The Service Sector in India

Abstract

The service sector is the largest and fastest growing sector in India and has the highest labor productivity, but employment has not kept pace with the share of the sector in gross domestic product and has not produced the number or quality of jobs needed. There is no policy leading to inclusive growth, and multiple, uncoordinated governing bodies adversely affect the growth of the sector. Many regulations are outdated, and there are restrictions and barriers on foreign direct investment. While India is among the top 10 World Trade Organization members in service exports and imports, the growth and export of services is less than that of the People’s Republic of China, and exports are competitive in only a few services and are concentrated in a few markets. Most of the poor in India do not have access to basic services such as healthcare and education, and infrastructure is weak so the cost of service delivery is high. Although India wants to be a knowledge hub, there is no uniformity in the quality and standards of education, and formal education does not guarantee employability. Policy measures are suggested for inclusive growth that will also enhance India’s global competitiveness in services.

Keywords: services, growth, employment, productivity, India

JEL Classification: O14, O40, O47, L80, L88