CHAPTER II

CONCEPTS, REVIEW OF LITERATURE AND METHODOLOGY

This chapter presents a brief review of the related literature concerned with the

study of the “Performance of services’ sector in India since 1980 -81” and explains

also the methodology adopted in this study. While section A of this chapter deals

with the concepts, section B deals with a review of the related literature and section C

deals with the methodology adopted.

SECTION A

2.1 CONCEPTS

2.1.1 Introduction

The important concepts, which might be interpreted in different ways, are

chosen and their specific usages in this study have been vividly explained in this

section

2.1.2. Service’s Sector

Service’s sector is that part of industry or business, which deals with the

marketing, and selling of the intangible products rather than the physical goods.
 35

2.1.3 Services

Services refer to an intangible product; any product or offering that is

essentially an intangible one.

DEFINITION OF SERVICES

Adrian Payne (1993) had defined ‘service’ as an activity that had an element

of intangibility associated with it and which involved the service provider’s

interaction either with the customers or with the property belonging to the customer.

The service activity does not involve the transfer or ownership of the output.1

Philip Kotler (2002) had defined the ‘services’ as any activity or benefit that

one party could offer to another that is essentially intangible and does not result in

the ownership of anything. Its production might not be a physical product.2

Services’ sector is more specifically the sector of production outside that of

agriculture and industry, and includes construction, trade, finance, real estate, private

services, government, and sometimes transportation.

_
1
Adrian Payne, The Essence of Services Marketing, Prentice-Hall Indian
publication, Delhi 1993, p.147
Philip Kotler, Social Marketing: Improving the Quality Of Life, Sage publications,
2

New Delhi (2nd edition), p.12

 36

‘Services’ constitute a very heterogeneous spectrum of economic activities. Over a

period, the definition of the word 'service' had also undergone a change. In olden

days, it was difficult to separate 'services' from the service provider and the recipient.

People were crucial to the definition of service. Today services cover a wide range of

activities such as management, banking, insurance, hospitality, administration,

communication, entertainment, wholesale distribution, retailing including research

and development activities. Service sector is now occupying the centre stage of the

economy so much so that in the contemporary world, development of the service

sector had become synonymous with the advancement of the economy. The growth

of the service sector in both the developed and the developing world has been

phenomenal. As economies became progressively service driven, greater wealth and

employment was being generated in this sector. Services has been classified into

four categories based on the service customization and customer contact.

The types of services are as follows:

* Service Factory, such as airlines, hotels, resorts and trucking. This is the

type where there is a low customer contact and a low degree of customization. The

services offered need to be warm and exciting, and attention must be paid to

ambience and physical surroundings.

* Service shops, where there is also a low degree of customer contact and a

high degree of customization. The management must deal with skilled labour and the
 37

key challenges would be keeping the cost down and the quality high. Examples are

hospital and auto repair.

*Mass Service, where there is a high level of customer contact and a low

level of customization. Managing and controlling the workforce would be the key

area. Examples are retailing, wholesale trade and schools.

* Professional Service firms with a high degree of customer contact and also

a high degree of customization.

The challenge in this type of services is managing and controlling people,

management's ability to deal with skilled workforce as well as keeping the cost down

and the quality high. Some examples are doctors, lawyers, consulting firms and so

on.

ISSUES FOR SERVICES PROVIDERS

Service providers face obstacles in selling services that goods-sellers rarely

face. Services are not tangible, making it difficult for the potential customers to

understand what they will receive and what value it will hold for them. Indeed some,

such as consulting and investment services, offer no guarantees of value for the

prices paid. Since the quality of most of the services depends largely upon the quality

of the individuals providing the services, it is true that "people costs" form a high

component of the service costs. Whereas a manufacturer may use technology,

 38

simplification, and other techniques to lower the cost of the goods sold, the service

provider often faces an unrelenting pattern of increasing costs.

Differentiation is often difficult. How does one choose one investment advisor

than another, since they (and hotel providers, leisure companies, consultants, and

others) often seem to provide identical services? Charging a premium for the services

is usually an option only for the most established firms, who charge extra based upon

brand recognition.3

RATIONALE OF SERVICES

There had been a shift towards service activities across the world and this

structural shift could be attributed to three factors:

1. The consumer demand for the services is increasing at a faster rate than for

goods. .

2. The contracting of services that formerly produced in houses.

3. The growth in the intermediate demand for service as inputs to the production

process.4

Gary Sampson and Richard Snape “Identifying Issues in Trade in Services,” The
3

World Economy, Vol.8, No.II, 1990, pp.3-20

Christopher Findlay, “Trade in Services in the Asia-Pacific Region,” Asian-
4

Pacific Economic Literature, Vol.4, No. II, 1990, pp.13-20.

 39

CHARACTERISTICS OF SERVICES TRANSACTION

International transactions in services had been defined according to four

modalities first outlined by Sampson and Snape. These are:

1) Through cross-border flows in which neither the supplier nor the producer move

physically but instead rely upon an intermediate service such as a

telecommunication network.

2) Through the movement of a consumer to a supplier’s country(such as through

tourism);

3) Through the movement of a commercial organization to the consumer’s country

which could be equated with foreign direct investment.

4) Through the movement of an individual service supplier to the consumer’s

country.

There is some evidence to suggest that the dominant mode of international

service supply was through foreign direct investment, which was estimated to

constitute well over half of the total output of the trade in services.

India had been pursuing a planned approach for achieving economic growth

and development. Taking stock of the situation after independence the economists of

the country had developed a growth models. As a result the planned era was
 40

developed into three sectors in the order of their priority. They were primary,

secondary and the tertiary sector. The primary sector included agriculture, animal

husbandry, fishing and forestry. These areas were considered as fundamental and as

the foundation for the further development of the economy. The secondary sector

included the manufacturing, industries and construction. The tertiary sector covered

services, including distribution. The allotment of funds and the focus of development

had been given to these three sectors in a phased manner. The first three five year

plans was focused on the primary sector and the next two plans were focused on the

secondary sector. From the sixth five year plan onwards, the focus had been on the

tertiary sector. As a result the services sector had started growing. The above notion

could be represented in the form of a flow chart:

FLOW CHART SHOWING THE COMPONENTS OF THE GROSS

DOMESTIC PRODUCT

Gross Domestic Product

Primary Sector Secondary Sector Tertiary Sector

 41

The present research study analyses the performance of the services sector and

the developments that had taken place in the various components of the services

sector and the contribution of the trading sectors, the financial sectors and the public

expenditure sectors to the services sector and the workforce participation rates in all

these sectors. The components of the services sector could be explained in detail in

the form of a flow chart:

FLOW CHART SHOWING THE COMPONENTS OF THE SERVICES

SECTOR

Services sector

Trade, Hotel Finance, Insurance, Public Administration,

Transportation And Real Estate And Defence and Other
Communication Business Services Services
Services

SECTION B

2.2 REVIEW OF LITERATURE

A review of literature provides the meaningful context of a project within the

universe of the already existing research. “meaningful context” could elevate the

research study from disconnected observations or number crunching to a level of

significance in the field of investigation. The literature review sets the basis for the
 42

discussion or analysis or for contemplation of the implications or for anticipation for

further research. The researcher could apply the principles of analysis in his field in

order to evaluate whether the previous research was valid; or to determine whether a

previous study was incomplete, methodologically incorrect, one-sided, or biased.

This meant that the researcher did not simply list the previous studies but had

assessed them, noting their strengths and weaknesses. Through the literature review

researcher, distinguishes what had been done previously from what remains to be

done. The researcher could synthesize previous perspectives and evolve a new one;

the researcher could establish the context of the topic or the problem, and he can set

the basis as to why the question was significant. The literature review could help the

researcher and the reader to understand the structure of the problem. It could also

place the research in a historical context, showing that the researcher was familiar

with the most recent innovations in the field.

