The segment of the economy that provides services to its consumers.

This includes a wide range of businesses including financial institutions, schools, transports and restaurants.

Also known as "tertiary sector of industry," or "service industry/sector".

The various sectors that combine together to constitute service industry are: Trade Real Estate Hotels and Restaurants Business Services Railways Public Administration Other Transport & Personal Services Storage Community Services Communication (Post, Other Services Telecom) Insurance Banking

Economists

like

Irving

Fisher,

Colin

Clark,

W.W.Rostow & Simon Kuznets View-Economic Development is 3 stage process: Agriculture

From Low income Economies to High income Economies

Industry
Indus Gr 5.9%/ann Agri Gr 2.9%/ann Service gr 7.6%/ann

Services

Contribution of Services to GDP growth in India

Period Services
GDP Share 1950-60
60-70 70-80 80-90

Sustainability of service led growth

Industry
GDP Share 16
21.1 22.8 25.0

Agriculture
GDP Share 56.0
47.8 42.8 36.4

Contri to GDP Gr 32.2

38.1 52.1 43.6

Contri to GDP Gr 25.3

32.9 28.7 28.9

Contri to GDP Gr 42.5

29.2 18.6 27.5

28.2
31.4 34.4 38.6

90-2000 2011

44.3 57

57.6 ---

27.1 29

27.6 ----

28.6 14

14.8 ---

Major segments within the service sector (A) Trade, Hotels, Transport & Communication (B) Finance, Insurance, Real Estate & Business Services (C) Social & Personal Services
Period (A) Trade, Hotels, Transport & Communication
44.3
48.2 49.1 48.7

Services value added as percent

Finance, Insurance, Social & Real Estate & Personal Business Services Services
23.0
19.5 18.4 20.4

1950-60
60-70 70-80 80-90

32.8
32.3 32.5 30.9

90-2000

46.3

26.1

27.1

Income Elasticity of Demand for Services Income and price elasticity's for the service sector Sector Income elasticity Price elasticity

Services Producer services

1.20* 1.22*

- 0.68* -0.78*

Consumer services
Govt services

1.00*
1.41* *Statistically Significant at 1%

- 0.10
-1.05*

Income and price elasticity's for the service sector

1. Demand for overall services rises with increases in PCGDP and decreases with increase in prices of services 2. High income elasticity of demand in case of producer services, therefore it is regarded as a major source of economic growth (advert, publicity, marketing, IT&ITES) 3. Public admin, social and rural extension also have a high income elasticity of demand.
4. Consumer goods income elasticity is almost equal to unity and price responsiveness is not detected, it means consumer services increases leads same proportion as changes in PCI & price is insensitive.

Services, Employment & Productivity

Period

Emp in service in Cr
3.97
4.82

Total Emp in Share of Cr service in total

21.93
24.09

1965-66
1970-71

18.1
20.0

1980-81
1990-91 19992000

5.71
8.70 10.29

30.24
35.68 43.81

18.9
24.4 23.5

Employment has increased at a slow rate as compared to output in the service sector

Service led growth how sustainable

1. The Gr of services in the 90s was much higher than indus & Agri, Based on this, the Gr of services in total Xs , a study projected 50.4% by 2012-13 & it will overtake merchandise(FICCI). 2. Service sec appears to be highly growth inducing with positive externalities for their sectors, making services a catalytic agent of growth

3. Also studies shows, its very hard to find in the devt record a case of rapid and sustained services sector growth in the absence of a buoyant industrial sector

A comparison of services/GDP shares

Services as a share of GDP over time

S rv e a % f G P e ic s s o D 8 0 7 5 7 0 6 5 6 0 5 5 5 0 4 5 4 0 3 5 3 0 19 96 19 97 19 98 19 99

20 00

20 01

20 02

20 03

Id ni a 20 04 20 05

Services: Before and after Liberalization

Before liberalization Services was the residual sector drawing refugees from agriculture Between 1996 and 2005- the triple impact of Indias external liberalization, domestic economic reforms and the rise of a global market for skilled services facilitated by information technology makes itself felt, share of services in Indias GDP grew from just over 40% to about 54%. Rapid growth of services in the economy, esp. in the external sector- also facilitated by the fact services enterprises required lesser capital for start-up - less dependent on the Indias relatively poor infrastructure than manufacturing. China, which has a far higher proportion of its economy in manufacturing, and has emerged as the global hub for labor intensive manufacturing, has much better infrastructure than India. Chinas better infrastructure facilitated entrepreneurship in the manufacturing sector.

Growth of Services
An important feature of Indias growth - skewed towards services -described as jobless growth Share of agriculture in the Indian economy declined rapidly but the Share of employment in agriculture has remained more or less same- increasing share of services in the GDP has not been accompanied by services claiming a larger share of employment in the decade of the 1990s

The report on currency and finance contends that in general, services sector appears to be highly growth inducing with positive externalities for other sectors, making services a catalytic agent of growth. [Acc to Shankar Acharya, services are hugely important but they cannot themselves assure rapid and sustained growth of the Indian economy. So, to attain and maintain high economic growth, we must strive for strong growth in all sectors]

Deba Prasad Rath and Raj Rajesh (2006), Analytics and Implications of Services Sector Growth in Indian Economy, The Journal of Income and Wealth, Volume 28, No.1, JanuaryJune.

