Role of Service Sectors in the Growth of Indian Economy

Indian service sector is popular for its competency and efficiency. In seven decades of independence, Indian service sectors have witnessed phenomenal growth. In Financial Year 2020, the contribution of service sectors in Indian GDP is 55.39%. India’s service sectors are not only giving an unprecedented contribution to the growth of the Indian economy but also attracting foreign investors to endeavour their industrialization venture. Hotels and restaurants, transport, storage and communication, telecommunication, finance, insurance, real estate, business services related to IT, community, social and personal services, etc. come under the service sector of India.

From Financial Year 2016 to 2020, the Gross Value Added of service sectors in India grew to US$ 1,064.8 billion from US$ 1,005 billion, at the Compound Annual Growth Rate of 1.45%. In Financial Year 2020, the total market of export from service sector is US$ 214.14 billion and import is US$ 131.41 billion.

According to the recent economic survey, out of the overall service sector, India’s Key services sub-sectors such as Information Technology and Business Process Management (IT-BPM) services reached about US$ 177 billion, and the Indian Government spent about US$ 1.5 billion in the Space sector.

Indian Government is also taking aggressive steps to boost India’s commercial services exports share in the global services market, and to make India 5 Trillion- Dollar economy in the next five years.

• To facilitate broadband across all villages of the country by 2022, the Indian Government has launched the National Broadband Mission.
• The Central Government increased incentive by 2% under services exports from India.
• To ensure easy trade in the service sector, the Government of India is removing many trade barriers.

• Reliance Industries
• HDFC Bank
• ICICI Bank
• Tata Consultancy Services
• Larsen & Toubro
• State Bank of India
• NTPC
• Kotak Mahindra Bank
• Axis Bank

Service sector gives significant contribution in the GDP of the country. It not only provides the large number of employments but also trade in services improves economic performance significantly in the country. Below mentioned points explain the main role of the service sectors in the development of Indian economy.

Service sector plays a crucial role to enhance the GDP of the country. In 1990, the GDP of the country was 5.7%. After the economic liberalization in 1991, the country witnessed a GDP growth of 8.6% during the period 2004-05 to 2009-10.

Service sector creates employment opportunities for the people of the country. India has witnessed a structural change in terms of employment during the period 1983 to2004-05. Before 1983, Agriculture and construction sectors were major job creators in the country. But after 1991, several sub-sectors like trade, hotels, restaurants, and transport, etc. created a lot of employment opportunities. Now within the service sector, employment opportunity is highest in finance, insurance, and business services, followed by trade, hotels and restaurants, and transport, etc.

Service sector plays a crucial role to raise the volume of exports in the country. According to the Balance of Payment data, India’s service trade has witnessed the growth of 22.2% and 25.3% during 2004-05 and 2008-09 respectively.

Service sector encourages some valuable services like health services, educational facilities, IT, and IT-enabled services (ITEs), skill development, health tourism, sports, cultural services, etc. which is a valuable contribution toward human development and improvement of quality of life of the people which directly helps in the growth of Indian economy.

Assuredly, now the service sector is the backbone of the Indian economy and creates the highest employment. Therefore, in the future India will witness structural changes in the service sector that will encourage innovation and self-employment.