Agriculture was the backbone of Indian Economy. About 65% of Indian population depends directly on agriculture and it accounts for around 22% of GDP. Agriculture derives its importance from the fact that it has vital supply and demand links with the manufacturing sector. During the past five years agriculture sector has witnessed spectacular advances in the production and productivity of food grains, oilseeds, commercial crops, fruits, vegetables, food grains, poultry and dairy. India has emerged as the second largest producer of fruits and vegetables in the world in addition to being the largest overseas exporter of cashews and spices.
Indian was an agricultural country, where 70 per cent population was dependent on agriculture. This forms the main source of income. The contribution of agriculture in the national income in India is more, hence, it is said that agriculture in India was a backbone of Indian Economy.
There are some limitations of agriculture economy that ultimately promote and support the industrial economy.
Industrial economics is a distinctive branch of economics which deals with the economic problems of firms and industries, and their relationship with society. In economic literature it is known by several names with marginal differences such as 'Economics of Industries', 'Industry and Trade', 'Industrial Organization and Policy', 'Commerce' and 'Business Economics' etc
And now time come for movement from industrial economy to service economy
Service industry, an industry in that part of the economy that creates services rather than tangible objects. Economists divide all economic activity into two broad categories, goods and services. Goods-producing industries are agriculture, mining, manufacturing, and construction; each of them creates some kind of tangible object. Service industries include everything else: banking, communications, wholesale and retail trade, all professional services such as engineering, computer software development, and medicine, nonprofit economic activity, all consumer services, and all government services, including defense and administration of justice. A services-dominated economy is characteristic of developed countries. In less-developed countries most people are employed in primary activities such as agriculture and mining.
The New Service Economy is an increasingly global economy in which businesses compete and communicate in a worldwide marketplace. Three forces drive the New Service Economy: knowledge, change and globalization. The global economy is becoming more tightly integrated. The last two decades have brought important advances in information and communications technologies enabling new and more efficient 'global' modes of business operation High-technology and information-based goods and services are dominating today's economies, an increasing value being placed on knowledge and information. The widespread applications of information technology and the Internet are changing the very nature of production, distribution and servicing of goods and services. That's why the ability to effectively organize and communicate that knowledge and information is of great importance to the Success of a New Economy business
The New Service Economy is characterized by: an information technology service sector organized in network forms of organization, an inflation rate below its fundamentals, a stock market boom, and high rates of economic growth. Productivity gains are no longer realized within but between service firms, as the increase in variety raises added-value per employee. Whilst service innovators, such as the information technology manufacturers, get ever more productive, individual service firms will exhibit low productivity. Variety in the service sector enables service providers to locate rents, where fluctuations of these rents are
Nevertheless, at the core of most discussions is the relationship between investment in and use of information technology, and faster productivity growth. There is a very important relationship between technology, productivity, and services: first, research shows that the use of information technology raises productivity and growth; second, information technology has raised the international tradability of services.
Question 2
Identify three service sectors of Indian Economy which are likely to be dominant in the next five years? How do you visualize their impact on Indian Economy? Support your answers with facts and figures.
Answer
There are many sectors that come under the service sector but major and important sector are as under. These sectors are popular and effective as ideal source of service sectors of Indian economy. These are following
1. Hospitality Sector
2. Transport, storage and communication Sector
3. Banking & Insurance Sector
Hospitality Sector
Tourism is an important catalyst in the socio-economic development in the modern times, contributing in multiple ways and strengthen the inter-connected processes. While often portrayed as panacea for many evils such as underdevelopment, unemployment, poverty eradication, social discrimination and so on; its contribution in creating a global and regional socio-political environment for peaceful co-existence of the cultures and societies has been equally established at various levels. Perhaps, this realization took many advocators to position tourism as one of the biggest 'peace industries', a means to strike equilibrium of global peace process though development. Because, tourism practiced in responsible and sustainable manner bring about the peace and prosperity of the people and that its stakeholders share benefits in fair manner, which is a necessary condition for the equilibrium of sharing to sustain.
Transport, storage and communication Sector
In modern times, many businesses realized that the time and place utility that could be added to goods and services are not only limited to a transport service provision. An integrated view with the storage function and the administration of the interrelated costs between transport, storage and the carrying costs of the inventory is a more accurate view of the overarching utility and is commonly called logistics. Globally, for instance, the transport component of the provision of time and place utility is now estimated to be only the total costs in the freight sub-sector
Banking & Insurance Sector
The economic reforms undertaken in the last 15 years have brought about a considerable improvement in the health of banks and financial institutions in India. The banking sector is a very important sector of the Indian economy. The sector has made a marked improvement in the liberalization period.
