Service Sector

Services Sector of India

  • India’s services sectors has emerged as a prominent sector in terms of its contribution to national and states incomes, trade flows, FDI inflows and employment. This sector has been pulling up the growth of the Indian economy with a great amount of
  • The share of service sector in GDP has nearly doubled since independence.
  • Trade, hotels, restaurants contributes maximum share to GDP followed by finance, insurance real estate
  • Both these services showed perceptible improvement in their shares over the year. Community, social and personal services with a share of 0% is in 3rd place. Construction, a borderline services inclusion, is at fourth place with an 8.2 % share.

FDI in the Services Sector

  • The growth of the services sector is closely linked to the FDI inflows into the sector and the role of transnational firms. While the ambiguity in classifying the different activities under the services sector continues, the combined FDI share of financial and non financial services, telecommunications, computer hardware be taken as a rough estimate of the FDI share of services, though it could include some non – service

Share and Growth of India’s Services Sector (at factor cost)

Trade, Hotels and restaurants14.6 (5.2)18.0(6.2)25.1#(5.2)
Trade13.3 (5.0)16.6(6.5)
Hotels and restaurants1.3 (7.0)1.5(2.8)
Transport, storage and communication7.6 (9.2)7.1 (8.4)
Railways1.1 (4.1)0.7(7.5)
Transport by other means5.0(7.7)5.4 (8.6)
storage0.1 (6.1)0.1 (9.4)
Communication1.5 (25.0)0.9 (8.3)
Financing, Insurance, real estate and business services13.8 (4.5)16.6 (11.7)17.2(8.6)
Banking and Insurance5.4(-2.4)5.7(13.2)
Real estate, ownership of dwellings and business services8.7 (7.5)10.8 (10.3)
Community, social and personal services14.8 (4.6)14.0(6.0)14.3(8.6)
Public administration and defence6.6 (1.9)6.1(5.4)
Other services8.2 (7.0)7.9 (6.5)
Construction6.0(6.1)8.2 (5.6)8.2 (5.9)
Total service50.8 (5.4)55.7(8.2)56.5(6.6)
Total services (including construction)56.8(5.5)63.9 (7.9)64.8(6.5)
Total GDP100.0(4.3)100.0(6.2)100.0(5.0)
Some Major Services of India

  • The service which accounts for 60% of the GDP has grown 5% in financial year 2013. Some of the major services of India’s are

Tourism, Including Hotels and Restaurants

  • Tourism accounts for around 7% of global employment (direct and indirect) and 5% of global income as per the United Nationals World Tourism Organisation (UNWTO), Tourism Highlights 2012, Edition.
  • It is one of the largest generations of employment across the world and women account for 70% of the work force in the travel and tourism industry, Hence, it generates more inclusive growth than other sectors.
  • As per Tourism Satellite Account (TSA) data 2009-10, the contribution of tourism to India’s GDP was 8% (3.7% direct and 3.1% indirect) and its contribution to total employment generation was 10.2% (direct 4.4% and indirect 5.8%). As per the 12th Five Year Plan approach

paper, India’s travel and tourism sector is estimated to create 78 jobs per billion rupees of investment compared to 45 jobs per million rupees in the manufacturing sector.

  • Domestic tourism is also an important contributor to the growth of this sector. During 2011, there were 851 million domestic tourists, with the top five states, Uttar Pradesh, Andhra Pradesh, Tamil Nadu, Karnataka and Maharashtra, cumulatively accounting for around 69% of the total domestic tourist visits in the country.
  • The hotels and restaurants sector with a 5 % share in India’s GDP in 2011 – 12, is also an important sub component of the tourism sector. There are also many new tourism product that hold significant potential for India like wellness tourism, got tourism and adventure tourism.

Some Transport – Related Services

  • Transport related services are as follows


  • Shipping plays an important role in merchandise trade. The fortunes of the former depend on the growth of the latter and the prospects of the latter depend on the efficiency of the former. About 95% of India’s trade by volume and 68% in terms of value is transported by sea. As on 31st January 2013, India had a fleet strength of 1158 ships with GT of

10.45 million with the Public – Sector.

  • Shipping corporation of India having the largest share of 60%. Of this, 356 ships with

9.37 million GT cater to India’s overseas trade and the rest to coastal trade.

Port Services

  • Port services are closely connected to shipping services and merchandise trade. The performance of the latter two is also dependent on the efficiency of
  • In the first half of 2012 – 13(April

– September) traffic handled by Indian ports grew by 1.8% over

the corresponding period of the previous year, with the growth of non – major ports (10.3%) compensating for the decline in growth of major ports.

