Growth and Importance of the Service Sector in India

The Indian economy has undergone a marked structural change since the 1991 economic reforms, with the share of the services sector in national income (GDP) now consistently exceeding the combined share of agriculture and industry — a pattern economists describe as the "tertiarisation" of the economy. Alongside the well-established service sectors already studied in this unit — banking, insurance, transportation, warehousing — India has, over roughly the last three decades, seen the rapid rise of a distinct group of newer, technology- and knowledge-driven service businesses.

These emerging service businesses share a few common features. First, they rely far more on information and communication technology (ICT) and skilled human capital than on physical plant and machinery. Second, many of them exploit India's particular comparative advantages — a large English-speaking, technically educated workforce available at internationally competitive wages, and a time-zone position that allows round-the-clock "follow-the-sun" service delivery to clients in Europe and North America. Third, several of these businesses, BPO/KPO especially, earn substantial foreign exchange by serving clients located outside India, making them an important part of India's services exports alongside traditional software exports.

The principal emerging service businesses studied in this unit are: Business Process Outsourcing and Knowledge Process Outsourcing, e-business and e-commerce, modern franchising and leasing arrangements as ways of organising and financing a service business, and the growing tourism, healthcare and related service industries. TN's own Commerce syllabus groups these together as "Service Business" alongside the RBI/banking/warehousing and transportation/insurance chapters already covered earlier in this unit.