An analysis of India's service sector

highlights

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.

Service Sector of Indian Economy contributes to around 55 percent of India's GDP during 2006-07. This sector plays a
leading role in the economy of India, and contributes to around 68.6 percent of the overall average growth in GDP between
2002-03 and 2006-07.
There has been a 9.4 percent growth in the Indian economy during 2006-07 as against a rise of 9 percent in the same during
2006-06. During this growth in Indian economy, the service sector witnessed a rise of 11 percent in the year 2006-07 against
the 9.8 percent growth in 2005-06. The service sectors of Indian economy that have grown faster than the economy are as
follows:

Information Technology (the most leading service sectors in Indian economy)

IT-enabled services (ITeS)
Telecommunications
Financial Services
Community Services
Hotels and Restaurants

There has been a 13 percent hike in the service sectors of trade, hotels, transport and communication in India's economy as
compared to the 10.4 percent rise in the previous year. The financial services that comprise of banks, real estate, insurance,
and business services witnessed a rise of 11.1 percent during 2006-07 against the 10.9 percent growth in the previous year.
Service sectors including community, social, and personal services experienced a growth of 7.8 percent during 2006-07 as
against

7.7

percent

growth

in

the

previous

year.

The service sector of India has also witnessed a remarkable rise in the global market apart from the Indian market. It has
experienced a rise of 2.7 percent in 2006 from that of 2 percent in 2004. The broad-based services in the trade sector has
undergone a large-scale rise. A statistics concerning the growth of India's service sectors are listed below:

The software services in Indian economy increased by 33 percent which registered a revenue of USD 31.4 billion

The software services in Indian economy along with the export of products is growing at a massive pace and
thereby witnessed an alarming rise of 35.5 percent and reached a lumpsome amount of USD 18 billion. The IteS
and BPO sectors grew by 33.5 percent and earned a revenue of USD 8.4 billion. The service sector of Indian
economy has been the most high-powered sector in India's economy. It has also been focusing in various
investments of late. As Indian economy is looking forward for more liberalization, sectors like banking are on its way
to loom large and occupy a more significant position in India's economy.

Business services grew by 82.4 percent

Engineering services and products exports grew by 23 percent and earned a revenue of USD 4.9 billion
Services concerning personal, cultural, and recreational had a growth of 96 percent
Financial services had a rise of 88.5 percent
Travel, transport, and insurance grew by 23 percent