Contribution of service industry to Indian economy

INDIAN SCENARIO

•  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.
• the share of agriculture sector to GDP has come down from 50% in 1960 to 24%
• service sector contribution to GDP is around 54% with an annual growth of 8%
• employment in this sector is around 50%
• the response to liberation has been more in service sector, partly because lower fixed investment requirements, example:- today’s concept of banking     
• technological advances have made it possible for India to compete on global basis in areas like SOFTWARE, IT, HEALTH, EDUCATION, etc.,
• in addition lower wage structure has helped to develop CALL CENTRE’s, MEDICAL TRANSCRIPTION, etc.,
• from 1996 BSE has given a prominent place to service industry in it’s 30 share index
• since no tax is imposed on agriculture sector, most of the tax came from manufacturing sector. now services are being taxed
• service tax collection is to the tune of 5000 crore. 83% of this is contributed by service sectors. 51% – Telecom, others are Insurance, AD agencies, Courier and stock brokers.
• many export benefits like EPCG is now extended to the service sector.
• in last 25 years the increase in employment in the organized sector is 57% while if only service sector is considered it is 70%(other than service sector it 41%)
• India’s service exports in1997 were 9.3 billion $ against its merchandized exports of $32.2 billion. It is expected that service exports could a third of merchandize exports now this will be well above the global average of ¼. It implies that India which has failed to catch the bus in the exports of manufactures is among the early leaders of the developing world in the race for service exports.
• 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.