Tage Nobin MBA (I) Faculty of Management Studies

Contents
Introduction

Pattern of Growth in Services

What explains growth in Indias Service

Sector Impact on Indian Economy Current Situation

Introduction
Service Sector: The portion of the economy that produces

intangible goods. Service sector - largest and fastest-growing sector in the global economy and so is in the case of India. Includes: 1. Telecom 2. Transportation and Distribution 3. Banking, Insurance & Accounting 4. Health 5. Tourism 6. Education 7. Legal 8. Media & Entertainment 9. Engineering & Consultancy

Pattern of growth in services

Service Sector- At pilot seat of Indian Economy. Business and Consultancy Services - Prime drivers

followed by Banking and Telecom.

Indian Service Sector growth rate unique in nature. The growth of output in the service sector is much

higher than the growth of output in agriculture or industry.

Shares of Agriculture, Industry and Services in Indias GDP (2010)

55.2%

26.3% 18.5%

What Explains Growth in Indias Service Sector?

A. Demand-Side Factors a) High-income elasticity of demand for final product services, b) Slower productivity growth in services that leads to higher employment potential c) Structural changes within the manufacturing sector, which make contracting out services more efficient than producing them in the firm or household. B. Supply-Side Factors: Trade Liberalisation and Reforms a) Increased trade b) Higher foreign direct investments in services c) Improved technology

Exception
14% 34%
Services Agriculture Industry

52%

Employment Shares (2009)

In the year 2009 services contributed around 34% of total

employment in contrast to 45% in middle economy, 70% in Singapore and around 49% in Indonesia.

Comparison of average growth rate of Services (2007-10)

Service Telecom Transportation and Distribution Banking, Insurance & Accounting Health Hotels & Tourism Education Legal Media & Entertainment Engineering and Consultancy
% Growth 10.2% 15% 11.3% 7% 6.7% 8% 4.4% 18% 14.5%

Sectoral Growth Rates

(Average annual growth rates)
9 8 7 6 5 4 3 2 1 0 1951-79 1980-89 1990-99 2000-2010 Agricaulture

Industry
Services

Performance of Services Growth of Top 12 Countries

Impact on Indian Economy

GDP growth rate of 8.5% 55.2 per cent share in gross domestic product (GDP). Contributes to about a quarter of total employment. Accounts for a high share (51%) in foreign direct investment (FDI) inflows. Accounts for over one-third of total exports.

Current Situation
Service Sector in contraction mode. Service Sector Business Activity Index fell to 49.8 from

53.8 in August 2011. Any reading of less than 50 indicates contraction. This is the first time since April 2009 that the service sector has slipped into negative terrain. Main factors- 1. Lower demand for offshoring and IT and IT-enabled services. 2. Slowdown of banking activities.