Sectoral Composition Of Gdp Growth Economics Essay

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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. Industrial Economics is the study of firms, industries and markets. It looks at firms of all sizes - from local corner shops to multinational giants such as WalMart or Tesco. And it considers a whole range of industries, such as electricity generation, car production and restaurants.

When analysing decision making at the levels of the individual firm and industry, Industrial Economics helps us understand such issues as:

the levels at which capacity, output and prices are set;

the extent that products are differentiated from each other;

how much firms invest in research and development (R&D)

how and why firms advertise

Industrial Economics also gives insights into how firms organise their activities, as well as considering their motivation. In many micro courses profit maximisation is taken as given, but many industrial economics courses examine alternative objectives, such as trying to grow market share.

There is also an international dimension - firms have the option to source inputs (or outsource production) overseas. As such, while industrial economics more frequently uses skills and knowledge from micro courses, macroeconomic concepts are sometimes employed.

One of the key issues in industrial economics is assessing whether a market is competitive. Competitive markets are normally good for consumers (although they might not always be feasible) so most industrial economics courses include analysis of how to measure the extent of competition in markets. It then considers whether regulation is needed, and if so the form it should take. There is again an international dimension to this, as firms that operate in more than one country will face different regulatory regimes.

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. Service economy can refer to one or both of two recent economic developments. One is the increased importance of the service sector in industrialized economies. The current list of Fortune 500 companies contains more service companies and fewer manufacturers than in previous decades.

The term is also used to refer to the relative importance of service in a product offering. The service economy in developing countries is mostly concentrated in financial services, hospitality, retail,health, human services, information technology and education. Products today have a higher service component than in previous decades. In the management literature this is referred to as the servitization of products. Virtually every product today has a service component to it. The old dichotomy between product and service has been replaced by a service-product continuum. Manyproducts are being transformed into services.

For example, IBM treats its business as a service business. Although it still manufactures computers, it sees the physical goods as a small part of the "business solutions" industry. They have found that the price elasticity of demand for "business solutions" is much less than for hardware. There has been a corresponding shift to a subscription pricing model. Rather than receiving a single payment for a piece of manufactured equipment, many manufacturers are now receiving a steady stream of revenue for ongoing contracts.

Full cost accounting and most accounting reform and monetary reform measures are usually thought to be impossible to achieve without a good model of the service economy.

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.

Q2:-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.

Ans:- 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. As guests and patrons of hotels, restaurants and others establishments, we are constantly looking for an environment that satisfies and exceeds our expectations. In today's business, hospitality can make a company successful or ruin it in the business world. To maintain a high level of hospitality and exceed guest expectations, the ability to react to guest requests immediately is important. With the majority of information still residing in hardcopy documents, it can be difficult to have instant access to information. In an effort to stay competitive in the market, hospitably environments are looking for ways to move this hardcopy documentation to a digital format. With this, scanning has emerged as a critical component to success. Within the hospitality sector, guests take for granted that they will receive personalized service. They are looking for employees to be aware of a certain amount of information pertaining to their situation. By introducing this information into a digital format, employees can have better access to it, allowing them to meet guest expectations. To move this information to digital, hospitality environments are looking for a easy digital archiving solutions. To meet these challenges this sector is turning to SimplifyScan. Digital archiving has never been easier. This scanning solution offers many features, enabling users to easily capture, process and store their documents, saving time and resources. The hospitality sector can benefit from SimplifyScan by digitizing all documents, without having to install software on local workstations. Because of this, no client software or product training is required and employees can begin using it immediately. 

