2. 1
Introduction
The tertiary sector of economy (also known as the service sector) is one of the three economic sectors, the
others being the secondary sector and the primary sector.
“Primary sector, as we all know, involves extraction such as mining, agriculture, fishing etc. Secondary
Sector involves manufacturing and the service sector of economy involves the provision of services to
businesses as well as final consumers.”
Increasing share of services in GDP
The contribution of the Service Sector to India’s GDP has increased very rapidly. The service sector now
accounts for more than half of India's GDP. The rise in the service sector's share in GDP marks a structural
shift in the Indian economy and world’s economy as well. The service sector has grown at a higher rate than
industrial sector which too has grown at a considerable rate. India ranks fifteenth in the services output and
it provides employment to around 28% of the total workforce in the country.
This is due to the fact that India has a large pool of highly skilled, low cost, and educated workers in the
country. This has made sure that the services that are available in the country are of the best quality. The
foreign companies seeing this have started outsourcing their work to India specially in the area of business
services which includes business process outsourcing and information technology services
Within the services sector (in India), 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.
Role of service sector
1. Increasing share in GDP: The share of service sector in GDP has increased not only in India but in
the world. Even the developing countries, like India, Sri Lanka, Pakistan, Bangladesh etc., are also
presenting appreciable figures regarding the contribution of service sector.
Table 1: Country Wise GDP Composition (2007 est.)
Country Agriculture Industry Services
United States 0.9% 20.5% 78.5%
Panama 6.6% 16.4% 77%
United Kingdom 0.9% 23.4% 75.7%
Japan 1.4% 26.5% 72%
Germany 0.8% 29% 70.1%
Sri Lanka 16.5 26.9% 56.5%
India 17.6% 29.4% 52.9%
Bangladesh 19% 28.7% 52.3%
Source : The World Factbook
3. 2
2. Providing employment: The service sector has been attracting a large mass of working population.
We can see an increase in the percentage of working population dependent on service sector every
year.
Table 2: Dependency of Working Population on Service Sector
Country I II
Year Working Year Working
population Population
(Service S.) (Service S.)
United Kingdom 1999 74% 2006 84.4%
Australia 1997 73% 2004 75.2%
China 1998 26% 2006 32%
India 1999 23% 2003 28%
Source: The world Factbook
3. Providing support to other sectors: Service sector indeed provides a base for the development of
agriculture and industries by providing a number of services such as:
i. Financial services
ii. Transport services
iii. Software and communication services and etc.
4. Contribution to exports: The United States leads the world as the premier producer and exporter of
services. As the largest component of the U.S. economy, the services sector includes all economic
activity other than agriculture, mining and manufacturing. In 1996, U.S. services exports exceeded
imports by $80 billion. Mexico is presently the largest emerging market for service exports.
Table 3: Share of Service Sector in Total Exports of the Respective Countries
Country 1995 2007
Ireland 10.1% 40%
United Kingdom 24.5% 37.5%
India 17.8% 36.7%
United States 27% 29%
Japan 13.2% 17%
Source: World Bank
4. 3
Key Service Sector Drivers
There has been a fundamental shift in the world's economy over the past 25 years for most developed
economies and multinational firms. While economic well-being will always be closely linked to the efficient
production, consumption and trade in goods, it is also increasingly being determined by the productivity,
application, and utilization of information, as well as less tangible services - either throughout the industrial
process, or as a separate activity.
In the global trade, many of the industries in which the United States maintains a strong competitive lead are
accompanied by sophisticated sales support. The following sectors have grown most rapidly from
technology development and have particularly high export potential:
1. Travel and Tourism: The traveling industry is one of the fastest rising tertiary industries in the
world. The world’s largest destination region with a share of over 50% of all international tourist
arrivals, Europe is growing above average and totalled 480 million tourists in 2007. In 2002-03,
foreign tourism into India grew by a mere 5.6%. However, in the subsequent two years, the
segment’s revenue inflow moved up steeply by 25% and 22%
The World Tourism Organization recognizes ten countries as the most visited in 2006 by number of
travellers. Most are on the European continent
Table 4: World Tourism Ranking (2006)
Rank Country Continent No. of Travellers
1 France Europe 79.1 million
2 Spain Europe 58.5 million
3 USA North America 51.1 million
4 China Asia 49.6 million
5 Italy Europe 41.1 million
6 UK Europe 30.1 million
7 Germany Europe 23.6 million
8 Mexico North America 21.4 million
9 Austria Europe 20.3 million
10 Russia Europe 20.2 million
Source: World Tourism Organization
“India is projected to have the second fastest growing tourism sector of any country in the world
over the next 10 years,’’ said Rodrigo de Rato, managing director of the IMF during a speech in
March 2005.
