Role of Service Sector in Indian Economy

ISSN 2319-9725
Dr. P. Bala Subramanian
Associate professor, Department of Economics, Saraswathi
Narayanan College (Autonomous), Madurai
T. Arimohan
Ph.D scholar, Department of Economics, Saraswathi Narayanan
College (Autonomous), Madurai

Abstract: Service sector is the lifeline for the social economic growth of a country. The growth of the
service sector is due to increase in urbanization, privatization and more demand for intermediate
and final consumer services. Availability of quality services is vital for the well being of the
economy. Service sector in India is contributing more than half of Indias Gross Domestic Product.
In 1950-51, contribution of Service sector to GDP was 29 percent. In the year 2010-11, this
contribution increased to 57.8 per cent of GDP. According to the National Association of Software
and Services Companies NASSCOM. The IT Business Process Outstanding (BPO) sector
contributed 6.4 per cent of Indias GDP, 14 Per cent of Indias exports and 10 per cent of all
Services sector revenues in 2010-11. IT Services segment was the fastest growing segment, growing
by 22.7 per cent in 2011-12 and generating exports of $3.5 billion. A majority of people of still
trapped in the low productivity agricultural sector and the only alternative for them is to move into
low productivity informal activities in the Services sector. The high growth segments of the service
remain skill-intensive.new economic policy benefited mostly to trade, transport and communication,
banking, business service and community services. They acquired a lions share in the service
sectors contribution to GDP.

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1. Introduction:
Service sector is the lifeline for the social economic growth of a country. It is today the large
and fastest growing sector globally contributing more to the global output and employing
more people than any other sector. The growth of the service sector is due to increase in
urbanization, privatization and more demand for intermediate and final consumer services.
Availability of quality services is vital for the well being of the economy.
The service sector includes services like transportation, telecommunication, banking,
insurance, communication, trade, storage, travel and tourism, courier services, consultancy
services, legal services. Information and Communication Technology (ICT) advertising
agency, medias, marketing retail etc. Besides, the service sector also includes certain services
which are not directly helpful in the production process but very essential for good quality of
like. For example, services of doctors, teachers, crches, designers, domestic service
providers etc. In line with the global trend the service sector in India, is growing rapidly.
India has emerged as a service-led economy. Service sector in India is contributing more than
half of Indias Gross Domestic Product.

2. Composition Of Growth In India:

The contribution of Service sector in GDP is continuously increasing in India. In 1950-51,
contribution of Service sector to GDP was 29 percent. In the year 2010-11, this contribution
increased to 57.8 per cent of GDP. Contribution of different sectors to GDP of India.
The Service sector is the fastest growing sector of India. According to the National
Association of Software and Services Companies NASSCOM. The IT Business Process
Outstanding (BPO) sector contributed 6.4 per cent of Indias GDP, 14 Per cent of Indias
exports and 10 per cent of all Services sector revenues in 2010-11. IT Services segment was
the fastest growing segment, growing by 22.7 per cent in 2011-12 and generating exports of
$3.5 billion.
The contributing of service sector in employment has been increasing. In the year 1970-71,
the contribution of Service sector to employment was 16 per cent. It can be argued that the
service sector as a whole has a mismatch between contribution to GDP and to employment. It
is clear that high growth of the economy and that of the service sector has failed to create
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decent jobs. A majority of people of still trapped in the low productivity agricultural sector
and the only alternative for them is to move into low productivity informal activities in the
Services sector. The high growth segments of the service remain skill-intensive.

3. Share Of Service Sub-Sectors In GDP:

The new economic policy has affected positively on the expansion of service sector. But all
services did not enjoy similar benefits of this policy. It concluded the share of trade,
transportation and communication, banking, business services and community services was
increased in GDP during post 1991. But the share of banking in GDP was reduced in 200708. This may be due to global slowdown. The share of public administration was also
reduced because the government is curtailing expenditure on administration to reduced fiscal
deficit. The share of community services in GDP has increased in recent years has the
government is increasing expenditure on education, research, health, medical etc.

4. Challenges And Problems:

There are various challenges in looking at the service sector as the gateway to development in
India. One of the challenges in this area is to retain Indias competitiveness in those sectors
where it has already made a mark such as IT/ITCS and telecommunication.
In short, we can say that there are many challenges and problems like limit in the foreign
equity participation, tax policy, licensing provisions, inadequate infrastructure, high cost of
finance, transaction cost, freight and power, low volume of production inverted customs,
duty, structure in some products, delay in the promotion of conductive business environment
will unable us to catch up with the global gains in terms of worldwide presence.
4.1. Government Steps To Improve Service Sector:
In the past two decades, the Government has taken many steps for the development of service
sector. In the field of education, the major programmes, schemes taken to bring about
quantitative and qualitative improvement in elementary education are Mid- Day Meal
(MDM), Sarva Shiksha Abhiyan (SSA ), National Programme for education of Girls at

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elementary. District Primary Education programme (DPEP), Kasturba Gandhi Balika

Vidhalaya (KGBV) etc.
In the field of the Media, foreign direct investment (FDI) has been permitted in its various
segments. FDI upto 100% has now been allowed for print media covering non-news
publications and FDI upto 26% has been allowed for print & electronic media, covering news
and current affairs etc.
In the field of Information Technology and IT enabled services, some of the major
initiatives undertaken (DIT) were like a National Taskforce on Information Technology and
Software Development was formed with the objective of framing a long term National IT
Policy for the country and for removing the impediments to growth of the InfoTech industry.
State wide Area Networks across the country. E-District project has been launched with the
objective of computerizing the back end work flows at the district level with appropriate
Business Re-engineering (BPR) and enable better monitoring of various Government
schemes etc.

5. Suggestions:
Following suggestions can further boost the growth of service sector.
i. Promoting technical up gradation.
ii. More stress on research and development lessen their dependence on import of
technology.
iii. Develop adequate infrastructure for growth.
iv. Remove barriers to migration flows.
v. Upgrade the skill and technology in the area of labour.
vi. Removal of domestic constraints like labour laws, finance etc.
vii. Promote foreign and domestic competition.

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6. Conclusion:
It concluded that the new economic policy affected positively on services sector. The sector
has depicted a rapid and healthy growth during post-1991. The growth rate of this sector
increased during planning period the share of services sector in GDP and its contribution to
GDP growth also increased. The new economic policy benefited mostly to trade, transport
and communication, banking, business service and community services. They acquired a
lions share in the service sectors contribution to GDP. But still the progress of hotels and
restaurants, railway, storage, dwelling, real estates, legal services, personal services like
domestic, beauty shops, etc, and other services like radio, TV broadcast, entertainment,
sanitary, etc.., is not satisfactory. There is need to look after these services.

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References:
1. Joshi Seema (2008), Growth and structure of tertiary sector in developing economics,
Academic foundation, Delhi, 2008.
2. Bohra Narendra Singh (2011), International Journal of Economic Research, 2(2), 1018.
3. Aggarwal Archana (2012), Indias Services sector, Gateway to Development?
Economic & Political weekly. Vol. XLVII, Nos. 26&27.
4. Dr. Piyush Prakash (2013), Service Sector and the Indian Economy Third concept.
Vol. 26 No.312 Page No.55-57.

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