In many respects, the literature review presents a justification for the research

work. Why should this research to be conducted? How was it different from other

studies? Where does his research fits in the within current knowledge and, what the

research study was expected to contribute? Inexperienced researchers often approach

this task in a mechanical, uninteresting way, whereas, in actuality, the literature

review forms an exciting, essential component of the research study. A review of the

available literature would indicate the various issues related to the various aspects of

the services sector performance:

 43

General services sector

Robert Rowthorn, Ramana Ramaswamy in their paper had shown that

deindustrialization could be explained primarily by developments that are internal to

the advanced economies. These include the combined effects on manufacturing

employment of a relatively faster growth of productivity in manufacturing, the

associated relative price changes, and shifts in the structure of demand between

manufactures and services. The north-south trade had explained to the extent of less

than one-fifths of the deindustrialization in the advanced economies. Moreover, the

contribution of the north-south trade to deindustrialization had been mainly through

its effects in stimulating labour productivity in the northern manufacturing; and it has

had little enduring effect on the total volume of the manufacturing output in the

advanced economies.5

P. Jegadish Gandhi and P. Ganesan in their book had concentrated on the

beginning of the 21-century global economy which had shown significant structural

changes with a swing in the services sector’s contribution. In the process of economic

development, a simultaneous growth of primary, secondary and tertiary sectors is

historical, but the high growth of the services sector had been

Robert
5
Rowthorn, Ramana Ramaswamy, “Growth, Trade, and
Deindustrialization,” IMF publication, IMF Staff papers, Volume 46, Issue 1, p:2 (1999)
 44

phenomenal in the recent decades. This was directly due to the development of

sophistication in the information technology. Since 1980s, the share of the services’

sector in the real GDP in India had also surpassed that of agriculture and industry. It

had also reflected on the state-led developmental growth. No doubt, the dynamics of

the services’ sector had infused new growth impulses stimulating investment,

income, consumption and employment. However, there seemed to be some conflict

between the growth of employment and the growth of output in the Indian context.

The book contained critically analysed papers on the performance, problems and

perspectives of the services sector in the Indian economy. Each contributor had

looked beyond the current scenario and had prescribed various policy options to

improve the productive efficiency and employment in the services sector. The

common concern was that the high-profile growth of the services sector benefits and

the distributive justice should reach the low-income-profile people in the society.6

N. Ramakrishnan in his article had explained the reason for the growth in the

services sector in India (with special reference to Tamil Nadu) and had stated that the

liberalisation in the regulatory framework had given rise to innovation and higher

exports from the services sector. However, the governments, - both the Union

and States, according to the author should do a better job of communicating

the benefits that the growth in the services’ sector had brought to the economy. The

P.Jegadish Gandhi and P.Ganesan, Services Sector in the Indian Economy: Macro
6

Dynamics-Sectoral Dynamics-Policy Issues. New Delhi, Deep & Deep, 2002, P:158.
 45

author had emphasised that governments in States such as Tamil Nadu, which had

seen tremendous boom in the services sector, should spread the word in the

countryside. A criticism of the services sector growth that it was confined to the low

skill jobs was not true, and the researcher had pointed out that high skilled job such

as high-end business process outsourcing, research and development laboratories and

software development had been taking place. Of course, initially, such high skilled

jobs would be found only in the cities whereas the low skilled jobs like data entry

operations would be available in the rural areas. There had been much progress made

with regard to the Doha round of talks on agriculture and not much progress had been

made in manufacturing and in services. However, a number of manufacturing

facilities had come up in the rural areas, which had generated jobs.7

Dirk Pilat and Anita Wolfl had examined the interaction between the

services and manufacturing industries using several types of data and had shown that

the distinction between the manufacturing and the services had been blurring.

Services had made important contributions to production, mainly through their direct

contributions to the total output and final demand, but to a certain degree

through their indirect contribution through other industries also. However, services

7
N.Ramakrishnan, ‘Growth in services will drive manufacturing sector”, Business
Line (Internet Edition) Financial Daily from “The Hindu” group of publications Sunday,
March 06, 2005 webpage.
 46

were found to be more independent than other industries compared to the

manufacturing sector.

Most of the inputs that were necessary to produce services were derived from

the services’ sector itself. Moreover, their role as providers of intermediate inputs to

the other industries had not yet become as strong as that of the manufacturing

industries sector. The paper had also shown that a growing share of the workers in

the manufacturing sector were engaged in the services-related occupations. Using a

broad definition for the service-related workers, it was found that upto 50percent of

the manufacturing workers were engaged in such occupations. Using firm-level data,

the paper had found that, despite the anecdotal evidence on the growing share of the

services turnover within the manufacturing sector, the manufacturing enterprises in

most of the countries were not very much diversified in their constituting

establishments, that is, they did not have many establishments engaged in services’

production. Canada is a notable exception in this respect. In other countries,

diversification had primarily occurred at the level of the enterprise group. On the

other hand, data on products had suggested that manufacturing firms and

establishments appeared to have derived a growing share of the turnover from

services, notably in countries such as Finland and Sweden.8

Dirk Pilat and Anita Wolfl, “Measuring The Interaction Between Manufacturing
8

And Services”, OECD and CEPII SIT Working Paper 2005, Directorate For Science,
Technology And Industry
 47

Aditya Raj Das in his study had stated that the acceleration in the services

exports was mainly on account of the growth of exports in high value services such

as communication services, construction services, financial services, news agency

services, royalty, copyright, license fees, management services and so on. In view of

the crucial role played by this vast services’ sector in generating income and

employment to millions of people in both the organised and unorganised sectors,

there was need for taking pro-active liberal measures and providing incentives for the

robust growth of the services sector. This would help to broad base the services’

sector while imparting stability to its various segments. As India surges forward to

emerge as one of the fastest growing economies in the world, its vibrant services

sector is fast evolving as one of the most spectacular byproducts of the ongoing

resurgence in the country’s economic growth. In fact, the recent commendable

performance of the Indian economy had placed India in the list of the highest growth

performers of the world by the World Development Report, 2004. In line with the

global trend, the services sector in India had continued to move on the higher growth

trajectory to emerge as the leading services hub of the world. Services or the tertiary

sector of the economy covered a wide gamut of activities like trading, banking and

finance, infotainment, real estate, transportation, security, management and technical

consultancy among several others. India had also earned the distinction of being

among the countries having the fastest growth in the services’ sector exports. India’s

services export grew at a compounded annual growth rate of as much as 17.3 per
 48

cent, which was found to be even higher than that of China’s growth rate of 15 per

cent. As per the latest data available, India’s exports of services had crossed US $25

billion. While the services sector had accounted for 56.2 per cent of the total GDP

(gross domestic product), the share of the agricultural and the allied services and that

of industry and manufacturing in the GDP had been 22.1 and 21.7 per cent

respectively. A recent survey conducted by the Central Statistical Organisation

(CSO) had shown that trade services, transport and communications had a 44.1 per

cent share in the services sector gross domestic product which had increased by 11.2

percent. Financing, insurance, real estate and business services, which occupied a

22.9 percent share, had grown by 6.8 per cent. Community, social and personal

services contributing to a 23.8 per cent share of the GDP had recorded a 6 per cent

annual growth rate. Construction which was having a share of 9.2 per cent had grown

by 6.2 per cent per annum. The services sector with a multiplicity of services having

strong linkages to the manufacturing activities, construction, transport and

communication, generation and distribution had provided a momentum to the overall

economic activities by playing a complementary role. For example, car

manufacturing had provided much scope for many allied innovative services at

different stages of the manufacturing. The construction activity had gained the

momentum from the growth in housing and transport activities and vice versa. The

services’ sector had also created and invented

 49

innovative tools to satisfy the customers. Phone cards, credit cards; ATM facilities

and other customer friendly tools and services are some of the examples.9

Krushna Mohan Pattanaik in his paper had stated that with the emergence

of the services as the major contributor to economic development, liberalisation of

services had become a crucial issue in international negotiations on services.

