE SECTOR
The service sector has been at the forefront of the rapid growth of Indian economy. Indian
service sector has witnessed a major boom and is one of the major contributors to both
employment and national income in recent times. The contribution of service sector to Indian
economy has been growing by 10% annually. In terms of employment, although the primary
sector is the dominant employer followed by service sector, the share of service sector has been
increasing over the years. An international comparison of service sector shows that India
compares well even with the developed countries with highest GDP. The activities under the
preview of service sector are quite diverse. Trade, hotels, restaurants, transport including tourist
assistance activities of travel agencies and tour operators, storage and communication, banking
and insurance, real estate, public administration, defense, education, medical and health services
come within the gambit of service sector. The growth story overall and services of world and
India in the 2000s began from almost the same level of around 4-5 per cent in 2000. But over the
years, India’s overall and services growth rates have outpaced those of the world. Interestingly,
unlike world services growth, which has been moving in tandem with its overall growth with
mild see-saw movements over the years, India’s services growth has been consistently above its
overall growth in the last decade except for 2003 (when the former was marginally lower than
the latter). Thus, for more than a decade, this sector has been pulling up the growth of the Indian
economy with a great amount of stability. The share of services in India’s GDP at factor cost (at
current prices) increased from 33.3 per cent in 1950-1 to 56.5 per cent in 2012-13 as per
Advance Estimates (AE). Including construction, the share would increase to 64.8 per cent in
2012-13. With an 18.0 per cent share, trade, hotels, and restaurants as a group is the largest
contributor to GDP among the various services sub-sectors, followed by financing, insurance,
real estate, and business services with a 16.6 per cent share. Both these services showed
perceptible improvement in their shares over the years. Community, social, and personal services
with a share of 14.0 per cent is in third place. Construction, a borderline services inclusion, is at
fourth place with an 8.2 per cent share. Sub-sector wise, among commercial services, in terms of
shares, the major services are trade, transport by other means (i.e. excluding railways), banking,
and insurance, and real estate ownership of dwellings, and business services, besides
construction. In 2011-12, though the growth of ‘trade’ decelerated to 6.5 per cent, its share
improved to 16.6 per cent. The share of ‘transport by other means’ at 5.4 per cent was almost at

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 IJESS Volume 3, Issue 12 (December-2013) ISSN: 2249- 9482
earlier levels, while its growth was at 8.6 per cent. Banking and insurance with marginal
improvement in its share to 5.7 per cent was the most dynamic sector in 2011-12 with a growth
of 13.2 per cent on the top of high growths in the preceding years. ‘Real estate, ownership of
dwellings, and business services’ with a share of 10.8 per cent, which is marginally higher than
that of the previous year, also had robust growth of 10.3 per cent. ‘Other services’ with a share of
7.9 per cent both in 2010-11 and 2011-12 grew at a slower pace of 6.5 per cent in 2011-12.
Among ‘other services’, the two major items are community services, of which education,
medical and health are the major items and personal services. Interestingly some items among
community services like coaching centre and membership organizations have high growth rates
with small shares which are rising. Construction, the borderline services sector, has been the
most vulnerable to global events. With a share of 8.2 per cent as in the previous two years, it has
been growing unevenly since the global crisis.
SHARE AND GROWTH OF INDIA’S SERVICES SECTOR (AT FACTOR COST)
(per cent)
2001- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012-
01 06 07 08 09 10* 11@ 12 13
Trade, hotels, & restaurants 14.6 16.7 17.1 17.1 16.9 16.5 17.2 18.0 25.1#
5.2 (12.2) (11.1) (10.1) (5.7) (7.9) (11.5) (6.2) (5.2)
Trade 13.3 15.1 15.4 15.4 15.3 15.1 15.7 16.6
(5.0) (11.6) (10.8) (9.8) (6.7) (8.5) (11.5) (6.5)
Hotels & restaurants 1.3 1.6 1.7 (1.7) 1.5 1.4 1.5 1.5
(7.0) (17.4) (14.4) (13.9) (-3.3) (1.9) (10.8) (2.0)
Transport, storage, & 7.6 8.2 8.2 8.0 7.8 7.7 7.3 7.1
communication (9.2) (11.0) (12.6) (12.5) (10.8) (14.8) (13.8) (8.4)
Railways 1.1 0.9 0.9 1.0 0.9 0.9 0.8 0.7
(4.1) (7.5) (11.1) (9.8) (7.7) (8.8) (5.9) (7.5)
Transport by other means 5.0 5.7 5.7 5.6 5.5 5.3 5.3 5.4
(7.7) (9.3) (9.0) (8.7) (5.3) (7.3) (8.2) (8.6)
Storage 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
(6.1) (4.7) (10.9) (3.4) (14.1) (19.3) (2.2) (9.4)
Communication 1.5 1.6 1.5 1.4 1.4 1.4 1.1 0.9
(25.0) (23.5) (24.3) (24.1) (25.1) (31.5) (25.4) (8.3)
Financing, insurance, real estate, & 13.8 14.5 14.8 15.1 15.9 15.8 16.0 16.6 17.2
business services (4.5) (12.6) (14.0) (12.0) (12.0) (9.7) (10.1) (11.7) (8.6)

