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Processed on: 16-Feb-2019 17:20 IST Similarity by Source
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Internet Sources: 37%
Word Count: 2076
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Student Papers:
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8%

ie services By NITINVARMAN M

27% match (Internet from 01-Mar-2010)

http://www.icra.in/files/pdf/MoneyAndFinance/mihirrakshit-feb07.pdf

4% match (Internet from 03-Nov-2014)

http://www.icrier.org/pdf/Working%20Paper%20249.pdf

3% match (Internet from 13-Feb-2014)

http://www.nber.org/papers/w16757.pdf

2% match (Internet from 16-Sep-2017)

http://economics.adelaide.edu.au/downloads/ArpitaMukherjee-Australia-
India_workshop.pdf

1% match (Internet from 21-Jul-2018)

http://www.cuts-citee.org/pdf/RREPORT07-03.pdf

1% match (student papers from 19-Sep-2018)

Submitted to The Energy and Resources Institute on 2018-09-19

< 1% match (Internet from 09-Apr-2013)

http://www.icra.in/files/moneyfinance/mihirrakshit-feb07.pdf

< 1% match (Internet from 08-Jul-2017)

http://editorialsamarth.blogspot.com/2011/07/editorial-060711.html

Service Sector in India Group 3 (M Nitinvarman PGP34067, Mahendra Singh

Kaviya PGP34068) Service sector growth in India - Service Sector Amounts to
More than 50 % of the india’s GDP. There has been a Rise of 11% point in
Service sector share in GDP from 1950-1990. There has been same increase
post reform era as well. Until 1990, Industry share grew faster than Services,
Industry grew nearly by 100%, while Services grew by 37% but in 1990,
there was a deceleration in Industry growth. During 1995-2005, Services has
shown an upward trend and exceeded that of industries by more than 2.5%
points. On aggregate level, in 1970s and 1980s services accounted for 48%
and 49% of GDP growth and it shot up to more than 66% during 1995-
2005. Overall, Contribution of services to the GDP growth is significantly
higher than that of the other two sectors. Services and industry do not have
same share in investment and GDP. Agriculture gets the lowest share in
Investment, which only comprises 10% of the total investment and Over the
year, investment share for agriculture has further reduced. Industry had the
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highest share in total investment which is after followed by Services. For

agriculture sector, there has been a positive correlation between share in
investment and GDP for agriculture, but comparatively it is still very less.On
the other hand, for Industry and services, there is a disproportionate share in
investment and GDP exists, where 50% of investment, yields only 25% of the
GDP. Total volatility of agriculture was ~8 times that of Services in Pre-
Reform Era. The variation in GDP share for services has increased, but since
it is at modest level, it will result in more stable Stable GDP growth after
reforms compared to in 1970s and late 1980s. India is way ahead in terms of
exporting merchandise and services to the world and it has increased
continuously. Inter-sectoral Linkages in Services Production and Value-Added
- There are doubts regarding the feasibility and desirability of the country’s
growth being driven by mostly Services. The inter- sectoral demand and
supply side linkages would be examined to identify the major factors that are
likely to be important in governing the output and GDP in the services sector.
Services sector growth and share in GDP does not refer to services output
but value added, that is output less intermediate inputs used up in its
production, Since demand and supply are proximately related to output, not
value added an analysis of effects of the two sets of factors on the sector’s
output is a prerequisite for examining their impact on its GDP. Some of the
demand Side Factors are like outcome depends crucially on the inter-sectoral
linkages from the demand and supply side, final demand (purchases of
services by their ultimate users and includes household consumption of
services, government final consumption, expenditure and export of services),
and Intermediate demand( Firms demand for services for purposes of
production). For a sustained GDP growth, there are few factors which we
need to understand, like I) Intermediate demand is related to output of all
sectors which require services as inputs, II) Final demand for one sector’s
product requires a combination of output of all the three sectors to meet both
the direct demand and the direct cum indirect inputs of different sectors
needed, III) Changes in the regulatory framework or the nature of economic
reforms implemented by authorities can have impact on growth of aggregate
GDP as well as its sectoral composition, and IV) Evolution of a country’s
comparative advantage as well as trade policies determines the relative
performance of different sectors. Service revolution in India needs to be
understand to identify the point at which there was a break from the earlier
trend in growth of the sector and in its relative share compared with that of
industry. In mid 1990s, there was a major divergence between the
performance of the tertiary and secondary sectors. There was decline in
industry growth from 6.1% to 5.4% points whereas services saw increase to
8.2% points. Since important component of final demand for services is
public consumption, which increased in the period as a result of hikes of
government and semi- government employees. Emergence of foreign
demand is perhaps the major source of services growth. In 2000s, public
consumption saw a decline whereas services GDP was still increasing,
showing that it is not a significant factor in the Services revolution. Largest
component of final demand for both goods and services is private
consumption with household purchases of services amounting to 40% of
services GDP, this can be a major factor. Some of the Supply Side Factors
are Input-Output Coefficient, Capital accumulation, Technical progress
etc.They shift production possibility frontier outward. But there are problems
in Supply Side Explanation like I) Capital formation is less in service sector as
compared to its GDP growth, II) Incremental capital output ratio, If it was
purely demand determined growth, employment rate would been similar to
GDP growth rate, III) Implies that productivity improvements had a major
part to play since labour coefficient and ICOR both went down in this period,
and IV) India’s share in world services exports increased from 0.57% in 1995