These above service sector directly and indirectly influence on the Indian economy within a positive and effective manner. It provides many features and facilities to Indian economy that is as under
Sectoral Composition of GDP Growth
The analysis of the sectoral composition of GDP and employment for the period 1950-2000 brings out the fact that there has taken place 'tertiarization' of the structure of production and employment in India. During the process of growth over the years 1950-51 to 1999-2000, the Indian economy has experienced a change in production structure with a shift away from agriculture towards industry and tertiary sector. The share of agricultural sector in real GDP at 1993-94 prices declined from 55.53% in the 1950's to 28.66 % in 2000's.The share of industry and services increased from 16%to 27.12% and 28.09% to 44.22% respectively during the same period.
Employment Scenario
The sectoral distribution of workforce in India during the period 1999 to 2004-05 reveals that the structural changes in terms of employment have been slow in India as the primary sector continued to absorb 56.67% of the total workforce even in 2004-05, followed by tertiary and industrial sectors (24.62% and 18.70%) respectively. There has been disproportionate growth of tertiary sector, as its share in employment has been far less when compared to its contribution to GDP. It is important to point out that, within the services sector employment growth rate is highest in finance, insurance, and business services, followed by trade, hotels and restaurants and transport etc. The community social and personal services occupy the last rank in growth rates of employment.
Productivity Growth in Service Sector
The process of acceleration in growth started in 1980s rather than in 1990s "Of the 2.4 percentage point increase in the rate of economic growth that took place in the post-1980 period, about 40 percent is accounted for by a faster growth in TFP in services." The three sectors viz. agriculture, industry and services have witnessed acceleration in the growth rates of output, output per worker and total factor productivity (TFP) in the post -1980 period. However, the increase is more marked in case of services
Question 3
Identify three reasons for the growth in the services sectors in the Indian context.
Answer
The service industry is rapidly growing, with companies recognizing the benefits of outsourcing activities that are not part of their core business. The services sector now accounts for over 70% of total employment and value added in economies. It also accounts for almost all employment growth in the area. But despite its growing weight, productivity growth in services has been slow in many countries and the share of the working-age population employed in services remains low in many countries. If policy makers wish to strengthen economic growth and improve the foundations for the future performance of economies, the services sector will need to do better. But strengthening growth performance is not the only challenge facing policy makers; countries are also confronted with the growing globalization of services and manufacturing and with rapid technological change. This has raised doubts about the capacity of economies to create new jobs, while at the same time offering new opportunities for international trade and investment. Addressing these challenges and strengthening the potential of services to foster employment, productivity and innovation will need to build on sound macroeconomic fundamentals and involve a combination of structural policies. The rapid employment growth in the services sector of several countries over the past decade results primarily from the strong performance of certain market services, notably telecommunications, transport, wholesale and retail trade, finance, insurance and business services. Over the past decade, these services accounted for around 60% of all employment.
Economic affluence:
One, of the key factors for the growth of demand for services is the economic affluence. The size of the middle income consumer is raising fast and the percentage of the very poor household's declining. The rural households in the upper income category is growing at a much faster pace than the urban households in the corresponding categories. The Economic liberalization Process has had a positive impact on the Indian households. Their income as well as their expenditure has been pushed, creating a demand for many goods and services.
I.T. Revolution
For the last 15 years India'6aste,en occupying a vital position in the area of Information Technology. IT became one of the key service businesses of the country. India has the largest software skilled population in the world. The domestic market as well as the international market has grown substantially. Realizing the potential for this area many state governments have made IT as their most, prioritized segment states such as Karnataka, Andhra Pradesh, Madhya Pradesh Maharashtra and Delhi have already achieved substantial progress in Information Technology the In Ile years to come 'Lille IT enabled se Aces will have a bright future.
Development of Markets
During the last few decades the wholesaler and the retailer population has grown in the country. Urban India has become a cluster of wholesaling and retailing business. In the Semi - urban areas, retailing has spread to the nooks and corners of the streets and in the rural areas retail business is significantly present. A new breed of organizations, offering marketing services has come up. The government also offers marketing services to the small-scale agricultural farmers, artisans and other traditional business sectors such 'as promotion of regulated markets, export promotion councils, development boards etc.