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 IJESS Volume 3, Issue 12 (December-2013) ISSN: 2249- 9482
Banking & Insurance 5.4 5.4 5.5 5.5 5.6 5.4 5.6 5.7
(-2.4) (15.8) (20.6) (16.7) (14.0) (11.4) (14.9) (13.2)
Real estate, ownership of, dwellings 8.7 9.1 9.3 9.6 10.3 10.4 10.4 10.8
& business services (7.5) (10.6) (9.5) (8.4) (10.4) (8.3) (6.0) (10.3)
Community, social & personal 14.8 13.5 12.8 12.5 13.3 14.5 14.0 14.0 14.3
services (4.6) (7.1) (2.8) (6.9) (12.5) (11.7) (4.3) (6.0) (6.8)
Public administration & defence 6.6 5.6 5.2 5.1 5.8 6.6 6.1 6.1
(1.9) (4.3) (1.9) (7.6) (19.8) (17.6) (0.0) (5.4)
Other services 8.2 7.9 7.6 7.4 7.5 7.8 7.9 7.9
(7.0) (9.1) (3.5) (6.3) (7.4) (7.2) (8.0) (6.5)
Construction 6.0 7.9 8.2 8.5 8.5 8.2 8.2 8.2 8.2
(6.1) (12.8) (10.3) (10.8) (5.3) (6.7) (10.2) (5.6) (5.9)
Total Services 50.8 53.1 52.9 52.7 53.9 54.5 54.4 55.7 56.5
(5.4) (10.9) (10.1) (10.3) (10.0) (10.5) (9.8) (8.2) (6.6)
Total Services (incl. Construction) 56.8 61.0 61.0 61.2 62.4 62.7 62.6 63.6 64.8
(5.5) (11.1) (10.1) (10.3) (9.4) (10.0) (9.8) (7.9) (6.5)
Total GDP 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
(4.3) (9.5) (9.6) (9.3) (6.7) (8.6) (9.3) (6.2) (5.0)
Source : Central Statistics Office (CSO).
DIFFERENT SECTOR CONTRIBUTIBG IN INDIAN ECONOMY
Primary Sector
When the economic activity depends mainly on exploitation of natural resources then that
activity comes under the primary sector. Agriculture and agriculture related activities are the
primary sectors of economy.
Secondary Sector
When the main activity involves manufacturing then it is the secondary sector. All industrial
production where physical goods are produced come under the secondary sector.
Tertiary Sector
When the activity involves providing intangible goods like services then this is part of the
tertiary sector. Financial services, management consultancy, telephony and IT are good examples
of service sector.
During early civilization all economic activity was in primary sector. When the food production
became surplus people’s need for other products increased. This led to the development of
secondary sector. The growth of secondary sector spread its influence during industrial

