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Indian Service Sector

The service industry can be defined as an industry that provides products and services mostly in intangible form. It is not involved in manufacturing or production of physical goods. The service sector, also known as the tertiary sector, is the third tier in the three-sector economy. 


In the last few decades, the services industry has contributed significantly to India’s GDP. It has also drawn major foreign investment and has provided large-scale employment. Trade, hotels and restaurants, transportation, storage and communication, financing, insurance, real estate, commercial services, community, social and personal services, and construction-related services are all part of India's service industry.



Different Profession in Service Sector


Reasons for the growth of the service sector in India:


  1. LPG reforms in 1991: The liberalization, privatization, and globalization of the Indian economy played a significant role in the development of the service sector in India. Sectors like banking, insurance, telecommunication, and aviation experienced faster growth due to the participation of private and foreign players.

  2. Expansion of Information Technology: As the IT sectors have grown and advanced, there has been a substantial increase in the usage of mobile phones, telecommunications, and the internet resulting in a momentous increase in digital services. With the arrival of new-age technology such as AI, ML, and data analysis the service sectors will receive a further boost. 

  3. Structural transformation: India's economy has advanced rapidly from agriculture to services. The manufacturing sector's percentage of GDP has stayed constant at 16–17% since 1991. As a result, the share of the services sector rises in proportion to the decline in the agriculture sector's share.

  4. Domestic market: The growth in the service industry is also driven by India's large, dynamic, and young population, with 65% of Indians being under 35 years old. The large and young population creates a high demand for services as the final product which in turn leads to a high growth rate in the service sector.

  5. Outsourcing by developed countries: India's labor cost is relatively cheaper than developed countries. Also, India has a vast workforce of both skilled and unskilled laborers. Thus, developed countries found outsourcing business to India feasible and lucrative; providing significant incentives for the expansion of the service sector

Different sectors in Service sector

Future Challenges:


  1. Sustainability: Many experts have expressed concern over the sustainability of service sectors. The last 2-3 years have witnessed massive layoffs in IT and allied sectors. Also, dependency majorly over external demand is risky. Internal demand should be promoted.

  2. Government Support: The government has provided good support to the service sector but much more is needed. Regulations that are intricate and subject to frequent change can present challenges for service-oriented enterprises. The government should also develop better transportation and logistics to ensure efficient delivery of services.

  3. Growth of all subsectors: The different subsectors of service sectors have performed unevenly.  The IT-BPM and financial services sectors dominate the services sector, while the growth rates of other subsectors like tourism, transportation, and communication are lower. More focus should be given to underperforming subsectors. 

  4. Low employment: Although the service sector forms the major part of India's GDP, it absorbs less than a third of the workforce. A low employment rate in the service sector cannot sustain a high growth rate for long.

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