An analysis of India's service sector

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Highlights

  • The service sector now accounts for more than half of India's GDP: 51.16 per cent in 1998-99. This sector has gained at the expense of both the agricultural and industrial sectors through the 1990s. The rise in the service sector's share in GDP marks a structural shift in the Indian economy and takes it closer to the fundamentals of a developed economy  (in the developed economies, the industrial and service sectors contribute a major share in GDP while agriculture accounts for a relatively lower share).

  • The service sector's share has grown from 43.69 per cent in 1990-91 to 51.16 per cent in 1998-99.  In contrast, the industrial sector's share in GDP has declined from 25.38 per cent to 22.01 per cent in 1990-91 and 1998-99 respectively.  The agricultural sector's share has fallen from 30.93 per cent to 26.83 per cent in the respective years.

  • Some economists caution that if the service sector bypasses the industrial sector, economic growth can be distorted. They say that service sector growth must be supported by proportionate growth of the industrial sector, otherwise the service sector grown will not be sustainable. It is true that, in India, the service sector's contribution in GDP has sharply risen and that of industry has fallen (as shown above). But, it is equally true that the industrial sector too has grown, and grown quite impressively through the 1990s (except in 1998-99). Three times between 1993-94 and 1998-99, industry surpassed the growth rate of GDP. Thus, the service sector has grown at a higher rate than industry which too has grown more or less in tandem. The rise of the service sector therefore does not distort the economy.

  • Within the services sector, the share of trade, hotels and restaurants increased from 12.52 per cent in 1990-91 to 15.68 per cent in 1998-99. The share of transport, storage and communications has grown from 5.26 per cent to 7.61 per cent in the years under reference. The share of construction has remained nearly the same during the period while that of financing, insurance, real estate and business services has risen from 10.22 per cent to 11.44 per cent.

  • The fact that the service sector now accounts for more than half the GDP probably marks a watershed in the evolution of the Indian economy.

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Share of the service sector in India's GDP (in Rs. crore).
Figures in brackets indicate percentage share of different sectors and subsectors.
Figures for 1994-95 onwards are on a changed base (1993-94=100), so they show huge increases compared to the preceding period. 

Year

1998-99 1997-98 1996-97 1995-96 1994-95* 1993-94 1992-93 1991-92 1990-91 1985-86 1980-81
Services
of which
569005
(51.16)
537642
(51.24)
498572
(49.91)
463980
(50.08)
423200
(49.15)
108974
(45.62)
102142
(45.34)
97045
(45.35)
92733
(43.69)
66306
(42.25)
50177
(40.99)
Construction 50328
(4.53)
49313
(4.70)
47382
(4.74)
46054
(4.97)
42560
(4.94)
10517
(4.40)
10386
(4.61)
10047
(4.70)
9833
(4.63)
7183
(4.59)
6114
(4.99)
Trade, hotels & restaurants
of which
.... 164355
(15.68)
155954
(15.61)
143858
(15.53)
127532
(14.81)
31057
(13.00)
28650
(12.72)
26827
(12.54)
26580
(12.52)
19649
(12.55)
14713
(12.02)
i) Trade .... 155120
(14.78)
147305
(14.75)
136087
(14.69)
121546
(14.12)
29082
(12.18)
26866
(11.93)
25147
(11.75)
24933
(11.75)
18498
(11.81)
13839
(11.30)
ii) Hotels & restaurants .... 9235
(0.88)
8649
(0.87)
7771
(0.84)
5986
(0.70)
1975
(0.83)
1784
(0.79)
1680
(0.79)
1647
(0.78)
1151
(0.74)
874
(0.71)
Transport, storage & communications
of which
.... 79819
(7.61)
74956
(7.50)
68788
(7.43)
63118
(7.33)
13057
(5.47)
12398
(5.50)
11785
(5.51)
11164
(5.26)
7951
(5.08)
5724
(4.68)
i) Railways .... 11521
(1.10)
11189
(1.12)
10647
(1.15)
9846
(1.14)
1746
(0.73)
1758
(0.78)
1778
(0.83)
1677
(0.79)
1404
(0.90)
1124
(0.92)
ii) Transport by other means .... 50144
(4.78)
47895
(4.79)
44513
(4.80)
41706
(4.84)
9209
(3.86)
8735
(3.88)
8275
(3.87)
7853
(3.70)
5309
(3.39)
3680
(3.01)
iii) Storage .... 655
(0.06)
646
(0.06)
652
(0.07)
621
(0.07)
188
(0.08)
180
(0.08)
175
(0.08)
177
(0.08)
163
(0.10)
122
(0.10)
iv)Communication .... 17499
(1.67)
15226
(1.52)
12976
(1.40)
10945
(1.27)
1914
(0.80)
1725
(0.77)
1557
(0.73)
1457
(0.69)
1075
(0.69)
798
(0.65)
Financing, insurance, real estate
of which
127205
(11.44)
119814
(11.42)
110575
(11.07)
102438
(11.06)
94609
(10.99)
27711
(11.06)
25084
(11.14)
23972
(11.20)
21700
(10.22)
14708
(9.39)
10791
(8.81)
i) Banking & insurance .... 65814
(6.27)
58034
(5.81)
51343
(5.54)
45190
(5.25)
16111
(6.74)
13861
(6.15)
13107
(6.13)
11169
(5.26)
5828
(3.72)
3408
(2.78)
ii) Real estate, dwelling business .... 54000
(5.15)
52481
(5.25)
51095
(5.52)
49419
(5.74)
11600
(4.86)
11223
(4.98)
10865
(5.08)
10531
(4.96)
8880
(5.67)
7383
(6.03)
Community, social, personal 131047
(11.78)
124341
(11.85)
109705
(10.98)
102842
(11.10)
95381
(11.08)
26632
(11.15)
25624
(11.37)
24414
(11.41)
23456
(11.05)
16815
(10.74)
12835
(10.48)
of which
i) Public admin. & defence .... 58631
(5.59)
48736
(4.88)
46635
(5.03)
43620
(5.07)
12483
(5.23)
12170
(5.40)
11570
(5.41)
11328
(5.34)
8016
(5.12)
5794
(4.73)
ii) Other services .... 65710
(6.26)
60969
(6.10)
56207
(6.07)
51761
(6.01)
14149
(5.92)
13454
(5.97)
12844
(6.00)
12128
(5.71)
8799
(5.62)
7041
(5.75)

Total GDP:

1112206 1049191 998978 926412 861064 238864 225268 213983 212253 156566 122427
* Figures for 1994-95 onwards are on a changed base (1993-94=100), so they show huge increases compared to the preceding period.
Source:
Studies by Reserve Bank of India

 

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