Liberalisation of services had necessitated some short term and medium term

adjustment costs. To reap the benefits of liberalisation and to deal with the problems

that it might create in the short and in the medium term; liberalization of services

should be accompanied by domestic reforms. The study had argued that such reform

measures particularly in the form of regulatory reforms intended to develop a

transparent and fair regime would create a level playing field within the framework

of a competitive market.10

Jonathan R. Anderson in his paper on managing employees in the service

sector had reviewed the literature on research on management practices and

employee perceptions that lead to positive customer outcomes. The economy was

slowly shifting from a manufacturing base to a service base. Yet, management had

9
Aditya Raj Das,”Services Sector is the New Economic Growth Engine,” Deccan
Herald, Economy & Business, Detailed Story, Monday July 25,2005, pp-4
10
Krushna Mohan Pattanaik, “Gats And Liberalisation Of Services: Implication for
India”, Journal of Service Research, Vol.5, No. 2, April-September 2006, p-24
 50

been slow to respond. This literature review and conceptual development had been

are presented in the hope that future research would take a deeper look at the

challenges faced by the service sector managers 11.

STUDIES RELATED TO TRADING SECTOR

Mahmood A. Khan outlined the notable trends that had led to an increase in

restaurants and focuses on the impact of this expansion on the internationalization of

the services. The American restaurant franchises are at present prevalent in almost

every corner of the world and represent one of the fastest growing segments of the

hospitality industry. Some franchise corporations had been planning to build more

units overseas as compared to the domestic ones. Franchising demands replication of

products and services, which influences the existent economical, social, cultural and

environmental aspects. The impact of the US franchise restaurants on the products

and the services offered in the different parts of the world had been highlighted with

pertinent data. The Global markets in Pan-Pacific, in European Union, Africa and the

Middle the East, and in South America had been used to illustrate the points stressed

in the presentation.

Jonathan R.Anderson, Managing Employees in the Service Sector: A Literature

11

Review and Conceptual Development, Springer Netherland Publications, Journal of

Business and Psychology, Volume 20, Number 4 (June, 2006)
 51

The issues related to the services and its influence on the social and cultural impacts

had been outlined.12

Chihiro Watanabe and Bernadetta Kwintiana Anne had examined the

mechanism of diversification strategy in the paper and demonstrated the significance

of its business model in a new paradigm. A dramatic surge in .information

technology (IT) around the world had been subjecting firms to a new paradigm,

thereby resulting in a lower operating income to the sales (OIS) ratio in Japan’s

leading electric machinery firms. The only exception to this trend was Canon, which

had demonstrated a clear contrast with its rival firms by increasing its OIS. This

corresponds to another contrast with respect to the diversification strategy. Contrary

to a trend of reduced dependency on diversification by the Japanese electric

machinery firms, only Canon had increased its diversification. This had suggested

that Canon had constructed a sophisticated business model that had enabled it to

increase its OIS ratio in an information society and such a success could be attributed

to its diversification strategy. By following such a strategy, Canon had succeeded in

developing new functionality by means of a wide-ranging inter- technology spillover

in the manufacturing processes that had led to spillover technologies in the

marketplace, thereby constructing a self- propagating structure. This business model

could be identified as a co evolution between the manufacturing and the service

12
Mahmood A.Khan, “Internationalization of Services: The Global Impact of US
Franchise Restaurants”, Journal of Service Research, Vol.1, No.2, October 2001 – March
2002
 52

industry functions and could offer a new insight for the manufacturing industry

amidst the current paradigm shift from an industrial society to an information society,

given the significance of the survival strategy for the manufacturing industry in a

new paradigm.13

Sanjaya S. Gaur, K. Abdul Waheed had attempted to understand the factors

influencing the usage of the interactive technologies in service’s businesses with the

intention of deriving implications for the development of the interactive technologies

to suit its intended users. Interactive technology had helped marketers to

inexpensively engage the consumers in one-to-one relationships fuelled by the two-

way conversations via mouse clicks on a computer, touch-tone buttons on a

telephone or surveys completed at a kiosk. Several organisations especially in

services businesses were found to be increasingly strengthening their marketing

functions by effectively interacting with their customers with the help of

sophisticated interactive technologies in an integrated manner. Enough research in

the usage or adoption of the electronic data interchange (EDI) could be found

in both information systems and in marketing literature. A careful review of

the available literature further shows that the usage or adoption of Internet and e-mail

had been studied in detail by various researchers across the world. Therefore, it

Chihiro Watanabe, Bernadetta Kwintiana Anne, “Co-Evolutionof Manufacturing

13

and Service Industry Functions,’ Journal of Service Research, Vol. No.1, April-September,
2003
 53

appears that different interactive technologies had been studied individually by

different researchers. The authors had not come across any study making an attempt

to understand the motivation for the usage of all adopted interactive technologies put

together in an organisation for the purpose of marketing activities in particular. This

gap was wider when one tried to find out studies related to interactive technologies

and their usage or adoption especially for the marketing activities in a developing

country like India. 14

Nimit Chowdhary and Bhagawati P. Saraswat had presented their paper

based on case studies of 18 Mexican small ticket service providers who were

considered as offering some excellent services. These providers in a relatively high

context Mexican society, with more or less family businesses had organized their

activities to be translated into a superlative customer satisfaction. The authors had

made an attempt to explore in depth as to what makes these services tick. Not living

up to the prescribed service models and best practices, these have, without fail, lived

up to the expectations of their customers. The study had attempted to analyze the

service leadership and the cultural constructs of these companies. The findings had

suggested that though these companies did not go by the prescriptions of a so-called

professionally managed service firm, they had often devised their indigenous

approaches to reach the goal of customer satisfaction. Despite being small, they had
Sanjaya S.Gaur, K.Abdul Waheed, “Motivations to Use Interactive Technologies
14

In Marketing: Astudy in Indian Service Business”, Journal of Service Research, Vol.3,

No.1, April-September, 2003.
 54

successfully carved a niche for themselves. The charismatic leaders were proving

equally successful as professionally-enlightened managers. The discussion about

services had revolved around bigger players and their precision and professionalism

in delivering excellent quality services. While we talk of SAS, Disneyland,

McDonalds, Ritz Carlton, Apollo Hospital and the like, we had often neglected the

small and the medium size service endeavours

During the nineties, while the third world had relentlessly worked to boost

their economies, the growth of the services had been a natural corollary to this effort.

The greater proportion of the contribution both in quantitative and qualitative terms

had come from the smaller and the medium sized players. There had been

innumerable examples of excellent services, though they were not really considered

as professionals in theoretical terms. Unfortunately enough, the management gurus

had preached to these players to be all the more professional in their approach and

follow the examples learnt from the world-class players, not appreciating the fact that

the ultimate aim of any business is to satisfy its customers, notwithstanding its size.

What matters most is the customer satisfaction and not the management theory or

school one follows? On the contrary, we could learn many lessons from these smaller

players to enhance the levels of qualitative service 15.

Nimit Chowdhary and Bhagawati P.Saraswat, “Service Leadership Study,”

15

Journal of Service Research, Vol.3, No.2, October 2003- March, 2004.

