RISE OF SERVICE SECTOR IN INDIA

WAC ASSIGNMENT 1
LITERATURE REVIEW
ON
‘RISE OF SERVICE SECTOR IN INDIA’
SUBMITTED TOSUBMITTED BY:
MANASWINI ACHARYA SUSHMA (14PGDM013) SHRESHTHA (14PGDM053) DINESH GUPTA (14PGDM016) ANGAD SINGH (14PGDM003)
Abstract:
This paper presents an overview of how the service sector has risen in India. It speaks about the contribution of service sector to GDP growth. It also briefs about the components involved in the sector such as business, insurance and IT. It takes us through the evolution of service sector across the past few decades. This also speaks about the future projection and growth in this sector.
Literature Review:
Following the conventional classification, an economy is classified into three sectors, agricultural (or primary), manufacturing (or secondary) and service (or tertiary). The agricultural sector consists of farming, forestry, animal husbandry and fisheries. The manufacturing sector is composed of mining, construction and manufacturing. All the other economic activities which are not covered by the agricultural or manufacturing sectors are broadly defined as services and belong to the service sector. They include services provided for the agricultural sector, activities associated with the supply of water, transport, electricity and gas and communications, wholesale and retail trade, finance and business, insurance and personal services, and community and social services. Services can be broadly distinguished between two categories, that is, old and new. The old or traditional services include petty trading, domestic services, catering and hotel services. The new services are generally associated with culture, communications, business and legal practices, research and education. The latter are tradable internationally and hence are also called tradable services.
Service sector has been defined by Ronald E.Kutcher as “All industries except those in goods-producing sector agriculture, mining, construction and manufacturing”.
There are variations in growth and performance of different sub-sectors of services. Business services (including IT), communications and trade have grown faster than the overall services sector growth in India. Others such as real estate, legal services, transport, storage and personal administration and defence services have grown at the same rate as the overall services sector growth (see Gordon and Gupta 2003).
India has the second fastest growing service sector with its compound annual growth rate at nine per cent, just below China’s 10.9 per cent, during the last 11-year period from 2001 to 2012, the Economic Survey for 2013-14 said. Russia at 5.4 per cent is at a distant third. Among the world's top 15 countries in terms of GDP, India ranked 10th in terms of overall GDP and 12th in terms of services GDP in 2012, it said, adding that services share in world GDP was 65.9 per cent but its share in employment was only 44 per cent in 2012.
In India, growth in services sector has been linked to the liberalisation and reforms of the 1990s. In the first three decades - 1950s to 1970s, after India’s independence in 1947, the GDP grew at an average decadal growth rate of less than four per cent. India was largely an agrarian economy. The share of services sector was small and a large number of services were government monopolies. Services sector started to grow in the mid-1980s but growth accelerated in the 1990s when India initiated a series of economic reforms after the country faced a severe balance of payment crisis. Reforms in the services sector were a part of the overall reform process, which led to privatization, removal of FDI restrictions and streamlining of the approval procedures, among others.
According to a research conducted by BCG, the mobile users in India can reach up to 237 million by 2015 at a growth rate of 50%. The online retail industry is also expected to touch 7000 Crores by 2015 at a growth rate of 35% (ASSOCHAM). The IT sector which is a contributor in the service sector is expected to grow at the rate of 13% to 15%, reported by NASSCOM. It shows that there is an ample opportunity and growth involved in this sector.