Too Lucrative to Ignore- The Indispensable Service Sector


Dr. Sachi Rana
Faculty - Economics
Icfai National College (INC)

The fact already floating in the air of "TERRITORY ECONOMIA" that service sector has revivified the whole Indian economy by injecting life serum into it, is  ample enough to approve it as an indispensable growth component of the Indian economy. If the present rate of growth continues unabated it will certainly surpass china by the year 2009, and by 2013 India's services exports would somewhat dollar 100 billion higher than that of china.

Contributing 55% of GDP, scoring a whopping annual average growth rate of approximately 28% during last five years, adding dollar 73 billion to the Indian wealth by the means of services exports, employing bulk of Indian population, contributing 68.8% of the overall average growth rate of GDP between 2002-03 to 2006-07, progressing at the scorching pace of 11% growth rate during 2006-07 expected to triple itself in terms of global share of services exports from 2.3% at present to 6% by 2012. Isn't it an impressive growth statistic which is large enough to label service sector as the vanguard of the Indian economy. The latest growth figures and its performance graph during last few years reveal that it has played pivotal role in the growth of the Indian economy and is headlong in progression to enlist itself with the list of developed nations of the world.

We can judge this assumption of ours in the light of the quotation given by A.G.B Fisher

"In every progressive economy there has been a steady shift of employment and investment from the essential 'primary' activities .to secondary activities of all kinds and to a still greater extent into tertiary production"1

The quotation and the present configuration of the Indian economy amply suggest that the day when India will be called upon as the developed economy is not far off as there has been a structural shift from the agriculture (primary) sector to industrial (secondary) and service (tertiary) sector.

The credit of attainment of these rocketing figures by service sector of the Indian economy goes to economic reforms of 1991 thereby allowing the nation to prosper by leaps and bounds.

The Indian industrial and service sector which were cloistered by the government till 1991 were thrown an open challenge to compete on world standards when the government decided to dispel the specter of protectionism which was in vogue till 1991 i.e. until the dawn of the era of liberalization and globalization. The sunshine of success in which the economy of Indian subcontinent is basking gay fully today is undoubtedly a contribution of sheer perseverance of the service sector which toiled hard against all odds to emerge as a winner. 

Pondering over the growth figures of its counterparts, we may at once recognize that the service sector (tertiary sector) excelled in performance leaving agriculture (primary sector) and industry (industry) behind, by registering remarkable figure of 11% while industry and agriculture could grow at the rate of 10.9% and 2.7% respectively. The contributions of all the subsets of service sector also followed the suit and attained phenomenal growth in 2006-07 i.e. the concluding year of the tenth five year plan of independent India. While hotels, trade transport, storage, and communication scored an outstanding growth percentage of 13% in 2006-07and is projected to grow at the rate of 12.5%in the coming 2007-08, finance insurance reality and business services on the other hand registered an impressive growth statistic of 10.6% in 2006-07and most expectedly as projected will prosper at the rate of 9.5% n the coming year. Last but not the least community and personal services have shown somewhat moderating yet impressive growth rate of 7.8% in 2006-07 considering the impediments confronted by this subset of service sector. This sector is projected to grow at 7.3% rate of growth.

Isn't this data fed analysis enough evidence to establish the fact already floating in the air of "TERRITORY ECONOMIA" that service sector has revivified the whole Indian economy by injecting life serum into it?

As regards the fear of recession which is strengthening its roots in the American economy (contributing one fourth share in the world GDP) we need not fear much as growth drivers of Indian boom are basically the hike in internal consumption and the per capita income of Indian lot. Though certain sectors led by IT/ITES which make substantial amount of export to US are expected to incur losses as the mercury has started rising and these sectors have started feeling the heat, but other sectors will advance on growth sojourn i.e. impact of US led recession which clicked from the sub prime crisis would be partial on our economy. So we can clearly anticipate that the pace at which India is prospering will continue unhindered in near future. This belief is further affirmed by the positive outlook towards India by the major companies of the world who are aspiring to exploit the potential workforce comprising of a versatile cadre of highly skilled and efficient professionals across a wide range of trendy disciplines like tourism, health care education, engineering, communication, transportation, finance, IT, banking and many more, not finding their place here. Foreign companies are recklessly investing to reap the benefits of the potential market like that of India. 

New Delhi, 5 April 2007: FICCI said that India's exports of services would surpass its merchandise exports by 2012. "With the current rate of growth in services exports to continue in the medium-term, India's exports of services will be close to $311 billion by 2012 overtaking the expected level of merchandise exports of $305 billion in that year", FICCI President Mr. Habil Khorakiwala observed.

Table- 1
Projected Exports of Services and Merchandise from India ($ billion)


























Above table showing projections for services and merchandise exports  is ample enough to manifest the truth that service sector has tremendous growth potential and if the present rate of growth continues unabated it will certainly surpass China by the year 2009. Moreover, by 2013 India's services exports would be somewhat dollar 100 billion higher than that of china.

Table - 1
India's Invisible Gross Receipts ($ billion)




% Growth

Software Services




Business Services




Travel Services




Transportation Services





India's invisible gross receipts also show a remarkable growth potential and most expectedly would rise to approximately 50.4% from the present 37.1% by the year 2012


So, we have every reason to speculate a handsome growth figure for the coming years of Indian economy and of service sector in particular which has certainly girded up its waist to remove all the potential hurdles and progress at the rate which would place India at the apex of growth mountain and scale unfathomable heights of success.


"Economic progress and social security" (1945), pp- 5-6.Quoted by N.A.Khan in "Problems of Growth of an Underdeveloped Economy". a=

Dr. Sachi Rana
Faculty - Economics
Icfai National College (INC)

Source: E-mail April 11, 2008


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