 55

Senthil K. Muthusamy, Ramaraj Palanisamy and Jonathan MacDonald

had addressed on the issues and challenges in using knowledge management systems

as a tool for Enterprise Resource Planning implementation. A case study was given

from a telecommunication company to gain more insight into the issues and

challenges. Lessons from the analysis of the issues and challenges had been

summarized Organizations had been exploring ways to improve business practices

and procedures to gain competitive advantages. Many companies over the past two

decades had decided to adopt one or the other Enterprise Resource Planning (ERP)

system to improve their businesses but implementing an Enterprise Resource

Planning system could be a demanding endeavor. The systems were so difficult to

implement that, while some had been successful; many had failed, resulting in

multimillion dollar losses. The challenges of the Enterprise Resource Planning

solutions lie in their implementation because they were complex, time consuming

and expensive to implement. It was important to understand the problems that could

arise in Enterprise Resource Planning implementation and know how best to

overcome them. One way of doing this was by having a system available to aid in

Enterprise Resource Planning implementation studies had. Past research emphasized

on the usage of the knowledge management systems (KMS) to ensure effective

Enterprise Resource Planning implementation. By using a knowledge management

 56

systems during an Enterprise Resource Planning implementation process the

potential problems could be identified early and addressed.16

STUDIES RELATING TO FINANCE

Sridhar Seetharaman in his paper had analysed the functions of the banking

system in economic growth and had stated that its role was necessary, but was not a

sufficient condition for poverty alleviation. Inclusive paradigms of growth were

necessary and the growth composition was as relevant as that of the growth rate.

Economic growth with equity or distributive justice was not an either-or choice, but

was mutually reinforcing each other. In order to pursue a pro-poor growth policy and

to ensure that the poor had ready access to institutional credit, financial deepening

through the synergy of formal and informal systems had to be promoted through an

overall interventionist framework of policy resulting in bank nationalisation in 1969

and the introduction of the social banking concept into the domain of economic

literature. The central objective of planning in India as designated in the First Five

Year Plan (1951-52 to 1955-56) was "to initiate a process of development which

would raise living standards and open out to the people new opportunities for a richer

and more varied life" necessitating the banking institutions to contribute to the

process of ensuring growth with equity.

Senthil K. Muthusamy, Ramaraj Palanisamy and Jonathan MacDonald,

16

“Developing Knowledge management Systems (Kms) For Erp Implementation: A Case

Study from Service Sector,” Journal of Service Research, Vol.5,No.2,. April-September
2005.
 57

The need to reconcile economic efficiency with social equity and distributive

justice to achieve growth, which would have a tangible impact on poverty alleviation,

became apparent. Economic Development as a process should lead to the

augmentation of, and in, the value of human versus social capital, physical vis-à-vis

financial capital and environmental capital. It is against this emerging scenario that

Sridhar Seetharaman had made an attempt to find an answer to the question as to—

How has the banking sector responded to the growing challenge of the shareholder

and the stakeholder’s expectations on poverty reduction?.17

T.Baskaran and Aloke Kar had made an attempt in their paper to analyse the

role of the services sector in playing a pivotal role in the Indian economy both in

terms of its contribution towards the Gross Domestic Product (GDP) and in its

capability to provide employment opportunities. While the contribution of this sector

to the GDP had grown from 28 percent in 1950-51 to 48.5 percent in 2000-2001, the

number of people employed in this sector had increased manifold. The services

sector had shown a growth rate of 4.6 percent per annum during this period.

However, the growth of the sector got accelerated from the 1980’s.

Considering the non-financial services, the Communication Services and the

Business Services, which include in their fold the “Data Processing, Software

Development
17
Sridhar Seetharaman, “Indian Banking Scenario” Social Banking-Promise,
Performance and Potential: Deepali Pant Joshi; Foundation Books Pvt. Ltd., Cambridge
House, New Delhi(2003).
 58

and Computer Consultancy Services”, which had been the most significant in the

sense that they had grown faster than the other services during the period. The

research paper had examined the growth profile of these two sub-sectors. It had

analyse the changes that had been brought about in the economy with reference to

these two sub-sectors during the pre- and the post- liberalisation periods of the

country. The paper had also presented the methodology adopted for measuring the

growth in these sub-sectors along with their limitations and had offered suggestions

for their improvement. It had further, examined the liberalisation policy of the Indian

government with reference to the statistical needs and the data availability.18

Krishna Chaitanya had analysed the application of the marketing theories of

product, providing service quality, distribution and planning for a customer oriented

market .The financial service industry in India had grown tremendously, particularly

after the eighties. A number of new services and products like credit cards, ATMs,

consumer finance, mutual funds, dematerialization, factoring, securitization, credit

rating, leasing, investment banking and forfeiting have become a common thing since

then. The driving forces behind this development had been liberalization, economic

reforms and deregulations, economic changes

T.Baskaran and Aloke Kar, “GDP Estimation of Communication and Software

18

Development Services in India” Friday, 7 June 2002 Central Statistical Organisation,

Government of India
 59

and rapid developments of the capital markets. All these factors had provided a

greater freedom to the private sector to become more competitive, more productive,

effective and efficient. The customers had become more demanding and they prefer

innovative products and quality services at a faster speed from the companies. This

had made the job of the financial service companies much tougher and challenging,

as they need to understand the customers’ changing needs, offer new products and

services and most importantly they should be able to promote these new items.

Therefore in the present day context it had become even more important to learn the

application of the marketing theories of product, providing service quality,

distribution and planning for a customer oriented marketing strategy.19

Alka Sharma, Versha Mehta had stated that the services sector was the most

important sector, which had contributed largely to the national economy. In India, the

banking sector forms an important component of this sector. The share of the banking

and the insurance sector had burgeoned from 2.78percentage in 1980 – 81 to

6.27percentage in 1997 – 98. It had been so due to the increased significance of the

financial services in the post – reforms era. In the case of the banking services, the

varied service products that are being offered and their interface with the information

technology sector had emerged as the potential tools of competition.

V.Krishna Chaitanya, “Metamorphosis of Marketing Financial Services in India”
19

Journal of Service Research, Vol. 5, No.1, April-September 2005.

 60

The banks had been using these tools to seize the markets and become the

ultimate winners. A recent survey on banks shows that the Housing Development and

Financial Corporation bank, which had been rated as the number one bank in India

had qualitative growth as the main objective. Thus the banking intermediaries also

had recently started focussing on the issues of quality. In this context, the service

quality perception among the customers of the banks had been the most critical issue.

The study was an attempt in that direction, where quality perceptions of the four

leading banks had been compared to arrive at logical conclusions.20

Mushtaq A. Bhat in his paper had offered a number of suggestions to make

the overall service quality in banks more effective and more efficient. The results of

the study lead us to the conclusion that the quality of service of the foreign banks was

comparatively much better than that of the Indian banks and there had been service

quality variations across demographic variables. In search of a competitive

advantage, business organizations had been placing a greater focus on the quality of

service. Research studies had shown that a high level of quality service contributes

significantly to profitability and productivity. In addition, the knowledge of the costs

and benefits of retaining the consumers in relation to

Sharma Alka, Mehta Versha, “Service Quality Perceptions in Financial Services-A

20

Case Study Of Banking Services”, Journal of Service Research, Vol.5, No.2 & 3, October
2004-March 2005.
 61

attracting new ones draws the company’s foremost attention to catering to the present

customers, responding to their needs and problems and developing long term

relationships with them. The interest in the measurement of the quality of service is,

thus, understandably high. An attempt had been made by the author in his paper to

study the service of quality in banks and its variations across the demographic

variables.21

Karsten Bjerring Olsen had surveyed the empirical literature on offshore

outsourcing and its productivity effects. Due to the small number of the existing

studies, the survey had also included research that might serve as an indirect evidence

of the phenomenon’s link to productivity, such as its effect on skill up gradation.

Despite the attention, that offshore outsourcing currently commands in the public

media, there was little empirical evidence on its economic impact. Because of rising

fears of the job losses associated with the phenomenon, most of the existing research

studies on the subject was primarily concerned with the related labour market issues.

