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Services
contribute to 41 per cent of the GDP. Rapidly, the quality and complexity of the type
of services being marketed is on the rise to match worldwide standards. Whether it
is financial services, software services or accounting services, this sector is highly
professional and provides a major impetus to the Economy . Interestingly, this
sector is populated with a range of players who cater to a niche market.
India is fast becoming a major force in the Information Technology sector. According
to the National Association of Software and Service Companies (NASSCOM), over
185 Fortune 500 companies use Indian software services. The world's software
giants such as Microsoft, Hughes and Computer Associates who have made
substantial investments in India are increasingly tapping this potential. A number of
multi-nationals have leveraged the relative cost advantage and highly skilled
manpower base available in India, and have established shared services and call
centers in India to cater to their worldwide needs.
The software industry was one of the fastest growing sectors in the last decade with
a compound annual growth rate exceeding 50 per cent. Software service exports
increased from US$ 4.02 billion in 1999-2000 to US$ 6.3 billion in 2000-01, thereby
registering a growth of 57 per cent. India's success in the software sector can be
largely attributed to the industry's ability to cultivate superior knowledge through
intensive R&D efforts and the expertise in applying the knowledge in commercially
viable technologies.
Service Sector in India today accounts for more than half of India's GDP. According to data for
the financial year 2006-2007, the share of services, industry, and agriculture in India's GDP is
55.1 per cent, 26.4 per cent, and 18.5 per cent respectively. The fact that the service sector now
accounts for more than half the GDP marks a watershed in the evolution of the Indian economy
and takes it closer to the fundamentals of a developed economy.
Services or the "tertiary sector" of the economy covers a wide gamut of activities like trading,
banking & finance, infotainment, real estate, transportation, security, management & technical
consultancy among several others. The various sectors that combine together to constitute
service industry in India are:
• Trade
• Hotels and Restaurants
• Railways
• Other Transport & Storage
• Communication (Post, Telecom)
• Banking
• Insurance
• Dwellings, Real Estate
• Business Services
• Public Administration; Defence
• Personal Services
• Community Services
• Other Services
There was marked acceleration in services sector growth in the eighties and nineties, especially
in the nineties. While the share of services in India's GDP increased by 21 per cent points in the
50 years between 1950 and 2000, nearly 40 per cent of that increase was concentrated in the
nineties. While almost all service sectors participated in this boom, growth was fastest in
communications, banking, hotels and restaurants, community services, trade and business
services. One of the reasons for the sudden growth in the services sector in India in the nineties
was the liberalisation in the regulatory framework that gave rise to innovation and higher exports
from the services sector.
The boom in the services sector has been relatively "jobless". The rise in services share in GDP
has not accompanied by proportionate increase in the sector's share of national employment.
Some economists have also cautioned that service sector growth must be supported by
proportionate growth of the industrial sector, otherwise the service sector grown will not be
sustainable. In the current economic scenario it looks that the boom in the services sector is here
to stay as India is fast emerging as global services hub
The service sector now accounts for more than half of India's GDP: 51.16 per cent in
1998-99. This sector has gained at the expense of both the agricultural and industrial
sectors through the 1990s. The rise in the service sector's share in GDP marks a structural
shift in the Indian economy and takes it closer to the fundamentals of a developed
economy (in the developed economies, the industrial and service sectors contribute a
major share in GDP while agriculture accounts for a relatively lower share).
The service sector's share has grown from 43.69 per cent in 1990-91 to 51.16 per cent
in 1998-99. In contrast, the industrial sector's share in GDP has declined from 25.38 per
cent to 22.01 per cent in 1990-91 and 1998-99 respectively. The agricultural sector's
share has fallen from 30.93 per cent to 26.83 per cent in the respective years.
Some economists caution that if the service sector bypasses the industrial sector,
economic growth can be distorted. They say that service sector growth must be supported
by proportionate growth of the industrial sector, otherwise the service sector grown will
not be sustainable. It is true that, in India, the service sector's contribution in GDP has
sharply risen and that of industry has fallen (as shown above). But, it is equally true that
the industrial sector too has grown, and grown quite impressively through the 1990s
(except in 1998-99). Three times between 1993-94 and 1998-99, industry surpassed the
growth rate of GDP. Thus, the service sector has grown at a higher rate than industry
which too has grown more or less in tandem. The rise of the service sector therefore does
not distort the economy.
Within the services sector, the share of trade, hotels and restaurants increased from
12.52 per cent in 1990-91 to 15.68 per cent in 1998-99. The share of transport, storage
and communications has grown from 5.26 per cent to 7.61 per cent in the years under
reference. The share of construction has remained nearly the same during the period while
that of financing, insurance, real estate and business services has risen from 10.22 per
cent to 11.44 per cent.
The fact that the service sector now accounts for more than half the GDP probably
marks a watershed in the evolution of the Indian economy.
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