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. The economic function of transport is derived from the interaction between transport and the creation of goods and services in order to satisfy people's needs. Human needs are not necessarily satisfied only through the distribution of goods and services. It must be in the right form (stage of production) and it must be available to consumers at the right place (transport) and at the right time (storage). This requirement coupled with the disproportionate distribution (caused by nature and specialization) of raw materials, labour, factories, and markets is essential for the provision of transport. The role of specialization is illustrated by the difference between subsistence and commercial farming - subsistence farming requires little or no inputs and produces little or no outputs that need to be distributed away from the farm. It is however not effective and with commercial farming more and better quality commodities can be provided by the same inputs. This trend is global and rising, as many production processes are specialized to such an extent that some finished goods used around the world could contain components that are manufactured in more than two continents. This rise in specialization in turn drives labour specialization which in turn results in unique training challenges because the training of specialists (as opposed to generalist training) necessitates the development of deep skills and requires narrower defined subject matters. Transport is therefore an integral part of the process through. The Communication sector is amongst the fastest growing in the country. It work in all major markets around the world. Communication technology's products and solutions are accepted globally. The first year of the new millennium has been a year of turbulence, tragedy, terrorism and slow-down in the world economy. The Indian Communication industry has weathered this storm well. It is indeed creditable that the industry and services in India has reasonably continued its robust growth in the year 2003-04 This sector has emerged as one of the fastest growing sectors in the economy History of communication in India A major reorganisation of the department took place in April, 1925. The accounts of the Indian Posts and Telegraphs were reconstituted to examine the true fiscal profile of the department. The attempt was to find out the extent to which the department was imposing a burden on the taxpayers or bringing in revenue to the Exchequer, how far each of the four constituent branches of the department, the postal, telegraph, telephone and wireless were contributing towards this result. It was further examined whether the rates charged from the public for the various services were inadequate or excessive.The Posts and Telegraphs, like all public and private undertakings, was a victim of the universal financial and economic depression which crashed on the world in 1930. During 1931, numerous economy measures had to be introduced according to the advice of the Posts and Telegraphs Sub-Committee to the Retrenchment Committee presided over by Sir Cowasjee Jehangir Jr. Naturally, the adoption of the various measures of retrenchment could not but have an adverse effect on the emoluments and interests of the personnel of the Department. 

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. India is one of the fastest developing economies amongst the third world countries. To achieve such a feat is no child's play. Whether it is development in the agricultural sector or the growth of industries, rise in IT or increase in the rate of real estate, nothing would have been possible without intricate planning and management of funds. Click on the links below to access a listing of India's government affiliated banks and Insurance Companies that have contributed towards economic development. This section provides links to the website of some of the major banks & insurance companies in the public sector in India.

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. Engineering services, automobile, education, healthcare, pharmaceuticals and FMCG will witness robust hiring and salary hikes in the range of 10- 15%, depending on the management level. For the rest however, caution will be the key word. Economic uncertainties in the European economies will force those operating in sectors such as banking-related IT hiring and retail, to play the hiring and hikes game with caution.


Attrition levels too may come down, with companies going out of their way to retain employees, who themselves will be reluctant to switch jobs due to the global economic scenario and inflationary trends in India.

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. Productivity growth of service industries analyses the role of problems in measuring service productivity growth on industry and aggregate productivity growth. At the aggregate level, unbalanced growth can be observed between a dynamic manufacturing sector on one hand and a rather stagnant service sector on the other. The service sector itself is, however, composed of a set of heterogenous industries with productivity growth rates ranging from low or negative rates to growth rates exceeding those of high-growth manufacturing industries. The empirical evidence suggests that low or negative productivity growth rates in several services are linked to measurement problems. Computing constant price service output is particularly important. Potential under-estimation of service productivity growth leads eventually to an under-estimation of aggregate productivity growth, via aggregation effects and the flows of intermediate inputs.

Q3:-Identify three reasons for the growth in the services sectors in the Indian context.

Ans:- Introduction to service industry:-

Service industry means 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 proportion of the world economy devoted to services grew steadily during the 20th century. In the United States, for example, the service sector accounted for more than half the gross domestic product (GDP) in 1929, two-thirds in 1978, and more than three-quarters in 1993. In the early 21st century, service industries accounted for more than three-fifths of the global GDP and employed more than one-third of the labour force worldwide.

