Chapters :

Service Sector - 01


The growth of the Services Sector in India is a unique example of leap-frogging traditional models of economic growth. Within a short span of 50 years since independence, the contribution of the service sector in India to the country’s GDP is a lion’s share of over 60%. However, it still employs only 25% of the labour force. Consequently, agriculture (which is stagnant) and manufacturing (which has not yet risen to its full potential) continue to sustain the majority of our employed population. This presents a unique challenge to future economic growth in India and requires out of the box solutions that will help rapidly harness the potential of the service industry in India.

The services sector is not only the dominant sector in India’s GDP, but has also attracted significant foreign investment flows, contributed significantly to exports as well as provided large-scale employment. India’s services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction.

Market Size

The services sector is a key driver of India’s economic growth. The sector contributed 55.39% to India’s Gross Value Added at current price in FY20*. Services sector’s GVA grew at a CAGR of 1.45% to US$ 1,064.8 billion in FY20 from US$ 1,005 billion in FY16. According to RBI data, in August 2020, service exports stood at Rs. 122,768.07 crore (US$ 16.44 billion), while imports stood at Rs. 71,662.62 crore (US$ 9.60 billion).

Nikkei India Services Purchasing Managers’ Index (PMI) stood at 54.1 in October 2020, reflecting the highest reading since March 2020, before the coronavirus pandemic accelerated; however, it is still below the neutral mark, indicating a sixth consecutive decline in business activity in the private sector.

Rationale for service sector development

    1. i) Boosting the manufacturing sector with both direct and indirect spin – off benefits for the growth of the service sector in India (e.g. Make in India)
      ii) Moving up the value chain, especially in the IT/ ITeS sector.
      iii) Broad – basing the Indian Services offering platform into sectors beyond the traditional IT/ ITeS by identifying the global demand for such services, and meeting these demands based on our natural competencies and comparative advantages.


The service sector consists of the soft parts of the economy such as insurance, government, tourism, banking, retail, education, and social services. Currently service sector is contributing near about 60 % of Indian GDP. Service sector is also known as tertiary sector.

In India, the national income classification given by Central Statistical Organization is followed.

In the National Income Accounting in India, service sector includes the following:

  1. Trade, hotels and restaurants
  2. Transport, storage and communication:

Railways, Civil aviation, Shipping, Transport by other means, Storage, Communication, Tele communication, Satellite mapping etc..

  1. Financing, Insurance, Real Estate and Business Services:

Banking and Insurance, Real Estate, Ownership of Dwellings and Business Services

  1. Community, Social and Personal services:

Public Administration and Defense (PA & D), Other services


Employment Scenario

The sectoral distribution of workforce in India during the period 1983 to 2004-05 reveals that the structural changes in terms of employment have been slow in India as the primary sector continued to absorb 56.67% of the total workforce even in 2004-05, followed by tertiary and industrial sectors (24.62% and 18.70%) respectively. The service sector was contributing about 28% total employment in the whole country in 2012.

It is important to point out that within the services sector employment growth rate is highest in finance, insurance, and business services, followed by trade, hotels and restaurants and transport etc. The community social and personal services occupy the last rank in growth rates of employment.

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