Chapters :

Service Sector – 02

Sectoral Composition of GDP Growth:

The analysis of the sectoral composition of GDP and employment for the period 1950-2000 brings out the fact that there has taken place ‘tertiarization’ of the structure of production and employment in India. The service sector output increased at a rate of 6.63% per annum in the period 1980-81 to 1989-90 (i.e. pre-reform period) compared with 7.71% per annum in the period 1990-91 to 1999-2000 (i.e. post- reform period). The share of this sector in GDP further increased to 55.1% in 2006-07. Currently it is contributing around 60% of Indian GDP.

Bottlenecks in Service Sector

The sustainability of impressive growth of Indian economy has been questioned in the wake of some challenges in the form of lack of social infrastructure, physical infrastructure, IT infrastructure, agricultural and industrial sector reforms, etc. Besides, challenges in the field of IT and ITES like rising labour costs, rapid growth in demand for talented manpower/quality staff, high attrition rate, outsourcing backlash etc. are some other limiting factors. The growth of IT and ITES is having social, economic, health, ethical and environmental implications also. The problem gets further compounded because of the entry of new species of services (like IT, ITES etc ) and lack of development of concepts on the one hand and non-inclusion of unpaid households on the other. Further, quality of each unit of the same service varies from the other. Therefore, it is too difficult to achieve the same level of output in terms of quality has been pointed out. Further, quality improvements stemming from the application of new technologies are extremely hard to measure.


India is the largest and fastest growing Information Technology and IT enabled services sourcing destination across the world. Contributing approximately 55% market share (US $185-190 Billion) to Global Services Sourcing Business in 2017-18, India continues to grow at a faster pace as compared to overall IT-BPM Industry of the world. The IT/ITeS & Fintech segments provide over $ 155 bn in gross value add and have the potential to grow between 10 -15% p.a. Exports form its largest component. So far, our key advantage has been low – cost labour arbitrage in a predominantly English – speaking country. Going forward, the IT and ITeS segments require significant upskilling to move beyond a ‘low – cost low value add service provider’ to a ‘high value add partner’.

Indian IT exports has reached US$ 126 Billion in FY18, while domestic revenues recorded at US$ 41 billion making the total revenues reached to US$167 Billion in 2017-18. Indian IT and BPM Sector is expected to grow to US$ 350 billion by 2025, in which Business Processing Management (BPM) is expected to contribute US$ 50-55 Billion in total revenues. Availability of highly qualified talent pool at lower rates helps in cutting the cost for about 60-70 % to source countries. This large pool of qualified skilled workforce has enabled Indian IT companies to help clients save US$ 200 billion in the last five years. Due to huge contribution of IT and ITes Services in the growth of Indian Economy, Government has recognized IT and ITes Services as an important Champion Service for promotion and development.



India’s IT industry contributed around 7.7 per cent to the country’s GDP and is expected to contribute 10 per cent of India’s GDP by 2025.

  • India ranks third among global start-up ecosystems with more than 5,200 start-ups.
  • India’s IT-BPM industry is set to grow nearly 8% in FY2018 from USD 154 billion in FY2017 to USD 167 billion in FY2018, an addition of USD 12 billion
  • The global digital transformation market size is expected to rise at a CAGR of 18.56 per cent from US$ 1.2 trillion in 2017 to US$ 2 trillion in 2020
  • Indian IT & ITeS companies have set up over 700 offshore global delivery centres in about 80 countries across the world.
  • Indian IT and BPM industry is expected to grow to US$ 350 billion by 2025 and BPM is expected to account for US$ 50-55 billion out of the total revenue.
  • The new digital technologies like social media, mobility, analytics, and cloud computing (SMAC) has permanently changed the way Indian IT firms do business. The internet industry in India is likely to double to reach US$ 250 billion by 2020, growing to 7.5 per cent of gross domestic product (GDP)
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