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to 2.32% in 2005 indicating efficiency gains. There are some historical

reasons for Service Sector Growth such as Less capital intensive, it was a
new sector and switch over to or adopt new technology was easier for
entrepreneurs (it was easier to focus on minimising cost as well as quality).
From the start, Services except for trade, banking and insurance were lightly
regulated (there was large expansion due to entry of private players in
telecommunications and air transportation services played an important role
in preventing supply bottlenecks in the process of growth especially for IT
and ITES services). Government policies regarding FDI was always less
restrictive in this sector, and there were tax concessions on export earnings,
facilities for setting new production units. High growth service sector
employed highly educated rather than unskilled labour, hence value added
was higher than employment rate. Interaction between Demand & Supply
Side Factors - As per mainstream macroeconomic consensus, short term
growth of an economy is governed by demand side factors whereas long term
growth is determined entirely by supply side factors such as capital
accumulation, labour growth and technical progress. For expansion of a
sector, outcome will be based on the interaction of both demand and supply
side factors. In short run, through changes in relative prices, supply and
demand conditions play a major role in affecting sectoral than aggregate
GDP, even in long run, demand plays a significant role. Since India had a
services led growth, the obvious question arises that How a large economy
like India became a service sector heavy economy bypassing the agriculture
and industrial development. There can be some reasons given such as Every
country need not traverse the same development path. India acquired strong
comparative advantage in services. The growth differential between India’s
and world’ s exports was higher in services than industry and agriculture.
There has been a sharp rise in Service’s Revealed Comparative Advantage
from 0.94 in 1996 to 1.97 in 2005.The world economy has shown increasing
openness towards Services such as education, health, consultancy which
were previously non-tradables were now being exported and imported. So,
with higher growth and income from tertiary sector, a country would be in a
better position to import agricultural and industrial goods.There were more
obstacles for industries than services in liberalized economy. For Industries,
tariff barriers were higher, it required more capital and it has reservation for
small scale units, and are difficult to restructure. Whereas regulations
regarding FDI was in favor of services. Services required less capital and
there was lesser reservations. Despite all these factors, India’s merchandise
export at 13.9% was 4.7% higher than that of world exports, suggesting
given a level playing field, these two sectors can play a major role in India’s
economic growth. Sustainability and Optimality of services based can be
more analyzed. An economy with high growth in service sector where
unemployment growth is low and widened wage differential can’t be regarded
as optimal. It is very difficult to have an effective social security system
encompassing the entire population without cutting investment in service
sector. Solution could be the promotion of industries and agriculture even if it
means sacrificing overall economic growth. Rising RCA in service sector is not
inherent but the outcome of Govt. policies. It is important to take stock of
the sources of the sector’s competitive advantage over industry and
agriculture and examine whether it truly reflects comparative advantage or
absence of level playing field. Inter-Sectoral Allocation of Resources, their
efficiency and growth - In view of large pool of educated and skilled labour
force, low capital requirement and FDI regulations suggests that there is
strong ground for fast growth of services. Government’s support in
upgradation of universities and institutes is also justified as average return on
higher education is much higher. But tax concessions and favoured treatment
of services have been distortionary and reduced the government’s ability to

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invest in agriculture and industries and to negotiate with international

markets to lift tariff barriers imposed on industrial and agricultural products
exported. However, a neutral policy will not be enough to achieve economic
goals. The vast level of unemployment, pathetic state of primary and
secondary education will add huge cost for training them to be absorbed in
services. Expansion of effective credit delivery system which has proved to
be a hurdle to productive investment is a measure for allocative efficiency.
Other measure is the large scale investment in irrigation, roads, railways,
communication, ports, power etc, which are highly labour intensive and
would absorb manpower whose opportunity cost is close to zero and
provision of these infrastructure would help in productive use of
underutilized resources, both human and non-human which will remove
major hurdles for agriculture and industries. Is Service Sector India’s Road to
Economic Growth? - From observation, growth rate of service sector has
increased consistently post reforms, growth rate of agriculture sector has
decreased post reforms and Growth rate in industry and manufacturing sector
picked up after initial slack. Service Sector can further be divided into three
groups: I) Traditional Services - Retail and wholesale trade, transport and
storage, public administration and defence II) Hybrid of Traditional & Modern
- Education, health and social work, hotels and restaurants, and other
community, social and personal services III) Modern Services - Financial
intermediation, computer services, business services, communications, and
legal and technical services. Indian exports’ contribution has significant role
to play in the growth of services sector. India’s share in exporting services
have risen from 0. 8% in 1998 to 2.7% in 2006. In miscellaneous segment,
Software services has contributed the most. International Comparison at
similar per capita incomes, Group I) Share of Group I services in India is
likely to stabilise (assuming real per capita income growth of 5%) if we
assume that India is along the international norm, Retail trade is the main
activity with significant potential to grow, this sector has been sheltered from
foreign competition and remains dominated by mom- and-pop stores suggest
that consolidation and increased competition from foreign retailers have the
potential to increase sector’s contribution to growth. Group II) The share of
Group II services is similarly unexceptional. Need of liberalisation in some
activities in the sector like health care and education, for expansion. India is
ought to become net exporter of services like education and health care only
when its per capita income exceeds $5,000 (again in year 2000 US
purchasing power parity dollars), a level that will take India ten years to
reach (assuming, again, a real per capita income growth rate of roughly five
per cent). Group III) India’s share in this group has took off at much lower
incomes than in OECD countries. In conclusion, significant growth in
Traditional and Modern Services has led to increase in the services’ share in
the overall GDP. Due to lack of infrastructure, manufacturing is not the
exclusive destination for the vast majority of indian labor moving into modern
sector. To provide employment for small towns and rural villages’ semi skilled
worker, there are certain modern sector services have come into play.
Employment provided by the modern services can be a good way to support
manufacturing employment and alleviate the overall poverty. Due to the
requirement of skilled labor, expansion of manufacturing and services sectors
will continue to be constrained.

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