Growth and change in the service sector

Growth and Change in the Service Sector in India: with special reference to North- Eastern Region of India

Abstract

Although there is growing recognition that services play a major role in the developing economy, knowledge concerning this sector is quite limited. This study examined the growth and change in the service sector of India and how this change has an impact in the North Eastern region of our country. Most of the changes in the service sector took place in Insurance, IT, Health Care, Real Estate and Tourism. The study result suggested that this growth is not in the same pace in N.E region compared to other parts of India.

Introduction

The Indian service sector is the largest sector in the economy and accounts for an increasingly significant share of India's gross domestic product (GDP). If the service sector is defined as non-manufacturing sector. The service sector now accounts for more than half of India's GDP: 51.16 per cent in 1998-99 and According to data for the financial year 2006-2007, the share of services, industry, and agriculture in India's GDP is 55.1 per cent. In addition to being a driving domestic force for economic growth. Service sector firm have been characterized in several dimensions including being within industries with a close interaction between production and consumption. In recent years this sector has come to be viewed as a most dynamic sector in our country. Traditionally services were described as discrete product however the nature of the service has became more complex and technical due to the advancement of technologies and the services comes with bundles for products.

Sectors of Indian Economy

There are three prominent sectors of our economy, Agriculture, Industry and Services

Agriculture

Agriculture is one of the strongholds of the Indian economy and accounted for 15.7 per cent of the country's gross domestic product (GDP) in 2008-09. More than 58% of country's population depends on agriculture. According to a Rabobank report, the agri-biotech sector in India has been growing at a whopping 30 per cent since the last five years, and it is likely to sustain the growth in the future as well. The report further states that agricultural biotech in India has immense potential and India can become a major grower of transgenic rice and several genetically engineered vegetables by 2010

Industry

Agriculture is the base of our economy which has its strong root in our economy. But since independence India has achieved self reliance in majority of manufacturing goods and capital good over the course of time. The key industries of our nation are Steel , Electronics, Textiles and Public sector.

Steel

Our steel industry has 122 years of legacy. This sector comprises of iron ore and steel industry. India is the seventh largest producer of steel. The liberalization of industrial policy and other initiatives taken by the Government have given a definite impetus for entry, participation and growth of the private sector in the steel industry. While the existing units are being modernized/expanded, a large number of new/greenfield steel plants have also come up in different parts of the country based on modern, cost effective, state of-the-art technologies. Over all these year the production of steel was north facing.

Electronics

Liberalization of the economy in 1991 has led to rapid growth of the electronics industry, in particular, is emerging as one of the most important industry in the Indian market. The electronics industry in India has made rapid strides in recent years. The country produces electronics items worth over Rs. 200 billion annually. Exports are also rising; in 1995-96 they reached Rs. 4.5 billion. The software export during the same year reached Rs 2.5 billion. Compared to 1994-95, the software export growth in 1995-96 rose by an impressive 70%. The Software Technology Park scheme for attracting investments has proved successful. The relative low cost of production in India makes items made in India competitive in the world market. Some of the major items manufactured in India are computers, communication equipment, broadcasting and strategic electronics, television sets, microwave ovens and washing machines.

Textiles:

Textiles, the largest industry in the country employing about 20 million people, account for one third of India's total exports. During 1995-96, textile exports were estimated at Rs. 35,504.6 crore which was 13.3% more than the 1994-95 . In recent years, several controls have been removed and in October 1996, a new long-term Quota policy was announced to boost exports over the next three years, till 1999.

Public Sector

The public sector contributed to the initial development of infrastructure and diversification of industrial base. It is now being exposed to competition. Part equity of some units is being disinvested. But many core and strategic areas, important for economy and self-reliance, will remain in the public sector

Service Sector

Service sector is the lifeline for the social economic growth of a country. It is today the largest and fastest growing sector globally contributing more to the global output and employing more people than any other sector.

The real reason for the growth of the service sector is due to the increase in urbanization, privatization and more demand for intermediate and final consumer services. Availability of quality services is vital for the well being of the economy.

In advanced economies the growth in the primary and secondary sectors are directly dependent on the growth of services like banking, insurance, trade, commerce, entertainment etc.

Indian Service Sector

In alignment with the global trends, Indian service sector has witnessed a major boom and is one of the major contributors to both employment and national income in recent times. The activities under the purview of the service sector are quite diverse. Trading, transportation and communication, financial, real estate and business services, community, social and personal services come within the gambit of the service industry.

One of the key service industries in India would be health and education. They are vital for the country's economic stability. A robust healthcare system helps to create a strong and diligent human capital, who in turn can contribute productively to the nation's growth.

Post Liberalization

The Indian economy has moved from agriculture based economy to a knowledge based economy. Today the IT industry and ITE'S industry are the dominant industry in the service sector. Media and entertainment have also seen tremendous growth in the past few years.

Subsectors

Information Technology Industry

The Information Technology industry has achieved phenomenal growth after liberalization. The industry has performed exceedingly well amidst tough global competition. Being knowledge based industry; India has been able to leverage the global markets, because of the huge pool of engineering talent available and the proficiency in English language among the middle class.