Given the magnitude of services growth and its inter-linkages with other sectors of the economy, it is important to understand the impact of services sector on other macroeconomic variables. This paper attempts to identified some of the critical issues in Indias services-led growth and tests certain hypotheses that are currently in debate.

Research study (Issues)

These relate to: (a) whether the robust growth of the services sector has added a dimension of stability to India's GDP growth; (b) whether there has been a growing complementarily between services and industrial sectors of the economy; (c) whether like other commodity-producing sectors, the services sector also experienced 'jobless growth; (d) whether the imposition of services tax has boosted the Indian Governments efforts at mobilising more resources; and (e) whether high growth of services sector in India had an inflationary impact on the economy.

Research study (Findings)

This Study found the first four hypotheses to hold true. In respect of the last hypothesis, in contrast to the expectations that high services sector growth has an inflationary impact on the economy, the study found that the rising share of services sector in GDP has not contributed to inflation in the Indian economy.

Gr is led by IT Share of GDP 55% Ann avg Gr 6.2% Indias service revolution Share of service in GDP has risen, no effect in emp Indian soft X-oriented Govt support is minimal To imp Indias manufac infra should be improved

Gr led by Manufacturing Share of GDP 42% Ann avg Gr 10.2 Manufacturing Revolution Share of ser in GDP has risen with steady rise in employment since 1978 Soft producers are domestic comp with dom consumers & it creates eff manufac processes. Govt supports-tax breaks, high tech devt zones, heavy subsidy etc..,

Trends and Composition

Sve eo ei S t r rc c O un0 (ilo o u e u ti 2 6 li n fRe ) t p 0b s ps Ta a n O u G ) olNo l u t( D t t a t i p P 24 65 0 Eci iy aa W r u l l t c , sn a Sp er t G d t e py 5 7 4 Csui n o t co nr t 15 7 7 Td( he l a R i) r e os en e l* a W a d t l a 38 6 9 H l a Rt rn* o s n eu t t e d s as 3 5 0 Tn o (t e h Rws r s r o r a a a) a pt h t n i y l 18 3 9 Srg t a o e 17 7 . C mi a n o ucto mn i 10 0 3 B k gnI srn ai a n ae nn d u c 14 5 9

Sector-shares -2000-2006
S rv e S c r s a inG P 2 0 a d2 0 e ic e to h re D: 00 n 06
1 .0 % 6 0 1 .0 % 4 0 1 .0 % 2 0 1 .0 % 0 0 8 0 .0 % 6 0 .0 % 4 0 .0 % 2 0 .0 % 0 0 .0 %

ce an ur ns dI an ing nk Ba n tio ica un mm Co ) ys wa e ail ag nR or St tha er oth t( or * sp nts an ra Tr stu Re il)* nd eta sa dR tel an Ho ale les ho W e( ad Tr ply up on cti rS tru ate ns dW Co an as ,G ity tric ec El
20 00 20 06

IT and ITES Sector

4 0 3 5

3 0

2 5

2 0

1 5

1 0

0 20 0 0 21 0 0 22 0 0 23 0 0 24 0 0 25 0 0 26 0 0

Total IT & ITESdoutputaandpExports TaTnI EO u I nI EE os olI a TSu t T d Sx r t t p T t

Direction of IT & ITES Exports

% x rs o pt fEo

U.S.A EU ASIA and PACIFIC and the GULF

U (nh mc ) Eoa nn A a Pi c G Se Sa t e e a A d Ar s upn i i r eU o s n afi i dc a u tts l a f 7 . 4 2

26 2 .

6 8

Service Export Cross-Country Comparions

A r gA u Gw i S v e E o s19- 06 v ae n a r t ne i s x r : 91 0 e nl oh r c pt 2
70 0% .

60 0% .

50 0% .

40 0% .

30 0% .

20 0% .

10 0% .

0% . 0 11 9 9 - 0% 10 . 12 9 9 13 9 9 14 9 9 15 9 9 16 9 9 17 9 9 18 9 9 19 9 9 20 0 0 21 0 0 22 0 0 23 0 0 24 0 0 25 0 0 26 0 0

Wld o r

Ca h in

Id nia

U e St s ndt e it a

Cross-country Comparisons
S a o G b l S rv e Ep rts h re f lo a e ic s x o
3 0% . 0 5

3 0% . 0 0

2 0% . 0 5

2 0% . 0 0

10% . 0 5

10% . 0 0

0 0% . 0 5

0 0% . 0 0 10 9 9 11 9 9 12 9 9 13 9 9 14 9 9 15 9 9 16 9 9 17 9 9 18 9 9 19 9 9 20 00 20 20 01 02 20 03 20 04 20 05 20 06

Bz r i al

Cn ha i

Id ni a

Mi o ec x

Rs nee t o ui F r i n sa d a

Share of world service exports net of travel and transportation

S a o WrldS rv e Ep rtsN t o T v l a dT n p rta n h re f o e ic s x o e f ra e n ra s o tio
45 % .0

40 % .0

35 % .0 30 % .0

25 % .0

20 % .0

10 . % 5 10 . % 0

05 % .0

00 % .0 19 90 19 91 19 92 19 93 19 94 19 95 Bail rz 19 96 19 97 Cin ha 19 98 Id n ia 19 99 20 00 Mx o eic 20 01 20 02 Rsia us 20 03 20 04 20 05 20 06

Service Imports
S v eI p t e i s os r c mr
8 0

7 0

6 0

5 0

4 0

3 0

2 0

1 0

0 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06