The impact on productivity, however, had received only very little attention. The

most apparent conclusion drawn from the review was that there appeared to be no

clear patterns as to how offshore outsourcing affected productivity, and that much

depended on both sector and firm-specific

21
Mushtaq A. Bhat, “Correlates of Service Quality in Banks: An Empirical
Investigation,” Journal of Service Research, Vol.5, No.1, April- September 2005
 62

characteristics. There had been some indications, however, that positive productivity

effects from foreign material sourcing depended not only on the degree to which

firms were already globally engaged, but also that the fact such engagements

generally could be close to their optimum level in the developed economies. There

was little existing research on off shoring of services, but it appeared that its

productivity enhancing effects were generally small in the manufacturing plants

while they were of a somewhat greater magnitude for firms in the services’ sector.22

STUDIES RELATING TO PUBLIC EXPENDITURE

Prakash Chathoth’s study had captured the relationship between three

constructs, namely, the economy, the infrastructure, and tourism to explain the

direction and magnitude of the relationship between these constructs. To do so, an

apriori multidimensional causal model was hypothesised and tested using the

Structural Equations Modelling methodology. The economy was hypothesised to

have a positive significant relationship with the infrastructure construct and a

negative relationship with the tourism construct, while the infrastructure construct

was hypothesised to have a positive significant relationship with the tourism

construct. The sample comprised of 189 countries, which was taken from the
22
Karsten Bjerring Olsen, “Productivity Impacts Of Off Shoring And Outsourcing:
A Review” http://www.oecd.org/sti/working-papers, Statistical Analysis of Science,
Technology and Industry (2006).
 63

World Bank (1995) data set. The results obtained had supported the structural

relationship between the economy and the infrastructure and the infrastructure and

tourism. Contrary to the hypothesised relationship, the direct relationship between the

economy and tourism was found to be insignificant. The significance of this study

was in terms of verifying the causal relationships between constructs at the aggregate

level using countries as the units of analysis.23

Koji Tanabe, Chihiro Watanabe had undertaken a study on the paradigm

shift from an industrial economy to a service oriented economy that had emerged in

the 1990s, while Japan had been experiencing the “lost decade,” certain

manufacturing industries such as those of electrical machinery and automobiles had

been maintaining their strong competitiveness. Not only larger enterprises but also a

few small and medium enterprises (SMEs) had been making a significant

contribution to this competitive effort. Compared to the larger enterprises, SMEs had

incorporated comparative disadvantages in respect of capital, human resources,

information and technology. Despite this disadvantage, the dramatic advancement in

information technology (IT) had been making the small and medium enterprises

position more advantageous in terms of organizational flexibility, efficiency and in

subsequent qualified services management. Consequently, quite a few small and

medium enterprises had

Prakash Chathoth, “Casual Modelling Methodology In Tourism: An Emprical

23

Analysis,” Journal Of Service Research, Vol.1, No.2, October 2001-March 2002.

 64

been demonstrating excellent business performances through efficient and effective

technological innovations. Such an excellent performance could be attributed to their

business strategy aiming at maximizing the benefits of their tie-ups with external

institutes for assimilating external knowledge to improve their service value. The

author had attempted to identify the sources of such success.

First, on the basis of an empirical analysis of the electrical machinery firms in

Japan, the author had attempted to demonstrate that effective Research and

Development was essential for the small and medium enterprises to maintain

excellent business performances and that the Research and Development activities in

the outstanding small and medium enterprises had been more efficient than in the

larger enterprises. Secondly the author had identified the sources that had enabled the

small and medium enterprises achieve a better performance compared to the larger

enterprises in a service oriented economy. Third by based on the case analysis of

three Japanese small and medium enterprises that had achieved an excellent business

performance level in the late 1990s, the strategies of linking them with user

enterprises, universities and government for technology monitoring and capability

development were suggested by the author24

Viswanadhan, N.J. Rao and C. Mukhopadhyay had analysed the impact of

privatization in engineering education through the performance of undergraduate

Koji Tanabe and Chihiro Watanabe, “Sources of Small And Medium Enterprises
24

Excellent Business Performance in a Service Oriented Economy,” Journal of Service

Research, Vol.5, No.1, April- September, 2005
 65

engineering programmes in India. The liberalization policies had resulted in a drastic

growth of the software industry and the human resources required in these fields in

India. Due to lack of funds and policy perceptions it was not possible to start a

sufficient number of engineering colleges in the government-aided sector to meet this

increased demand. This had led to the setting up of a large number of engineering

colleges in the private sector under self-financing scheme. The accreditation criteria

of the National Board of Accredition (NBA), in India were taken as the framework

for the study. The information about the performance of the self-financing

engineering programmes and government-aided programmes from various parts of

India were collected for the analysis. The Hypothesis of equal mean performance for

both the categories of programmes was tested. The self-financing programmes

seemed to be very weak in the human resources and in the supporting processes.

Through a concentrated effort an attempt was made to improve the supporting

processes and human resources, faculty and staff, so that they could attract good

students to the programme and thereby improve the student and overall performance

of the programmes. The author had presented the details of the study in his paper25.

Ralph Heintzmans article had reviewed the evidence for the existence of a

‘public sector service value chain’, offering a new way of thinking about what

Viswanadhan, N.J. Rao, C. Mukhopadhyay “Impact Of Privatization On

25

Engineering Education-A Study Through The Analysis Of Performance Of Self- financing

Engineering Programmes In India” Journal Of Service, Special Issue, December 2005.
 66

Bouckaert and his colleagues had called the micro-performance approach to

improving the trust and confidence in the public institutions (Bouckaert et al., 2002).

In particular, the article had focuses on the role of the service delivery in enhancing

citizen trust and confidence. But it did so in the context of a broader model, the one

that linked the service delivery to other important aspects of management

performance, especially of people management. The article had refered to this model

as the ‘public sector service value chain’, drawing on the work carried out by Heskett

and others in the private sector (Heskett et al., 1994, 1997). The article had reviewed

the evidence for the links between employee engagement (satisfaction and

commitment) and client satisfaction in the public sector, and between public sector

client satisfaction and citizen’s trust and confidence. The article had identified the

five main ‘drivers’ of service satisfaction in the public sector, and had reviewed both

purported ‘drivers’ of employee engagement as well as data documenting the

influence of service delivery which appeared to have on citizens’ trust and confidence

in Canada. The article had outlined a forward research agenda, to identify the drivers

of staff satisfaction and commitment, as well as drivers of trust and confidence in

public institutions, and to examine whether the proposed links in the ‘public sector

service value chain’ could be empirically validated.26

26
Ralph Heintzman, People, Service and Trust: Is there a public sector service value
chain?, Sage Journals Online Sage Publication, International Review of Administrative
Sciences,Vol..71, No. 4,549-575 (2005).
 67

Natoshi Osada and Chihiro Watanabe had stated that in contrast to the

notable achievements recorded up to the end of the 1980s, Japan’s economy was

facing a structurally heterogeneous stage of development.during(2005-2006).This

could largely be attributed to a paradigm shift from an industrial economy to a

service-oriented economy that had emerged in the 1990s. There was a need for a

change in the business model used by industries. First, there was the need to be a

shift to the creation of a functionality development focus. Second, such a shift could

be expected to be initiated by the smaller ventures since they were relatively free

from the impediments of the organizational inertia. Third, of the removal of

institutional impediments that were indigenous to the traditional institutions was

indispensable. The author had attempted to identify the impediments that might

hinder the efforts of the Japanese industry to shift in the direction described above.

An empirical analysis was conducted using data for 3,108 smaller ventures in Japan

which were active in twelve emerging new business fields in the manufacturing,

service, commercial and construction sectors during 2001. Based on a questionnaire

survey, the structural impediments in creating new emerging industries in a service-

oriented economy were identified depending upon business activities, vintage of

ventures and identities of CEOs. The noteworthy findings obtained included the

following: There was a significant relationship between the new start-up ventures and

economic growth in Japan, The low level of recent entrepreneurial activity in Japan

was chiefly due to institutional circumstances, business activities of smaller ventures

 68

in Japan had been biased toward certain fields, significant impediments are diverse

and differed much depending on the nature of the venture while the existing public

support was somewhat stereotyped, more sophisticated support corresponding to the

diversity of impediments was found to be necessary27.

