Question

What are the major factors responsible for the high growth of the service sector?

Answer 1

The major factors that led to the growth of service sectors in India are as follows;  

1. High demand for services as final product: India was a virgin market for service sector. So, when service sector started booming due to business outsourcing from the developed countries to India, there was very high demand for these services especially for banking, computer service, advertisement and communication. This high demand in turn led to a high growth rate of service sector.  

2. Liberalization and economic reforms: The growth of Indian service sector is also attributable to the liberalization and various economic reforms that were initiated in 1991. Due to these reforms, various restrictions on the movement of international finance were minimized. This led to huge inflow of foreign capital, foreign direct investments and outsourcing to India. This encouraged the service sector growth.  

3. Structural transformation: Indian economy is experiencing structural transformation that implies shift of economic dependence from primary to tertiary sector. Due to this transformation, there was increased demand of services by other sectors which y boosted the service sector.  

4. Advanced technology and growth of IT: The advancements and innovations in the IT sector enabled the use of internet, telecommunication, mobile phone and electronic transactions across different countries. All these contributed to the growth of the service sector in India.  

5. Increased volume of trade: Low tariff and non-tariff barriers on imports by India are also responsible for high growth rate of service sector. The foreign trade reforms enabled the domestic products to interact and compete in the international markets.  

6. Cheap labor and reasonable degree of skill in India: Due to the availability of cheap labor and reasonable degree of skilled man power in India, developed countries found outsourcing to India feasible and profitable. The business outsourcing in itself provides substantial encouragements (like development of human capital that requires services like good coaching centers and reputed institutions, etc.) to the growth of service sector.

Answer 2

Major factors responsible for the high growth of the service sector in India:

Economic reforms in 1991: Economic reforms introduced in 1991 allowed MNCs to enter the Indian market. It abolished restrictions on foreign investment and opened the doors for inflow of foreign capital. Government-liberalised policy enabled the increase of foreign direct investment drastically. It brought several changes in the Indian market.

Low labour cost: The cost of labour in India was comparatively lower than developed nations. This attracted multinational companies to outsource their business service activities in India. Hence, the service industry was rapidly grown with the companies who identified the importance of business outsourcing process such as training, teaching and marketing to improve their business performance.

Growth of Information Technology (IT): Growth of the service sector was highly stimulated by the growth of information technology (IT) in India. IT helped perform vital service businesses of the country. Highly skilled software resources are found in India. Many state governments such as Andhra Pradesh, Madhya Pradesh, Karnataka, Maharashtra and Delhi emphasised on the importance of the IT sector. 

Structural changes: Structural changes were taking place in the Indian economy, i.e. transformation from the primary sector to the tertiary sector. This transformation caused an increase in the demand for the service sector.

Market orientation: The manufacturing sector faced many changes in the competitive condition and demand-supply forces in the market. This diverted their attention from production to market orientation. Further, it forced manufacturing organisations to conduct marketing research, accounting, auditing, human resource management, and research and development institutions to analyse market conditions. These were entirely service-based functions.