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The development economics suggests that during the stages of development share of service sector in the GDP increases with the development while that of primary sector decreases. With services leading the world economic growth, they are being regarded as the engine of growth as well as the necessary concomitant for economic growth.
The services sector constitutes a large part of the Indian economy both in terms of employment potential and its contribution to national income. The Sector covers a wide range of activities from the most sophisticated in the field of Information and Communication Technology to simple services pursued by the informal sector workers, for example, vegetable sellers, hawkers, rickshaw pullers, etc. More than half of more than Rs.45 lakh crore GDP is attributed to the service sector. The service sector also known as tertiary sector is growing at 10 percent per annum, employing more than quarter of the work force. It accounts for a high share in foreign direct investment (FDI) inflows and over one-third of total exports.
The services included in the service sectors trade, tourism, communication, transport, Information Technology (IT) and Information Technology enabled services (ITeS), community and personal services, financial services, entertainment industry etc. The very nature of these services facilitates in the growth of other sectors viz industry and agriculture. Among the services, trade is an important segment in India’s GDP. The GDP from trade (inclusive of wholesale and retail in the organized and unorganized sectors) increased at 9.1 percent during 2009-10. With the growth in income and growing consuming population, the retail business also got a boost. However, share of trade in overall GDP remained fairly stable at around 15 per cent in the last four years because of higher growth witnessed by other sectors.
Tourism is one of the major engines of economic growth in most parts of the world including India. According to the UN World Tourism Organization, tourism provides 6 per cent to 7 per cent of the world’s total jobs directly and millions more indirectly in this sector. Tourism also plays an important role in the country’s foreign exchange earnings, as its share in India’s export of services accounted for 13 per cent of the total export of services in 2009-10. During the six year period 2004-09, growth in foreign tourist arrivals and foreign exchange earnings from tourism was 8.1 per cent, and 14.5 per cent respectively. Medical tourism, rural tourism are some new streams fuelling the growth of tourism.
The hotels and restaurants sector is an important sub-component of the tourism sector. Availability of good quality and affordable hotel rooms plays an important role in boosting the growth of tourism in the country. Presently there are 1593 classified hotels with a capacity of 95,087 rooms in the country. The hotels sector comprises various forms of accommodation, namely star category hotels, heritage category hotels, timeshare resorts, apartment hotels, guest houses, and bed and breakfast establishments. Hotels and restaurants registered the growth of 8.5 percent during 2004-09.
The telecom sector has grown from a level of 22.8 million telephone subscribers in 1999 to 54.6 million in 2003, and further to 764.77 million at the end of November 2010. Wireless telephone connections have contributed to this growth as the number of wireless connections rose from 3.57 million in March 2001 to 729.58 million by the end of November 2010. Tele-density,which was 2.32 per cent, increased to 64.34 per cent in November 2010. However, there is a wide gap between rural tele-density (30.18 per cent in November 2010) and urban tele-density (143.95 per cent in November 2010). This shows that the market still has large untapped potential. Broadband is often called ‘highspeed’ Internet, because it usually has a high rate of data transmission. Broadband subscribers grew from 0.18 million in 2005 to 10.71 million as at the end of November 2010.
At IT and ITeS services India has gained a brand identity as a knowledge economy. The IT-ITeS industry has four major components: IT services, business process outsourcing (BPO), engineering services and R&D, and software products. The growth in the services sector in India has been led by the IT-ITeS sector which has become a growth engine for the economy, contributing substantially to increases in the GDP, employment, and exports. This sector has improved its contribution to India’s GDP from 4.1 per cent in 2004-05 to 6.1 per cent in 2009-10 and an estimated 6.4 per cent in 2010-11. The industry has also helped expand tertiary education significantly. The industry saw robust growth by an estimated 19.5 percent in 2010-11 compared to the moderate growth of 6.2 per cent in 2009-10. Between 2004-09, IT and ITeS exports grew by whopping 22.2 percent.
Apart from the above illustrated services, there are other services also with huge prospects of growth like legal services, consultancies, real estate services, community and personal services, social services, Research and Development, audit and account services etc. Given the diverse activities in services, supporting its growth requires careful and differentiated strategies.
Though service sector is considered to be employment intensive sector but in India, it is still waiting for the migration of workforce from primary sector, which harbors more than 55 percent of the workforce, to the tertiary sector. The major reason quoted for this anomaly is the lack of skilled labour in the country. The only recourse available to rectify this anomaly is to introduce skill enhancement in the workforce through training. If service sector succeeds in providing the employment as it provides GDP growth, inequalities in the country can be reduced to considerable extent.
Undoubtedly, India has experienced a robust service led growth in the post-liberalization era, but sustaining such growth is equally vital and to achieve sustainable growth, India has to considerably improve its infrastructure and human capital. Where infrastructure development is vital for the growth of services like transport, communication, tourism etc, supply of skilled workforce is essential for the services like IT and ITeS, communication, BPO, accounting services, legal services, financial services etc. India already created a niche in the word for its services and now it must endeavor to use the service sector as a tool to achieve goals like poverty eradication, employment generation, income and regional equality etc.