STUDIES RELATING TO COMPARITIVE ANALYSIS

Srinivasan. T.N in his research study had made a comparative study of the

services sector in China, India and the whole economy. The service sector had been

most dynamic in India’s economy in recent years, with a growth rate exceeding seven

percentages points per year during the five year period (2001-2005). This sector had

accounted for 54 percent of the real GDP in 2005-06. Business and commercial

services together with finance, insurance and real estate services had accounted for

13.5percent of the real GDP in 2005-06, trade, hotels, transport, communication and

storage services had accounted for another 26.2 percent of the and community,

social and personal services had accounted for the remaining 14.3 percent of the

GDP. Labour intensive services had been another potential source of growth for the

27
Natoshi Osada and Chihiro Watanabe, “Structured Impediments for Smaller
Ventures in Creating New Emerging Industries in a Service-Oriented Economy”, Journal of
Service Research, Vol.5, No.2, October 2005-March 2006.
 69

two economies (India and China) as well as for the world economy due to the impact

of their growth realizing this potential depended to a significant extent on the

outcome of the services being sector negotiations in the Doha round. With demand

for many of the services is income elastic, it was very likely that both domestic and

the foreign demand growth would enable India’s services’s sector to sustain its recent

rapid growth28.

STUDIES RELATING TO EMPLOYMENT

Ronald E. Kutscher in his paper studied about the criteria for measuring

productivity in the services’ industry for three decades. Over the past three decades,

the rapid growth of the economy’s service sector and the increasing interest in the

sector on the part of both scholars and policymakers had helped to give currency to

three perceptions about the service industries. The perceptions are that (1) the service

sector was comprised entirely of industries that had very low rates of productivity

growth; (2)that service industries were highly labour intensive and had a low level of

capital intensity; and (3) shifts in employment to the service producing sector had

been the major reason for the slowdown in productivity growth during the past 10 to

15 years. The author had examined these perceptions in the light of available data.

The broadest definition of the

28
T.N Srinivasan, “China, India and World Economy”, Stanford Centre for
International Development”, Working Paper No.286, July 2006.
 70

service sector encompassed all industries except those in the goods-producing sector-

agriculture, mining, construction, and manufacturing. Under this definition, services

included transportation, communication, public utilities, wholesale and retail trade,

finance, insurance, real estate, other personal and business services, and government.

One variation in this definition of the service sector (or service-producing sector, as it

is frequently called) was the exclusion of government activities at all levels. A third

definition of the service sector which is still narrower, included only private personal

and business services and excluded transportation, communication, wholesale and

retail trade, finance, insurance, and real estate .The growth rates vary widely in the

industries. The first apparently generally held perception of the service sector is that

it consisted entirely of the industries with a low growth in their productivity. A

comparison of the growth rates of output and employment in the various industries

over the last two decades might seem to lend support for this belief, for the data show

that the widely discussed growth in the services in the U.S . economy had been more

pronounced from an employment perspective than from the output point of view.

Over the last two decades, there had been a very noticeable shift towards service

employment. The share accounted for by the service-producing sector, using the

broadest definition, had increased by 10 percentage points from 1960 to 1981 . A

shift was also apparent when alternative definitions of the sector had been used.

When limited to "private" services, the sectors share of employment had increased by

nearly 8 percentage points between 1960 and 1981. Even when limited only to the
 71

"other services," the sector had increased its employment share by nearly seven

percentage points over the period.29

Goe.W. Richard Goe and Shanahan James L. had dealt with the

employment generation in the US economy in their study. The continuing

concentration of employment within the service sector of the U.S. economy had

significant implications for the urban regions undergoing deindustrialization and

structural economic change’s. The growth of the service sector had evoked different

opinions among the social scientists and the policymakers regarding the significance

of the service industries as recent research studies had pointed out the potential

importance of the services in the export trade and as a source of future economic

growth. Precise answers to questions regarding the service sector growth had been

problematic as analyses of the service economy continue to rely upon theoretical

concepts and methodological approaches that are fraught with problems. The author

had outlined the framework for a new conceptual approach to the service economy

and discusses the important issues that had to be addressed in order to assess the

implications of the service sector growth for urban economies undergoing structural

changes30

Ronald E. Kutscher, “Shifts among Service-Producing Industries: Mark,”

29

Measuring Productivity in the Service Industries,” Monthly Labor Review, June 1982, pp.3-
8
Goe.W.,Richard Goe and Shanahan James L.,“A Conceptual Approach for
30

Examining Service Sector Growth in Urban Economies: Issues and Problems in

Analyzing the Service Economy, Sage Journals Online Sage Publication, Economic
Development Quartely, Vol.4, No.2,p.144-153 (1990).
 72

Outi Aarnio: had discussed the role of the service sector in generating

economic growth and employment. It had been argued that defining, measuring and

distinguishing the service output as opposed to the output of goods had become

increasingly difficult, which makes the traditional attempts to define a specific role

for the service sector had become more or less futile. Instead, the diverse activities

performed within the service sector form an integral part of a well-functioning

economy as a whole. Moreover, there was nothing inherently “wrong” with the

service sector jobs and recent experience had suggested that the service sector had

generated disproportionately good quality, well-paid jobs, as well as in the lowest

category of the jobs. Worrying about the relative size of the service sector could help

us little and what matters is the sector’s contribution to overall productivity and

growth31.

Schettak, Ronald & Yocarini, Lara, in their paper had provided an overview

of the literature on the shift to services. It follows the three dimensions of the

structural change – the final demand, the inter-industry division of labour and the

inter-industry productivity differences. It first looks at the ‘classics’, (Fisher (1935)

Clark (1940), Fourastié (1949), Baumol (1967, 2001), and Fuchs (1968)).

Next, it treats studies analyzing the differences in the service-industry

employment, and offers a discussion of the studies focussing on final demand as a

Outi Aarnio, “Can We Trust The Service Sector To Generate Decent Rates Of And
31

Employment?” Personnel Review, MCB UP Ltd, Voume: 28 Issue: 5/6 P:382-405 (1999).
 73

an explanation for the higher service share in the GDP. It also provides an overview

of the studies analyzing the inter-industry division of labour based on input-output

data. Finally, it discusses studies following Baumols cost-disease hypothesis.32

Jim Gordon and Poonam Gupta in their paper had analyzed the factors

behind the growth of the services sector in India. The paper had shown that growth

acceleration of the services in the 1990’s was mostly due to the fast growth in the

communication services, financial services, business services (IT) and community

services. While factors such as high income elasticity of demand for the services had

increased the input usage of the services by the other sectors, and the rising exports

had been important in boosting the services’ growth in the 1990s’ supply inside

factors including the economic reforms and the technological advances had also

played a significant role. The large growth potential of the Indian services’ exports

was well known, but the paper had found that there was also a considerable scope for

the future rapid growth in the Indian services’ economy provided that the

deregulation of the services, sector was continued. The paper had shown that the

employment growth in the Indian services sector had been quite

32
Schettak, Ronald & Schettak, Ronald & Yocarini, Lara, 2003. “The Shift to
Services: A Review of the Literature,” IZA Discussion Papers 964, Institute for the Study
Of Labour (IZA).
 74

modest thus underscoring the importance of the industry and the agriculture also

growing rapidly.33

Alan Gragner had reached analysed the concept in the United States, which

continued to have an international trade surplus in services; but business stories had

frequently appeared about service-sector jobs moving offshore. Many Americans

were particularly concerned about the loss of skilled, well-paid jobs in such fields as

computer programming and accounting. These jobs seemed relatively secure at a

time when any manufacturing jobs were being lost due to import competition.

