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The service sector or tertiary sector of an economy includes provision of services to other business enterprises as well as to final consumers. Service sector includes
  • ƒBusiness services and professional services like accounting, advertising, architectural and engineering, computer related and legal services
  • ƒCommunication services such as audio-visual services, postal and courier services, telecommunications
  • ƒReal estate and related services
  • ƒDistributive services
  • ƒEducation services
  • ƒEnergy services
  • ƒEnvironmental services
  • ƒFinancial services
  • ƒHealth and social services
  • ƒTourism services
  • ƒTransport services including air transport, maritime services and services auxiliary to all modes of transport

Role of service sector in India

The service sector is India’s largest sector and is growing at a rapid rate. The role of service sector in the Indian economy is as follows:
  • ƒContributes to a large share in GDP: The share of tertiary or service sector has increased from about one- third of GDP in 1950-51 to more than half (56%) in 2011-12.
  • ƒGenerates employment: Service sector employed 17.3 per cent of working population in 1951 and 25% in 2009-10. (See chart 6)
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  • Supports other sectors: It provides support to agriculture and industries by rendering financial, transport, storage and distributive services.
  • ƒContributes to exports: It contributes to 1/3rd of total exports in India (2011-12). Software, business, technical and professional services are prominent amongst the services that are exported from India. India’s share in world’s total commercial services export was only 0.57% in 1990, but grew to 2.3% in 2005 and 2.7% in 2006. Indian services exports recorded a growth of more than 23% per annum during 2001-11.
  • ƒContributed to the growth of economy in the planning period: The share of the service sector in GDP was 59% in 2010-11. Fall in the share of primary sector and rise in the shares of secondary and tertiary sectors in GDP are indicators of economic growth. It also marks a fall in the percentage of people engaged in primary activities with a rise of the same in secondary and tertiary sectors. If we consider Indian economy, we find its secondary sector has failed to grow substantially. The growth in the tertiary sector has exceeded the growth in the secondary sector. The growth rate in the service sector was 7.54% p.a. in the 8th plan, 8.1% p.a in the 9th plan and around 9% p.a during the 10th plan. The 11th plan targets an annual average growth rate of 9.4% for the service sector. Transport, storage and communication have been the fastest growing subsectors with an average growth rate of 15.3% p.a during the 10th plan. Tourism industry has exhibited rapid progress and displays potential of further growth. This industry had grown at the rate of 8% on an average from 2000 to 2007, 10% in 2007-08, 5.5 % in 2008-09 and 6.7% in 2009- 10. The financial services segment has also developed at a fast pace. Its transition from being under Government control to being liberalised and open to foreign competition and free from barriers has further fuelled its growth. The financial, insurance, real estate and business services recorded average growth rates of 7.9% during 2000-07, 12% during 2007-08, 12.5% in 2008-09 and 9.2% in 2009-10. Community, social and personal services recorded average growth rates of 6% p.a. in 2000-07, 7 %in 2007-08, 13% in 2008-09 and 12% in 2009- 10.
    India’s manpower in scientific and technical sector is 3rd largest in the world. India’s consultancy professionals provide expertise in sophisticated areas like information and technology, advanced financial and banking services to developed countries like UK, France, West Germany and Australia. India offers health services through super-speciality hospitals that specialise in both, modern and traditional Indian medicine systems (like ayurveda). Education contributes to national income through foreign exchange owing to NRI’s and foreign students enrolled in India. The entertainment industry has also improved at a rapid rate. IT services like Business Process Outsourcing (BPO) have seen tremendous growth and western countries prefer India as their destination for outsourcing work. Hence, the service sector has grown immensely, yet steadily. However, its share in generation of employment has been relatively low. Reasons for the fast growth of the services sector
  • ƒIncome elasticity of demand for services is greater than one. This implies that the final demand for services grows faster than the demand for goods and commodities with a growth in income
  • ƒOutsourcing of certain services is made possible through technical and structural changes in the economy
  • ƒThe revolution in IT have enabled delivery over long distances at reasonable costs
  • ƒRising demand for manufacturing industry, liberalisation of financial sector and reforms in certain segments of infrastructure services have strengthened the service sector and fuelled its growth

Problems of service sector in India

  • ƒInadequate infrastructure in both, rural and urban areas pointed out by shortage in power supply, traffic congestions, etc. affect the quality and costs of the services.
  • ƒIt generates less than 25% of the total employment opportunities.
  • ƒInadequate and certain inappropriate economic reforms in financial sector hamper its aim to achieve international standard.
  • ƒAbsence of a strong set up to attract tourists leads to foreign tourists fearing harassment and being cheated.
  • ƒIndian service providers require training in public dealing, etiquettes, hospitality and manners which form the core of the essentials of this sector.
  • ƒNeed for airports and railways to be reorganized.
  • ƒAbsence of a quick and efficient system in the consular division affects the tourism sector.
  • ƒThere is unfair competition in the telecom sector, lack of sufficient support system for the growth of e-commerce, such as internet infrastructure, personal computer, customer demand, etc.
  • ƒService sector depends on the growth of other sectors, especially industries.
  • ƒIndian service providers like BPOs and IT service providers face the need to improve the quality and reduce the cost of their services in order to meet the rising global competition.

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