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IJESS Volume 3, Issue 12 (Decembeer-2013) ISSN: 2249- 9482
9
revolutioon in nineteeenth centuryy. After grow
wth of econnomic activitty a supportt system waas the
need to facilitate th
he industriall activity. Certain
C sectoors like traansport and finance plaay an
importannt role in su
upporting thhe industriall activity. Moreover,
M m
more shops were needeed to
provide goods
g in people’s neighhborhood. Ultimately,
U o
other servicees like tuitioon, administrrative
support developed.
d
P
PERCENTA
AGE SHAR
RE OF DIFF
FERENT SE
ECTORS IN
N OUR ECO
ONOMY

Data for
f 2012-13 ass per Advance Estimates releeased by CSO
m 1950-51 too 1980-81. But now seervice
Primary sector was the dominaant sector inn India from
sector beecomes the dominant sector of ecoonomy. Servvice sector growth ratee in Indian GDP
registeredd a significaant growth over
o the pastt few years. The increassed share off service secttor in
GDP of Indian
I econo
omy can be seen
s from abbove chart.
REASO
ONS FOR THE GR
ROWTH OF
O SERVIICE SECT
TOR CON
NTRIBUTIION
IN IND
DIAN GDP
P
The conttribution of the service sector has increased
i veery rapidly in
i the Indiann GDP for many
m
foreign consumers
c have
h shown interest in thhe country’ss service expport. This is
i due to thee fact
that Indiaa has a largee pool of higghly skilled, low cost and educated workers.
w Thhis has madee sure
that the services
s thatt are available in the couuntry are of the best quaality. The fooreign comppanies
seeing thhis have startted outsourcing their woork to India especially
e inn the area of business serrvices
which inncludes busiiness processs outsourcinng and infoormation technology serrvices. Thiss has
given a major
m boost to
t the service sector in Inndia, which in its turn haas made the sector contrribute
more to the
t Indian GDP.
G

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IJESS Volume 3, Issue 12 (December-2013) ISSN: 2249- 9482
FINDINGS AND CONCLUSION
1. Growth in service sector in India is a positive development and it affects the structural
transformation that normally occurs in a developing economy as it moves to higher levels
of development.
2. Service sector has also thrown open several opportunities on export front.
3. India has become a hub for business process outsourcing for the developed countries due
to availability of cost effective and skilled human resources.
4. Emergent areas of tourism like rural tourism, wildlife tourism and medical tourism have
consistently increased the number of foreign tourist arrival in India.
5. E-commerce and internet are one of the fastest growing sub-sectors in the Indian
economy.
6. The slow growth of agricultural and manufacturing sector has been responsible for the
slow growth in the GDP in the post reform period. It is only the fast growth of service
sector which has raised the GDP growth.
Service sector growth rate in Indian GDP registered a significant growth over the past
few years. The Indian government most take steps in order to ensure that service sector
growth rate in Indian continues to rise. For this will ensure the growth and prosperity of
the country’s economy.
REFERENCES
1. 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.
2. Banga, Rashmi (2006), “Statistical Overview of India’s Trade in Services” in R. Chanda
(ed.), Trade in Services and India: Prospects and Strategies’, Wiley India, New Delhi.
3. Banga, Rashmi and Bishwanath Goldar (2004), “Contribution of Services to Output
Growth and Productivity in Indian Manufacturing: Pre and Post Reforms”, ICRIER
Working Paper No. 139, July 2004.
4. Basu, Kaushik and Annemie Maertens (2007), “The Pattern and Causes of Economic
Growth in India”, CAE Working Paper #07-08, April 2007.
5. Bhattacharya, B.B. and Arup Mitra (1990), “Excess Growth of Tertiary Sector in Indian
Economy: Issues and Implications”, Economic and Political Weekly, Vol. 25, No. 44
(Nov. 3, 1990), pp. 2445-2450.
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IJESS Volume 3, Issue 12 (December-2013) ISSN: 2249- 9482
6. Ministry of Finance (2007), “Strategy for India’s Services Sector: Broad Contours”,
Working Paper 1, http://finmin.nic.in/workingpaper/1_2007_DEA.pdf (last accessed on
May 4, 2012).
7. Economic Survey, 2012-13.

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