REASONS FOR GROWTH IN SERVICE ECONOMY

RAJ KUMAR(MBA2010-03)

Background

OVERVIEW-INDIAN SERVICE SECTOR

India stands out from other emerging economies because its growth has been led by the service sector. The Sector constitutes a large part of the Indian economy both in terms of employment potential and its contribution to national income The services sector contributes more than half of the GDP in India, i.e., 59 %(2011-12) The Service exports in India have to grow up to US $ 310.9 billion The sector covers a wide range of activities.

ACTIVITIES COMPRISING THE SERVICE SECTOR

(a) Trade (b) Hotels and restaurants (c) Transport including tourist assistance activities as well as activities of travel agencies and tour operators (d) Storage and communication

(e) Banking and insurance (f) Real estate and ownership of dwellings

Cont (g) Business services including accounting; software development; data processing services; business and management consultancy; architectural, engineering and other technical consultancy; advertisement and other business services

(h) Public administration and defence

(i) Other services including education, medical and health, religious and other community services, legal services, recreation and entertainment services (j) Personal services and activities of extra-territorial organizations and bodies.

Sample Graph (3 colours)

Sample Graph (3 colours)

REASONS FOR GROWTH IN SERVICE SECTOR

Both demand and supply factors have led to this growth.

On the demand side, the high growth of services output was mostly attributed to factors such as increasing input usage of services by other sectors, mainly manufacturing sector (i.e. higher domestic demand); higher foreign demand due to trade liberalization; and high income elasticity for services.
On the supply side, the increased trade in services following trade liberalization policies and other reforms in the 1990s induced this growth.

REASONS FOR GROWTH IN SERVICE SECTOR

Production SpecializationAs an economy grows, productive activities become more specialized and urbanization accelerates due to the rising level of income. In the meantime, as a result of the increasing specialization of production, firms tend to outsource many service activities such as legal, accounting and security services. This process is called the specialization

splintering.

REASONS FOR GROWTH IN SERVICE SECTOR Economic affluence

At the household level, Engels law shows that, as income rises, consumption of food and durable goods in turn becomes saturated over time and demand for services such as healthcare, travel, communications and finance increases. Growth in income also boosts demand for away-fromhome consumption of food and services.

REASONS FOR GROWTH IN SERVICE SECTOR

Changing role of women:

has an impact on service demand as well. More women in the workforce could lead to an increase in demand for services, ranging from babysitting and catering to tuition and beauty treatments.

Cultural changes I.T. Revolution Conservation of natural resources

REASONS FOR GROWTH IN SERVICE SECTOR

Development of markets Unbundling corporations Increased consciousness of health care Economic liberalization Urbanization- urban residents are both consumers and
suppliers of services. It is expected that the service sector grows as the level of urbanization increases in a society.

Export potential Service tax

Cont

Regulatory policies of Govt. Historical experiencese.g.- Indias service industry may benefit from the countrys early and
prolonged linkage with the West, in particular the UK.

Globalization and economic crisis.

HOW GROWTH OF ONE SERVICE IS CORRELATED TO GROWTH OF ANOTHER