  • The Maritime Agenda 2010 -20, covers some of these issues like full mechanisation of cargo handling and movements, having draft of not less than 14 m in major ports and 17 m in hub ports and shifting of transshipment of Indian containers from foreign ports to Indian
  • The outlay for shipping sector in 12th Plan includes ` 6960 core as global budgetary scheme and

`21990 core as Internal and Extra Budgetary Resource (IEBR).

Real Estate Service and Housing

  • Real estate and dwellings has a share of 9 % in India’s GDP and a growth of 7.2 % in 2011 -12. The growth of the real estate services in Particular has been impressive consistently at over 25% since 2005 – 06 with 26.3% growth in 2011 -12.
  • Housing is a basic necessity for human life and in nearly 300 sub sectors such as manufacturing (Steel, Cement and Builders Hardware), transport, Electricity, Gas and Water Supply, Trade, Financial Services         and Construction, which contribute to capital formation income opportunities and generation of employment.
  • India’s housing and real estate sector faces many challenges. While India is among the top countries in terms of housing and workspace needs. It ranks 182nd in construction permission processes according to the world Bank’s Doing Business 2013, report.

Some Business Services

  • Business services include services like computer related services, research and development, accounting services and legal services and renting of machinery in order of importance (shares) as per India’s National
  • The state of business services in India’s GDP, has risen over the

years   and   these   are   also   the dynamic       services       with       a combined  growth  rate  of  13.5  % in 2011 -12. They grew at around 20%  during   2005-06,  2005  -07

and 2008-09, but growth decelerated in the next 2 years due to the global economic situation.

IT and ITeS

  • India’s IT and ITeS Services with exponential growth are a unique export- led success story, which has put India on the global map. While India has achieved a brand identity in this sector, other developing countries are trying to emulate India’s
  • It is also a provider of skilled employment both in India and abroad, generating direct employment for near 8 million person and indirect employment of around 8.9 million in 2011-12.
  • The IT – ITeS industry has four major sub components. IT service, Business process outsourcing (BPO). Engineering services and R & D and Software products.
  • The 12th Five Year Plan aims to harness the potential of the software and services sector to contribute to the country’s development and growth, particularly in terms of investment, exports, employment generation and contribution to GDP and to retain India’s leadership position as a global IT

– BPO destination, consolidate and grow in both mature and emerging markets.

  • The government has also announced the National Policy on Information Technology 2012, which aims to maximally leverage the power of ICT to help address the economic and developmental challenges the country
  • Under the               National e-Governance Plan (NeGP), the government focuses on making critical public services available electronically and promoting rural

Current Scenario

  • India’s dynamic services sector has grown rapidly in the last decade with as much as 4 %

of the growth in India’s GDP in 2014-2015 coming from this sector. Unlike other developing economies, the Indian growth story has been led by services sector growth which is now in double digits.

Service Sector

  • The service sector covers a wide array of activities ranging from services provided by the most sophisticated sectors like telecommunications, satellite mapping and computer software to simple services like those performed by the barber, the carpenter and the plumber highly capital – intensive activities like tourism, real estate and housing infrastructure – related activities like railway, roadways and ports to social sector related activities like health and education.
  • The national            accounts classification of the services sector incorporated trades, hotels and restaurants; transport,     storage                      and communication                             financing,

insurance, real estate and business   services          and community, social and personal services.

Share of Services in Income and Employment

  • While the share of services in employment for many developed countries is very high and in many cases higher than the share of services in income, the gap between these shares is relatively less in developing countries. Except China and India, all the other BRICS countries also have a similar pattern.
  • In the Indian and Chinese cases, there is a wide gap between the two, with gap being wider for India. China’s share of services in both income and employment is relatively low due to the domination of the industrial sector, but the gap is also narrower than that of
  • For instance, share of services in overall GDP(at factor cost at 2004-05 prices) rose from 7% in 1990 – 91 to 57.2% in 2009 –

10      How      ever,      share      in employment          of          services increased   from   24.4%   to   just 25.3%

  • This is unlike the experience of other countries where services provide a business services which accounted for 13% of GDP in 2000 employed only 10.2% if the labour force.

UPSC Previous Year Question:

  1. Consider the following:
    1. Hotels and restaurants
    2. Motor Transport undertakings
    3. Newspaper Establishments
    4. Private Medical Institutions

The Employers of which of the above can have the “Social Security coverage under Employees State Insurance Scheme? (CSE 2012)

  1. 1, 2 and 3 only
  2. 4 only
  3. 1, 3 and 4 only
  4. d) 1, 2, 3 and 4

Ans: (d)

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