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. Liberalisation and economic reforms: The growth of Indian service sector is also attributable to the liberalisation and various economic reforms that were initiated in 1991. Due to these reforms, various restrictions on the movement of international finance were minimised. 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 labour and reasonable degree of skill in India: Due to the availability of cheap labour 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.