Q.What are the reasons for the rapid growth of the services sector in India?

A combination of demand-side and supply-side changes explains why India's services sector has grown so rapidly.

As incomes rise, households spend proportionally more on services; urbanisation increases demand for transport, retail and real estate services; trade liberalisation and the falling cost of computing and telecommunications allowed India to export services on a large scale; and firms abroad increasingly outsourced work to India's skilled, comparatively low-cost wo …

The rapid expansion of India's tertiary sector over recent decades reflects several reinforcing causes rather than any single factor.

Rising incomes are a basic driver: once basic material needs are reasonably met, additional income tends increasingly to be spent on services — better education, health care, entertainment, travel and financial products — rather than on more food or basic goods. Urbanisation reinforces this pattern, since a growing urban population needs more organised retail, public transport, housing and municipal administration than a predominantly rural population does.

Globalisation and trade liberalisation, especially following the reforms begun in 1991, opened India's economy to international trade in services, not merely in goods, allowing Indian firms to export software and business services on a large scale for the first time. This was made possible in practice by the information technology revolution — the sharp, sustained fall in the cost of computing power and telecommunications — which allowed many services to be delivered instantly across long distances, something that earlier generations of technology could not support. …

A weak answer lists only 'IT' as the reason for services-sector growth; a complete answer distinguishes demand-side causes (rising incomes, urbanisation) from supply-side/enabling ca …