2. Software and ITES (Information Technology Enabled Services): The ITES-BPO industry in India is
a relatively young and nascent sector, barely over five years old in this business segment . Apex
industry body NASSCOM expects that by 2009, India’s IT and ITES exports will have crossed $ 50
billion.
5. 4
3. EPO (Education Process Outsourcing): The US is expected to be the biggest consumer of EPO. One
of the main election planks of US President, George Bush was the No-Child-Left-Behind plan. The
US Administration has started outsourcing of education services to private entities within the US. As
these US entities are hard pressed to generate resources, there could be a massive drift to outsourcing
outside the US.
Management training, technical training, and English language training are areas where U.S.
expertise remains unchallenged. The export market for this training is almost limitless,
encompassing most industry sectors, both products and services.
4. Entertainment: U.S. filmed entertainment and recorded music have been very successful in
appealing to foreign audiences. U.S. film companies license and sell rights to exhibit film in movie
theaters, on television, and on videocassette. U.S. music has been successful in both English-
speaking and non-English-speaking countries
Table 5: List of Worldwide Highest-Grossing Movies
Rank Movie Name World Wide Gross Year
1 Titanic $1,848,813,795 1997
2 The Lord of the Rings $1,119,263,306 2003
3 Pirates of the Caribbean $1,066,179,725 2006
4 The Dark Knight $980,310,263 2008
5 Harry Potter and the Sorcerer’s Stone $979,444,613 2004
6 Pirates of the Caribbean $960,996,492 2007
7 Harry Potter and the Order of Phoenix $938,468,864 2007
Source: Wikipedia (encyclopedia)
5. Banking, Finance and Insurance: U.S. financial institutions are very competitive internationally,
particularly when offering account management, credit card operations, and collection management.
U.S. insurers offer valuable services ranging from underwriting and risk evaluation to insurance
operations and management contracts in the international marketplace
Table 6: Ten Largest Banks in the World in Terms of Market Capitalization Size (2008)
Source: Boomberg
5 Rank Name of the Banks Country
1 Industrial & Commercial Bank of China
China, ICBC
Lehman Brothers Bank Collapse Bank of America
2 US
The collapse of Lehman Brothers has triggered turmoil in global financial markets, but its affects
3 HSBC Holdings UK
go much wider. It was the fourth-largest Construction
4 China investment bank in the United States. The share prices are
China
“slumping” around the world
5 Bank of China China
6 JP Morgan Chase US
7 Citigroup US 6. BPO
8 Wells Fargo US (Business
9 Banco Santander Spain Process
10 Mitsubishi UFJ Financial, MUFG Japan
Outsourcing): A study reports that call centers are most sought after places for young, fresh
6. graduates and undergraduates as it provides them attractive perks (despite low level of qualification),
transport facility, meals and refreshments and good environment.
The fact that the high skilled, English speaking population in India is growing day by day and are
available at low cost, means that India has become a hub of outsourcing activities for some of the
major economies of the world including the United Kingdom and the United States. Outsourcing to
India has been primarily in the areas of technical support and customer services.
Table 7: Top Ten Global Outsourcing Companies (2008)
Rank Company
1 Accenture
2 IBM
3 Infosys Technologies
4 Sodexo
5 Capgemini
6 Tata Consultancy Services
7 Wipro Technologies
8 Hewlett-Packard (HP)
9 Genpact
10 HCL- Technologies
Conclusion
The problems in service sector are relatively lower as compared to agriculture and manufacturing
sectors because service sector can generate higher income with lesser capital.
With the proposed opening up of Service Sector, competition will be stiffer. Every year it is
absorbing a huge mass of people. And so it has higher Employment Generation Potential
.