The simplest explanation for the growth of service industries is that goods production has become increasingly mechanized. Because machines allow a smaller workforce to produce more tangible goods, the service functions of distribution, management, finance, and sales become relatively more important. Growth in the service sector also results from a large increase in government employment.

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. Industry that provides services rather than goods. Economists divide the products of all economic activity into two broad categories, goods and services. Industries that produce goods (tangible objects) include agriculture, mining, manufacturing, and construction. Service industries include everything else: banking, communications, wholesale and retail trade, all professional services such as engineering and medicine, all consumer services, and all government services. The proportion of the world economy devoted to services rose rapidly in the 20th century. In the U.S. alone, the service sector accounted for more than half the gross domestic product in 1929, two-thirds in 1978, and more than three-quarters in 1993. Worldwide, the service sector accounted for more than three-fifths of global gross domestic product by the early 21st century. As increases in automation facilitate productivity, a smaller workforce is able to produce more goods, and the service functions of distribution, management, finance, and sales become relatively more important.

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:-

The electronic media has ushered in a revolution - the Information Technology (IT) revolution. It has shrunk the world to such an extent that it could be called a 'global village'. No achievement of science has brought about such a transformation as IT. It has opened up an infinite number of new avenues in the fields of health care, education, entertainment, communication, commerce and agriculture.

Information Technology is an integrated technology which integrates computer, magnetic storage media, television, telecommunications, industries and various software systems to operate all such things. Computer has revolutionized every sphere of our life. They are used in schools and colleges, hospitals, transport and communication sector, banking and finance, etc. The software technology has seen a spurt of development and firms like Microsoft have established themselves as market leaders, pioneering the IT revolution world over. It has provided us with efficiency and accuracy in our work. Software acts as the medium through which communication and dissemination of information are carried out.

In India too, we are forging ahead to make ourselves a "Software Superpower". A National Task Force on Information Technology and Software Development was formed in May 1998. This task force recognized the potential of IT and recommended a few reforms which would allow India to join the information superhighway. It recommended the transformation of every STD/ISD booth in the country into an 'information kiosk'. This would enable every citizen to have access to information when provided with an internet connection and e-mail facilities. The task force also recognized the need to switch over to local languages. Microsoft has launched its software packages in most of the major Indian languages. It also suggested the need to computerize all the central and state government departments and make the staff in these departments computer-literate.

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:-

A market development strategy targets non-buying customers in currently targeted segments. It also targets new customers in new segments. Market development strategy entails expanding the potential market through new users or new uses. New users can be defined as: new geographic segments, new demographic segments, new institutional segments or new psychographic segments. Another way is to expand sales through new uses for the product.

The concept of the market as defined above has to do primarily with more or less standardized commodities, for example, wool or automobiles. The word market is also used in contexts such as the market for real estate or for old masters; and there is the "labour market," although a contract to work for a certain wage differs from a sale of goods. There is a connecting idea in all of these various usages-namely, the interplay of supply and demand.

Most markets consist of groups of intermediaries between the first seller of a commodity and the final buyer. There are all kinds of intermediaries, from the brokers in the great produce exchanges down to the village grocer. They may be mere dealers with no equipment but a telephone, or they may provide storage and perform important services of grading, packaging, and so on. In general, the function of a market is to collect products from scattered sources and channel them to scattered outlets. From the point of view of the seller, dealers channel the demand for his product; from the point of view of the buyer, they bring supplies within his reach.

There are two main types of markets for products, in which the forces of supply and demand operate quite differently, with some overlapping and borderline cases. In the first, the producer offers his goods and takes whatever price they will command; in the second, the producer sets his price and sells as much as the market will take. In addition, along with the growth of trade in goods, there has been a proliferation of financial markets, including securities exchanges and money 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.