ITES sector

The ITES sector has also leveraged the global changes positively to emerge as one of the prominent industries. Some of the services covered by the ITES industry would be:

  • Customer interaction services -Non voice and Voice.
  • Back office, revenue accounting, data entry, data conversion, HR services.
  • Medical Transcription.
  • Content development and animation.
  • Remote education, market research and GIS

Retailing

Prior to liberalization, India had one of the most underdeveloped retail sectors in the world. After liberalization the scenario changed dramatically. Organized retailing with prominence on self service and chain stores has changed the dynamics of retailing. In most of the tier I and tier II cities supermarket chains mushroomed, catering to the needs of vibrant middle class. This indirectly contributed to the growth of the packaged food industry and other consumer goods.

Financial Services-Banking And Insurance

Prior to liberalization these two sectors were controlled and regulated by the government. Nationalized banks and insurance companies had a firm grip over the market. After liberalization the banking and insurance domain opened up for private participation.

Banking Sector

The three major changes in the banking sector after liberalization are:

  • Step to increase the cash outflow through reduction in the statutory liquidity and cash reserve ratio.
  • Nationalized banks including SBI were allowed to sell stakes to private sector and private investors were allowed to enter the banking domain. Foreign banks were given greater access to the domestic market, both as subsidiaries and branches, provided the foreign banks maintained a minimum assigned capital and would be governed by the same rules and regulations governing domestic banks.
  • Banks were given greater freedom to leverage the capital markets and determine their asset portfolios. The banks were allowed to provide advances against equity provided as collateral and provide bank guarantees to the broking community.

Insurance Sector

The Insurance Regulatory and Development Authority Act 1999 (IRDA Act) allowed the participation of private insurance companies in the insurance sector. The primary role of IRDA was to safeguard the interest of insurance policy holders, to regulate, promote and ensure orderly growth of the insurance industry. The insurance sector could invest in the capital markets and other than traditional insurance products, various market link insurance products were available to the end customer to choose from.

Service Sector in North Eastern Indian

North East outline

The North East India comprises of eight contiguous states 6 of highly undulating hilly terrains, covering 263,179 sq km which is about 8% of the total geographical area of the country. The region is one of the landlocked regions of South Asia. About 4500 km i.e. 98% of its border is with five different countries of South Asia-Nepal, Bhutan, China, Myanmar and Bangladesh. No other region of the Indian union share common border with so many different countries connecting with the heartland through the tenuous 22 km Siliguri corridor.

The region is the home of extraordinarily diverse mosaic of ethnic groups having distinctive social, cultural and economic identity, more akin to their South Asia neighbours than main land India. The total population of the region is about 38 million, 3.8 per cent of the country's total population, of which Assam contributes 68 per cent of the total population. Assam recorded the highest density of population with 340 per sq. km., which is also higher than the national average of 313 per sq. km., followed by Tripura with 305 per sq. km. Otherwise, the region is sparsely populated with an overall density of population of 149 per sq. km.

The decennial growth rate recorded in most of the states during the previous decade is higher than the national level of 21.54 per cent. Nagaland recorded the highest growth rate (64.46 per cent), also highest among the states of the Indian union, followed by Sikkim (33.25 per cent) and Meghalaya (30.65 per cent). Only Tripura (16.03% per cent) and Assam (18.92 per cent), two of the most populated states, have recorded lower growth rate than all India level

This part of country is the most under developed region of our nation due its geographical location. Though this part of our country is rich various natural resources still the benefit of the service sector boom has reach these eight north eastern states. Apart from banking their no major breakthrough in the north eastern region

Potential Area of growth

Tourism industry and IETS sector has a good potential for growth. The natural beauty and climatic advantage of this part of our nation can be explored to develop tourism. In these eight states has valuable medicinal plant which can be linked with tourism to attract medical tourism that is existing in Kerala. The second sector IT enable services, like BPO, KPO, LPO and Medical Transcription can be explored because of the high literacy rate in these part of the world and good in English Communication Skill which their among the North East Students

Future Trends

  • Globally outsourcing industry would continue to grow.
  • Following the success of US and UK, more countries in the European Union would outsource their business.
  • Technological power shift from the West to the East as India and China emerge as major players.
  • Political backlash over outsourcing would come down as companies reap the benefit of outsourcing.

Conclusion

To attain inclusive growth in this region both Central and State Government must work in tandem to explore the unexplored area and new projects must implement under public private partnership. These states have to open up their market to the private player as it's impossible for the Government to pump money in all the area. State Government must concentrate on developing their infrastructure like roads, airports and Health care sector if its possible to overcome these hurdles , all these state will contribute lot in building the nations economy.

Reference:

Bandyopadhyay Jayanta, 1998, ' Approach to Sustainable Human Development in the Indian Himalaya' Concept paper, Indian Institute of Management (IIM), Calcutta, India: IIM, Calcutta.

Barik, S.K and V.T.Darlong in Sustainable Management of Forests - India; editors A. Arunachalam, M.L. Khan (2000), International Book Distributors, Dehradun.

Barua S (2003); Uprooted in the Northeast The imbalance of rights, ethnic claims and histories of dispossession March issue of Journal of Refugee Studies Directorate of Census. 2001, 'Provisional Census Data', Government of India: New Delhi.

Government of India, 1982. ' Report of the Task Force for the Study of Eco-Development in the Himalayan Region', New Delhi, India: Planning Commission.

Government of India (nd), 'National policy for Integrated Development in the Himalayas', New Delhi, India: Planning Commission.

National Bank of Agriculture and Rural Development (NABARD), website (accessed on the 15th of June, 2005).

North Eastern Development Finance Corporation (NEDFi), website (Accessed on the 10th of March, 2010).

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