Among fast growing developing countries, India is distinctive for the role of the service sector. Where earlier developers grew by exporting labor-intensive manufactures, India has relied to a greater extent on services.
Post Independence India was known to be the agrarian economy with major share of GDP coming from the Agriculture sector. After the crisis of 1991, under the leadership of PV Narasimha Rao and Finance Minister Manmohan Singh, India planned to open its economy. This resulted in a gradual shift for the Indian economy from an agrarian economy to service based economy. Today India is known to have maximum share of GDP coming from service sector and the least from agriculture sector. If we talk about employment, agriculture sector still leads the race with maximum employment, which somewhat proves negative for the economy as people are still stuck in less productive sector for no good reason.
Although there are other emerging markets where the share of services in GDP exceeds the share of manufacturing, India stands out for the dynamism of its service sector. India is 13th in services output. Some of the facts are as under:
The growth in the IT sector is attributed to the following for the Indian economy:
For the services sector, one of the key milestones was achieved when in the year 2009, seven Indian firms were listed among the top 15 technology outsourcing companies in the world.
For the services sector we currently distinguish three groups of services which are elucidated as under:
Irrespective of the fact that service sector has done many good for the Indian economy and has helped country grow at a rapid pace, there always have been doubts raised by the skeptics about the quality and sustainability of the increase in service-sector output. It is observed that employment in services is concentrated in the informal sector, personal services and public administration activities. This has limited spill over and relatively limited scope for productivity improvement thus making service sector not so favorable for the economy.
For many analysts, service sector downplay information technology and communications related employment. It is backed on the ground that these sectors are small and use little unskilled and semi-skilled labor which creates a negative implication in India which is a labor abundant economy and cannot actually move people out of low-productivity sector like agriculture. People are worried on the fact that the rapid growth of service-sector employment reflects the outsourcing of activities which was previously actually conducted by the manufacturing firms.
A question still left unanswered is about shifting of labor from agriculture directly to services so as to improve on productivity of the sector and help economy grow rapidly?