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The service sector is a very dynamic sector in advanced economies. The article gives an account of the Indian service sector, its growth after liberalization, the various subsectors and future trends.

Service Sector

Service sector is the lifeline for the social economic growth of a country. It is today the largest and fastest growing sector globally contributing more to the global output and employing more people than any other sector.

The real reason for the growth of the service sector is due to the increase in urbanization, privatization and more demand for intermediate and final consumer services. Availability of quality services is vital for the well being of the economy.

In advanced economies the growth in the primary and secondary sectors are directly dependent on the growth of services like banking, insurance, trade, commerce, entertainment etc.

Indian Service Sector
In alignment with the global trends, Indian service sector has witnessed a major boom and is one of the major contributors to both employment and national income in recent times. The activities under the purview of the service sector are quite diverse. Trading, transportation and communication, financial, real estate and business services, community, social and personal services come within the gambit of the service industry.

One of the key service industry in India would be health and education. They are vital for the country’s economic stability. A robust healthcare system helps to create a strong and diligent human capital, who in turn can contribute productively to the nation’s growth.

Post Liberalization
The Indian economy has moved from agriculture based economy to a knowledge based economy. Today the IT industry and ITE'S industry are the dominant industry in the service sector. Media and entertainment have also seen tremendous growth in the past few years.


Information Technology Industry
The Information Technology industry has achieved phenomenal growth after liberalization. The industry has performed exceedingly well amidst tough global competition. Being knowledge based industry; India has been able to leverage the global markets, because of the huge pool of engineering talent available and the proficiency in English language among the middle class.

ITES sector
The ITES sector has also leveraged the global changes positively to emerge as one of the prominent industries. Some of the services covered by the ITES industry would be:
  • Customer interaction services -Non voice and Voice.
  • Back office, revenue accounting, data entry, data conversion, HR services.
  • Medical Transcription.
  • Content development and animation.
  • Remote education, market research and GIS
Prior to liberalization, India had one of the most underdeveloped retail sectors in the world. After liberalization the scenario changed dramatically. Organized retailing with prominence on self service and chain stores has changed the dynamics of retailing. In most of the tier I and tier II cities supermarket chains mushroomed, catering to the needs of vibrant middle class. This indirectly contributed to the growth of the packaged food industry and other consumer goods.

Financial Services-Banking And Insurance
Prior to liberalization these two sectors were controlled and regulated by the government. Nationalized banks and insurance companies had a firm grip over the market. After liberalization the banking and insurance domain opened up for private participation.

Banking Sector
The three major changes in the banking sector after liberalization are:
  • Step to increase the cash outflow through reduction in the statutory liquidity and cash reserve ratio.
  • Nationalized banks including SBI were allowed to sell stakes to private sector and private investors were allowed to enter the banking domain. Foreign banks were given greater access to the domestic market, both as subsidiaries and branches, provided the foreign banks maintained a minimum assigned capital and would be governed by the same rules and regulations governing domestic banks.
  • Banks were given greater freedom to leverage the capital markets and determine their asset portfolios. The banks were allowed to provide advances against equity provided as collateral and provide bank guarantees to the broking community.
Insurance Sector
The Insurance Regulatory and Development Authority Act 1999 (IRDA Act) allowed the participation of private insurance companies in the insurance sector. The primary role of IRDA was to safeguard the interest of insurance policy holders, to regulate, promote and ensure orderly growth of the insurance industry. The insurance sector could invest in the capital markets and other than traditional insurance products, various market link insurance products were available to the end customer to choose from.

Some of the prominent insurance companies are:
  • Bajaj Allianz Insurance Corporation
  • Birla Sun Insurance Co Ltd
  • HDFC Standard Insurance Co Ltd
  • ICICI Prudential Insurance Co Ltd
  • Max New York Insurance Co Ltd
  • Tata AIG Insurance Co Ltd
Future Trends
  • Globally outsourcing industry would continue to grow.
  • Following the success of US and UK, more countries in the European Union would outsource their business.
  • Technological power shift from the West to the East as India and China emerge as major players.
  • Political backlash over outsourcing would come down as companies reap the benefit of outsourcing.

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