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Service sector presentation
Three sectors of Indian economy
• Primary Sector:
When the economic activity depends mainly on exploitation of
natural resources then that activity comes under the primary
sector. Agriculture and agriculture related activities are the
primary sectors of economy.
• Secondary Sector:
When the main activity involves manufacturing then it is the
secondary sector. All industrial production where physical
goods are produced come under the secondary sector.
• Tertiary Sector:
When the activity involves providing intangible goods like
services then this is part of the tertiary sector. Financial
services, management consultancy, telephony and IT are good
examples of service sector.
Evolution of an Economy from Primary
Sector Based to Tertiary Sector
• During early civilization all economic activity was in
• When the food production became surplus people’s need
for other products increased. This led to the development
of secondary sector.
• After growth of previous two economic activities a
support system was the need to facilitate the industrial
activity. Certain sectors like transport and finance play an
important role in supporting the industrial activity, more
shops became need and then ultimately, other services
like tuition, administrative support developed. These all
came under tertiary sector.
Interdependency of economic sectors
(An example of cold drink)
• A cold drink contains water, sugar and artificial flavor.
• Suppose if there is no sugarcane production then procuring sugar will
become difficult and costly for the cold drink manufacturer.
• Now to transport sugarcane to sugar mills and sugar to the cold drink plant
needs the services of a transporter. A person or system of persons is required
to maintain and monitor all these movements of goods from farm to factory
to shop in different locations. That is where role of administrative staffs
• Let us go back to the farmer. He also needs fertilizers and seeds which is
processed in some factory and which will be delivered to his doorstep by
some means of transportation.
• To top it all, at every step of these activities we require the proper monetary
and banking system.
• So, in a nutshell this describes how interrelated all sectors of an economy
Services : Definition
• A type of economic activity that is intangible, is
not stored and does not result in ownership. A
service is consumed at the point of sale. Services
are one of the two key components of economics,
the other being goods. Examples of services
include the transfer of goods, such as the postal
service delivering mail, and the use of expertise
or experience, such as a person visiting a doctor.
Service sector activities
The services sector covers a wide array of activities:
• Services provided by the most sophisticated sectors like
telecommunications, satellite mapping, and computer software.
• Simple services like those performed by the barber, the carpenter,
and the plumber.
• Highly capital-intensive activities like civil aviation and shipping.
• Employment-oriented activities like tourism, real estate, and
• Infrastructure-related activities like railways, roadways, and ports
• Social sector- related activities like health and education.
Thus, there is no one-size–fits- all definition of services resulting
in some overlapping and some borderline inclusions.
Service sectors mainly
(b) Hotels and restaurants
(c) Transport including tourist assistance activities as well as
activities of travel agencies and tour operators
(d) Storage and communication
(e) Banking and insurance
(f) Real estate and ownership of dwellings
(g) Business services including accounting; software development; data
processing services; business and management consultancy;
architectural, engineering and other technical consultancy;
advertisement and other business services
(h) Public administration and defence
(i) Other services including education, medical and health, religious and
other community services, legal services, recreation and
(j) Personal care services .
• The National Accounts classification of the services
trade, hotels and restaurants; transport, storage,
communication, financing, insurance, real estate,
business services; and community, social and
• In the World Trade Organization (WTO) list of
services and the Reserve Bank of India (RBI)
classification, construction is also included.
• Represent a heterogeneous group of activities
and has now become a prominent sector in the
economies of most developed and developing
countries, in terms of its contribution to
national income, trade flows and foreign direct
Inter country comparison of
Sector wise contribution to
Structure of Services in Indian
• With the development of the economy, the contribution of
service sector in national income or gross domestic product
GDP has been growing progressively. The sectoral dis-aggregation
of national income shows that the service sector
has been growing relatively faster than other two sectors -
primary and secondary throughout the post independence
period of the Indian economy.
• Sectoral growth analysis of 2012-2013 indicates decline in all
the segments. On year-on-year basis, agriculture and allied
sector increased by 1.2% in Q2 (3.1% in Q2 of 2011-12);
industry 2.8% (3.7%) and services 7.2% (8.8%).
GDP at Factor Cost at 2004-05 Prices,
Share to Total GDP and % Rate of
Growth in GDP (01-09-2013)
GLOBALIZATION in service sector
• The term globalization means international
• Opening up of world trade, development of
advanced means of communication,
internationalization of financial markets,
growing importance of MNC's, population
migrations and more generally increased
mobility of persons, goods, capital, data and
• The impact of globalisation has been highly positive
in almost all spheres of economic and social life and
virtually very less negative effect.
