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Contents

Introduction

Pattern of Growth in Services

What explains growth in Indias ServiceSector

Impact on Indian Economy

Current Situation

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Introduction

Service Sector: The portion of the economy that producesintangible goods.

Service sector - largest and fastest-growing sector in theglobal economy and so is in the case of India.

Includes: 1. Telecom2. Transportation and Distribution3. Banking, Insurance & Accounting4. Health

5. Tourism6. Education7. Legal8. Media & Entertainment9. Engineering & Consultancy

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Pattern of growth in services

Service Sector- At pilot seat of Indian Economy.

Business and Consultancy Services - Prime driversfollowed by Banking and Telecom.

Indian Service Sector growth rate unique in nature.

The growth of output in the service sector is muchhigher than the growth of output in agriculture orindustry.

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Shares of Agriculture, Industry and Services in Indias

GDP (2010)

26.3%

55.2%

18.5%

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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 higheremployment potential

c) Structural changes within the manufacturing sector, whichmake contracting out services more efficient than producingthem 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

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Exception

In the year 2009 services contributed around 34% of totalemployment in contrast to 45% in middle economy, 70% inSingapore and around 49% in Indonesia.

Employment Shares (2009)

Services

Agriculture

Industry

34%

14%

52%

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Comparison of average growth rate of

Services (2007-10)Service % Growth

Telecom 10.2%

Transportation and Distribution15%

Banking, Insurance & Accounting 11.3%

Health 7%

Hotels & Tourism 6.7%

Education 8%

Legal 4.4%

Media & Entertainment 18%

Engineering and Consultancy 14.5%

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Sectoral Growth Rates

(Average annual growth rates)

0

1

2

3

4

5

6

7

8

9

1951-79 1980-89 1990-99 2000-2010

Agricaulture

Industry

Services

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Performance of Services Growth of Top 12 Countries

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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 directinvestment (FDI) inflows.

Accounts for over one-third of total exports.

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Current Situation

Service Sector in contraction mode.

Service Sector Business Activity Index fell to 49.8 from53.8

in August2011

.Any reading of less than 50 indicates contraction.

This is the first time since April 2009 that the servicesector has slipped into negative terrain.

Main factors- 1. Lower demand for offshoring and ITand IT-enabled services.

2. Slowdown of banking activities.