Similarly, telephone call centers, once viewed as an economic development

opportunity in some areas had been increasingly moving to low-wage countries, such

as India and Philippines. Reflecting on this growing concern, some members of the

Congress and state legislators had focused their attention on the off shoring of service

jobs and production of services by even introducing legislations to limit the

outsourcing of jobs to other countries. Off shoring had raised many questions for the

policy makers and the public. For example, what were the type of service jobs that

would get due to import competition? What were the most likely efforts of the

service-sector off shoring on U.S. output, U.S. employment and, most important on

the U.S standard of living? Is off shoring

Jim Gordon and Poonam Gupta A Tale of Two Giants: India’s and China’s
33

Experience with Reform, Paper prepared for the IMF-NCAER conference on

Understanding India’s Services Revolution, Nov 14-16 2003.
 75

really a problem that required restrictive government actions, or were there other

kinds of policies more appropriate to give to the Americans the highest possible

living standard? Garner had examined the economic effects of offshoring and

possible policy responses. The researcher’s findings had been that although the

offshoring of the service jobs hurt some workers, but offshoring would not

permanently lower the level of U.S employment or that of U.S production. Moreover,

the average living standard could benefit in the long run if the nation adopted polices

to retrain the displaced workers and moved them into the expanding industries.34

Breitenfellner Andreas and Hildebrant Antje in their study had identified

tertiarization models (dynamic, lagging, managed and catching-up) that could be

associated with different geographic regions. The process of tertiarization was

compatible with growth in both employment and in productivity. Different

combination of production- and consumption-oriented services could have a positive

effect on growth. Whether measured in terms of employment or in terms of value

added, the service sector had by fare dominated the economies of the industrialized

countries. The positive connection between tertiarization and capital income had

been conformed in both country cross-section and analysis in time

Gragner C. Alan, ‘Offshoring in the Service Sector: Economic Impact and Policy”
34

The Economic Review, Third Quarter 2004

 76

series analyses. The development could be explained by demand factors (for

example, the growing proportion of the female employees). This research paper had

analyzed data on 23 service activities, grouped in four sub sectors (distribution,

business, social and personal services). An analysis of each of the sectors’

contribution to the development of employment and productivity between 1983 and

2003 had illuminated the prevailing productivity gap between the EU-15 and the

U.S.A. A corresponding investigation of the four new EU member states during their

transformation processes had pointed to an employment potential in the tertiary

sector that had not yet been fully utilized. The concluding section had discussed the

role of the European Union strategy in enhancing the productivity of the service

sector 35

Sukti Dasgupta and Ajit Singh in their research paper had used a Kaldorian

frame work to examine the evidence of deindustrialisation in the developing

countries at low levels of income, the jobless growth of these economies and the fast

expansion of the informal sector. These questions had been specifically examined for

the Indian economy using state level data, but the analysis had a wider general

application for economic policy in all developing countries36

35
Andreas Breitenfellner and Antje Hildebrandt,. “High Employment with Low
Productivity? The Service Sector as a Deteminant of Economic Development” Monetary
Policy and the Economy, Vol.2006, No.1, p, 110-135 (2006)
36
Sukti Dasgupta & Ajit Singh, 2006. “Manufacturing, Services and Premature
De-Industrialization in Developing Countries: A Kaldorian Empirical Analysis,” ESRC
Centre for Business Research- Working Papers p327, ESRC Centre for business Research
 77

Antonello D’ Agostino, Roberta Serafini and Melanie Ward in their

research had investigated the determinants of the service sector employment’s share

in the EU-15, for the aggregate of the service sector, for four sub sectors and for

twelve service sector branches. Recently, both Europe and the US had experienced an

increase in the share of the service-related jobs in total employment. Although

converging in all the European countries, a significant gap in the share of the service

jobs in Europe compared to the US had persisted. Understanding the main factors

behind this gap was the key to the achievement of higher employment levels in

Europe. This paper had also focused on the role of the barriers in the EU-15 which

might have hindered its ability to absorb labour supply and therefore to adjust

efficiently to the sectoral reallocation of the labour force. A crucial role in this

process had been played by the institutional frame work affecting flexibility in the

labour market as also mismatch between the workers’ skills and the job vacancies37

STUDIES RELATING TO EXPORT SECTOR

Mukherjee, A.- had examined India’s opportunities and constraints to trade in

the distribution services in the context of the ongoing GATS (General Agreement on

Trade in Services) 2000 negotiations. India was a small player in the global market in

respect of distribution services.

37
Antonello D’Agostino & Roberta & Serafini & Melanie Ward,. “Sectoral
Explanations of Employment in Europe: The Role of Services,” IZA Discussion Papers
2257, Institute for the Study of Labor (IZA). 2006
 78

In spite of its significant contribution to the GDP and employment, the Indian

distribution services’ sector was largely un organized and it had suffered due to its

poor access to capital, lack of management skills, a fragmented supply chain and due

to unfavorable regulations. Since FDI (foreign direct investment) was not allowed in

retailing, it had slowed down the process of development of the organized formats.

This study had indicated that India had a significant potential for expanding trade –

both exports and imports, - in the field of distribution services. The study had

provided an in – depth analysis of the cost and the benefits of the opening of retailing

to FDI. The findings of the research were:

 foreign investments would expedite the development of the modern

formats and create opportunities for the future expansion of trade in

distribution services;

 the entry of foreign players would not be an immediate threat to the

existing players;

 the growth of the organised sector would provide consumers with a wider

choice of commodities and would enable the growth of inter-linked

services’ sectors, such as tourism

 modern formats would led to the development of the supply networks and

logistic services, there by increasing the overall efficiency of the sector.

 79

Lastly, the study had recommended various regulatory, structural and other

reforms which would not only enhance the efficiency, productivity and global

competitiveness of the sector, but would also enable the country to meet the

challenges and opportunities arising out of trade liberlisation under the GATS. India

should forward in the removal of its external barriers to trade.38

Shankar Acharya in his research paper had analyzed the impact of the

economic reforms in the Indian economy in the middle of 1990 India’s macro

economic performance in the 90’s was exceptionally strong, and more especially in

the quinqennium following the balance of payments crisis of 1991. With in this five

years the economic growth rose on average to an unprecedented 6.7 percent level;

and investments and savings reached attend new peak levels, exports and private

capital inflows had surged to bring about a sea change in its external sector

performance and even inflation subsided to moderate levels by the end of the five

years period. Unfortunately a slow down in the process of economic reforms after the

mid-nineties had taken place due to the resurgence of high fiscal deficits, higher

business uncertainty because of the coalition government at the Centre and due to the

deterioration in the international economic environment. The recommendation was to

concentrate on key factors to recapture the growth momentum. The factors that

required immediate attentive were consolidation,

A.Mukherjee, “Distribution services: India and the GATS 2000 Negotiations”,

38

Indian Council for Research on International Economic Relations (ICRIER), 2002

 80

evolving of more flexible market responsive exchange rate policy and a supportive

monetary policy39.

RESEARCH GAP

Broadly speaking, the literature reviewed could be broadly divided into two

categories: an analysis of market reforms and forecasting of the impact, trends and

changes and empirical research examining the services’ sector and the actual impact

of the reforms in employment and in other economic variables.

The empirical research undertaken by the researchers was more recent, and

was still relatively limited in terms of quantity, briefly synopsis of what reminded as

a patchy area of literature with many key impact and trends with solid empirical

evidence, that had been articulated in the academics literature.

It would be of much interest to analyse the performance of the services’ sector

before and after the adoption of the New Economic Policy in India. Under two sub-

periods of 1980-81 to 1990-91 and 1991-92 to 2004-2005; to understand the path of

progress. Such a study would be of great significance of purposes for comparison and

would be of much use for future research programmes and for policy makers. The

area had been taken up for study by the researcher by analysing the variables for the

last twenty five years (before and after the period of economic reforms).

39
Shankar Acharya, India’s Macroeconomic Performance in the Nineties, Working
Paper prepared in Saneinetwork, November 9, Colombo, (1995)
 81

PART-C

METHODOLOGY

A research study in any field is an investigation of the unknowns based on the

known. Any research study requires an appreciating methodology. The methodology

is a systematic method, which depends on the researcher telling the truth about the

happenings in his research, and not what he wished to happen. The economic events

relate to the human behaviour, which might vary overtime and space.

