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Indian Service Sector: An Introduction

20-NOV-2015 17:31

    Every economy consists of three sectors. They are primary sector (extraction such as mining, agriculture and fishing), secondary sector (manufacturing) and the tertiary sector (service sector). Economies tend to follow a developmental progression that takes them from a heavy reliance on primary, toward the development of manufacturing and finally toward a more service based structure. Historically, manufacturing tended to be more open to international trade and competition than services. As a result, there has been a tendency for the first economies to industrialize to come under competitive attack by those seeking to industrialize later.

    India's services sector has always served the country’s economy well and currently accounting near about 60 per cent of the gross domestic product (GDP). In this regard, the financial services sector has been an important contributor.

    The Government of India has introduced reforms to liberalise, regulate and enhance this industry. At present, India is undoubtedly one of the world's most vibrant capital markets. Challenges remain, but the future of the sector looks good. The advent of technology has also aided the growth of the industry. About 75 per cent of the insurance policies sold by 2020 would, in one way or another, be influenced by digital channels during the pre-purchase, purchase or renewal stages, as per a report by Boston Consulting Group (BCG) and Google India.

    The service sector consists of the soft parts of the economy such as insurance, government, tourism, banking, retail, education, and social services. In soft-sector employment, people use time to deploy knowledge assets, collaboration assets, and process-engagement to create productivity, effectiveness, performance improvement potential and sustainability. Service industry involves the provision of services to businesses as well as final consumers. Services may involve transport, distribution and sale of goods from producer to a consumer as may happen in wholesaling and retailing, or may involve the provision of a service, such as in pest control or entertainment. Goods may be transformed in the process of providing a service, as happens in the restaurant industry or in equipment repair. However, the focus is on people interacting with people and serving the customer rather than transforming physical goods.

    Market Size

    The size of banking assets in India reached US$ 1.8 trillion in FY13 and is expected to touch US$ 28.5 trillion by FY25. Information technology (IT) services, the largest spending segment of India's insurance industry at Rs 4,000 crore (US$ 649.31 million) in 2014, is projected to continue strong growth at 16 per cent.

    The total market size of the insurance sector in India was US$ 66.4 billion in FY13 and is expected to breach the US$ 350–400 billion mark by 2020.

    Investment corpus in India's pension sector could cross US$ 1 trillion by 2025, following the passage of the Pension Fund Regulatory and Development Authority (PFRDA) Act 2013, according to a joint report by CII–EY on Pensions Business in India.

    India’s foreign exchange (Forex) reserves touched US$ 320.56 billion on July 25, 2014, which was just US$ 23 million less than the all-time high of US$ 320.79 billion achieved on September 2, 2011.

    Share of Services in Income and Employment: The share of services in overall GDP (at factor cost at 2004-05 prices) rose from 42.7% in 1990-91 to 60 % in 2014-15. However the share in employment is just nearly 25%.

    Service Sector in India:

    1. The share of service sector in GDP is nearly doubled since independence.
    2. Trade, hotels, restaurants contributes maximum percentage to GDP followed by the finance, insurance and real estate etc.
    3. Tele-density, which is an important part of telecom penetration, increased from 18% in March 2007, to 74% in Dec. 2012.
    4. FDI inflows to the services sector (top five sectors including construction) declined sharply by 37.6 per cent to USD 6.4 billion compared to an overall growth in FDI inflows at 6.1 per cent.

    India is today one of the most vibrant global economies, on the back of robust banking and insurance sectors. The country is projected to become the fifth largest banking sector globally by 2020, as per a joint report by KPMG-CII. The report also expects bank credit to grow at a compound annual growth rate (CAGR) of 17 per cent in the medium term leading to better credit penetration. Life Insurance Council, the industry body of life insurers in the country also projects a CAGR of 12–15 per cent over the next few years for the financial services segment.

    DISCLAIMER: JPL and its affiliates shall have no liability for any views, thoughts and comments expressed on this article.

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