• India's economic growth has been high, exports have
boomed, incidence of poverty has been reduced,
employment has surged, begging by India for
economic aid has minimized, long-term inflation rate
has gone down, scarcity of goods have disappeared,
the quality of products available have improved
substantially and overall India has become
progressively vibrant and internationally competitive.
• Service sector is the lifeline for the social economic
growth of a country.
• 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. This scenario is a direct result of
• After 1991, when globalization prominently entered
India, service sector experienced a sudden boom.
• In advanced economies the growth in the primary and
secondary sectors are directly dependent on the growth
of services like banking, insurance, trade, commerce,
• Service sector is also a major contributor of national
income and employment in recent days.
• India has become one of the top five exporters of services amongst
• India’s services exports rose by 9.5% to $12.28 billion in February
2013, according to the Reserve Bank of India (RBI) data released on
15th April 2013.
• In February 2012, the services exports by Indian companies stood at
$11.22 billion. However, the exports in February were down from a
month ago at $13.89 billion in January.
• The services sector contributes more than 50% to the country’s gross
domestic product (GDP). During April-February period of 2012-13,
the cumulative services receipt or exports have amounted to $121.18
billion. Imports of services were valued at $73.68 billion during the
11 months period in 2012-13.
Role of FDI in Service
• FDI can play catalytic role in a growing economy like
India. The role of FDI is becoming increasingly
significant in the Indian economy. The service sector in
India has tremendous growth potential and as a result it
attracts huge FDI. The top subsectors attracting FDI
inflows include service sector.
• The Computer Software and Hardware enjoy the
permission of 100% FDI under automatic route.
• The limit of FDI in Telecom sector was increased from
49% to 74%.
• FDI Growth in various Service Sectors:
The share of services in FDI inflows increases to
If the shares of some other services like Hotels,
tourism, trading, information and broadcasting,
consultancy services, agricultural services, ports,
retail trading etc are included then the total share
of cumulative FDI inflows to the service sector
would be 58.4%.
Contribution of service sector
• Labor market outcomes are critical to economic
policy evaluation. Growth of jobs, earnings, job
quality in terms of worker status like regular work or
casual or self employment and the access to social
security benefits tell us much about the wellbeing of
workforce in an economy.
• India’s experience appeared to be different with the
share of services sector in GDP sharply going up in
the 1990s, beginning with a share of 43% 1990-91, to
reach a high share of 57% in 2009-10.
• India skipped the traditional sequence and the
service-sector assumed the role of the lead sector in
India’s growth path.
• In this scenario labor shifting out of agriculture got
directly absorbed in services rather than in
manufacturing. These labors got educated and trained
to enter the field of services.
• Mostly skilled and educated labor forces are absorbed
in this sector that comes mainly from urban India.
• In the decade of 2001-2011 the population of urban
India grew by 2.76% per annum and its share of total
population increased to 31.1 per cent in 2011 from
27.8 per cent in 2001.
• While analyzing the urban sector we pay particular
attention to the following sectors: Manufacturing
• These two categories together have an employment
share of 81% in total urban employment.
• The service sector output has grown rapidly since
1990 and by 2005 the share of services in GDP had
reached well above the international norm (that
corresponds to the average share of services in
countries with similar per capita GDP).
• Estimates based on National Accounts Statistics
(NAS) data indicate that, the service-sector has
clocked an average annual compound growth rate of
8.7 % per annum between 1999-2000 and 2009-10,
as against 7.7% achieved by manufacturing during
the same period.
• Within the service-sector the group transport, storage
and communications has grown the fastest at 11.8 %.
• Followed by trade and hotels at 8.5% and other
business services at 7.9%
Service sector contraction
• Services sector contracts for 4th successive month in October:
• According to Nov 5, 2013 news report:
India's services sector activity witnessed a moderate improvement
in October from September's four-and-a-half year low of 44.6, even
while indicating a fourth successive monthly contraction amid
economic uncertainty, an HSBC survey said on Tuesday.
The HSBC/ Markit purchasing managers index for the services
industry inched up to 47.1 in October from 44.6 in September, the
fourth successive monthly contraction of service sector output
An index value of below 50 indicates contraction. Business activity
fell in five of the six categories monitored by the survey, with the
sharpest decline noted at hotels and restaurants, HSBC