Economists had been successfully taking efforts to upgrade the discipline of

economics to the status of the physical sciences in the treatment of the various

economic problems.

RESEARCH

The word ‘research’ had been derived from the Latin word ‘measuring to

know’. It is a systematic and a replicable process, which identifies and defines

problems, within certain specified boundaries. It employs a well designed method to

collect the data and to analyse the results. It disseminates the findings to contribute to

knowledge which could be generalised.

 82

METHODOLOGY

This methodology section deals with the research techniques and the methods

applied by the researcher in the collection and in the analysis of data. The researcher

could use this procedure to complete the study successfully.

Methodology could properly refer to a theoretical analysis of the method

applicable to a field of study or to the body of methods and the principles particular

to a branch of knowledge. In this sense, one may speak of the objections to the

methodology of a geographic survey (that is, objections dealing with the

appropriateness of the methods used) or of the methodology of modern cognitive

psychology (that is, the principles and practices that underlie research in the field). In

recent years, however, the word methodology had been increasingly used as a

pretentious substitute for the method used in the specific and technical contexts,

people might have taken to this practice by the influence of the objective of the word

methodology to mean “pertaining to methods.” Methodological might have acquired

this meaning as people had already been using the more ordinary adjective of the

word methodical to mean “orderly, systematic”. And the like but the misuse of the

word methodology obscures an important conceptual distinction between the tools of

scientific investigation (properly methods) and the principles that determine how

such tools are deployed and interpreted.

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COLLECTION OF DATA

The present study is completely dependent on secondary data, since it requires

a series of aggregate time series data spread over a period of time. Secondary, data

were obtained from Issues of the Reserve bank of India Bulletins, published by RBI,

the Economic survey reports and from the articles published in the various journals

such as the journal of Economic and Political Weekly, the Journal of Service

Research, Southern Economist, Five years plan reports, the Central Statistical

Organisaton’s publications and news items in the daily news papers such as The

Hindu, The Economic Times, Financial express and Business line.

PERIOD OF THE STUDY

The period of twenty-five years from 1980-81 to 2004- 05 was selected for the

purpose of the study. The period of study was further divided into two sub-periods

namely, the pre-reform period covering the years 1980-81 to 1990-91 and the post

reform period compressing of the years from 1991-92 to 2004-05. This period had

been specifically chosen only after taking into consideration the drastic changes that

hat taken place in the Indian economy after the adoption of the New Economic

Reforms. Other reasons for choosing this period was in response to a fiscal and

balance of payments crisis in the year 1991, the Economic Reforms had contributed
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more meaningfully to the attainment of higher rates of growth. India had through the

first decade of its reform process. Complete and comprehensive data was also readily

available for the period to make the study a scientific and a fruitful one. Hence, the

researcher preferred to choose these twenty five years for the research study.

TOOLS OF ANALYSIS

With a view to study the performance of the services’ sector in India since

1980, the appropriate statistical tools had been used in the study. The results of the

analysis had further been interpreted and observations had been made from out of it.

The researcher had analysed the collected data with the basic objectives of the

study in mind. The tools that had been made use of include the following.

i. Index numbers

ii. The time series analysis

iii. The Semi Log Model; and

iv. The Chow Test

Index Numbers

The index number is a statistical measure designed to exhibit the changes in a

variable or the change in a group related variables spread over a period of time, or

with respect to the geographic locations, or such their types of characteristics.

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∑P1
-------X 100
∑P0
Where,
∑P1- represents the current year; and
∑P0-represents the base year

Time Series Analysis

One of the most important tasks before economists and business men these

days is to make estimates for a future period, for with time series data is usually used.

Time series data consists of numerical values recorded at various intervals of time.

Time series data are often used in conjunction with regression techniques which had

been made use in the study.

In time series analysis, the independent variable (x) is taken a period of time.

A linear regression is used to calculate the trend that the dependent variable (y)

adheres to as time progresses.

But when time is used as an independent variable a number of complications

get themselves introduced in the regression method. These originate from the fact

that the dependent variable would usually subject to a number of influences that, in

themselves, would get affected by the units that are used to measure the time. It is a

mathematical model, which helps as to fit a straight line.

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Y=ß0+ ß1t + µ

where,

Y = dependent variable
ß0 = constant
ß1 = slope coefficient
µ = Stochastic variable

Multiple Regressions

Multiple regression is a logical extension of the two variable regression

analysis where instead of a single independent variable, two or more independent

variables are used to estimate the values of the dependent variable.

In this study the gross domestic product was determined by the three sections

of the economy.

Let us consider the following equation:

Y= ß0+ ß1X1+ ß2X2+ ß3X3+ ß4X4+U

Where
Y=Dependent variable

ß1, ß2, ß3, ß4= Partial regression coefficients

X1, X2, X3, X4= Independent variables; and

U=Distribution term
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This means changes in the dependent variable are fully explained by all the

independent variables.

The Compound Growth Rate (Semi-Log Model)

Economists, business people, as also the government are often interested in

finding out the rates of growth for a number of variables, such as population, GDP

employment, and the like. One of the objectives of this study is to analyse the growth

pattern of each other sectors. The best measure available for such an exercise is the

compound growth rate. The following formula had been used to find out the

compound growth rate.

Y1=Y0(1+r)t

Where ‘r’ is the compound rate of growth of ‘Y’

Taking the natural logarithm,

In Y1=ln Y0 = t ln (1+r)

Now letting

ß0=ln Y0

ß1=ln (1+r)

To write as

ln Yt = ß0 +ß0 t
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This model is like any other linear regression model in that the parameter ß1

and ß2 are linear; the only difference is that the regressed is the logarithm of Y and

the regresser is the time, which will take the values of 1,2,3 and so on.

This model had been used to find out the growth rates of the components of

the services’ sector in monetary phenomena.

‘t’ test

To examine whether the growth rates had differed between two assumed sub

periods, the following type of the test had been used

t = b1-b2 / √ (SE b1)2 + (SE b1)2

Here b1 represented the slope coefficient obtained in the regression model;

which was estimated for the pre-form period and b 2 represented the slope coefficient

obtained in the regression model estimated for the post reform period. And SE

represented the standard error.

If the calculated‘t’ value was found to be greater than the table value for (n1+n2-

2) degrees of freedom, the growth rate was statistically significant.

This model has been used to find out the growth rate in the services’ sector.

Chow Test

The Chow test had been used to find out whether there had been any structural

changes in the variables between the two assumed periods. It had been used to
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analyse the services’ sector performance for the years 1980-81 to 1990-91 as also for

the years 1991-92 to 2004-05.

The growth rates were estimated for the pre-reform period (1980-81 to 1990-

91), for the post –reform period (1991-92 to 2003-04) and also for the whole period

(1980-81 to 2003-04).

Chow’s test40 has been carried out using the following F- statistics.

S5 / K
F=
S4 / (n1+ n2– 2K)
Where,

N1 = Number of years before economic reforms,

N2 = Number of years after economic reforms,

Degrees of freedom = (k, N1+ N2 –2K)

S5 = S3 - (S1 + S4)

S4 = S1 + S2

S1 = Error Sum of Squares obtained in the first equation.

S2 = Error Sum of Squares obtained in the second equation.

S3 = Combined Error Sum of Squares.

40
Gregory C.Chow, “Tests of Equality Between Sets of Coefficients in Two Linear
Regressions”, Econometrica, Vol.28, No.3, 1960, p.321
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The computed ‘F’ value was compared with the table ‘T’ for K, N 1+N2-2k

degrees of freedom. If the computed ‘F’ value was greater than the table value F, it

indicated that there had been structural changes in the post liberalization period as

compared to the pre-liberalization period in the services’ sector.

This model had been used to find out the structural changes in the total of the

services’ sector.