Indicus Analytics: Doing growth a service

Last Updated: Wed, May 11, 2011 20:20 hrs

The past few decades have seen the share of agriculture decline in the Indian economy to be overtaken by services. Over the last six decades, the share of the service sector has increased from one-third of GDP in 1950-51 to more than half in the last decade, rising steadily over the years, with a marked acceleration in growth in the eighties and nineties. The service sector comprises four main categories: trade, hotels and restaurants; transport, storage and communication; financing, insurance, real estate and business services; and community, social and personal services. With varying growth paths in these categories, the composition of the service sector has undergone changes over time. Financing, insurance, real estate and business services constituted the largest category in the fifties, with more than one-third share, followed by community, social and personal services (which include public administration). The sector with highest growth that now accounts for the largest share in the service sector income is trade, hotels and restaurants, comprising close to a third of the service sector. However, of all the sub-categories, communication has recorded consistent double-digit annual growth since 1992, passing 20 per cent rates annually in the 2000s.

The sectoral estimates of income at the state level draw attention to the unequal growth across the country. According to the latest Central Statistical Organisation estimates for the period 2004-05 to 2009-10, compound annual growth in the service sector varies across states from 6.51 per cent in Meghalaya to 14.57 per cent in Uttarakhand. Uttarakhand has seen the fastest growth in public administration and banking and insurance, with sub-sectors of trade, hotels and restaurants and transport, storage and communication also turning in 15 per cent-plus levels of annual growth. There are 14 states with double-digit growth in this period in the service sector and three states – Meghalaya, Tripura and Jammu and Kashmir – grew at less than 8 per cent annually. Bihar is among the top five states, trailing Haryana and Puducherry and recording a better performance than Maharashtra.

Encouragingly, the leading sub-sectors have been trade, hotels and restaurants and banking and insurance, with more than 15 per cent annual growth in this period.

On the other hand, low growth in Meghalaya is accompanied by poor performance in all the components. The state ranks among the bottom two in growth in banking and insurance and real estate, ownership of dwellings and business services. In Tripura, while transport, storage and communication and banking and insurance have recorded good growth, the laggard has been the category of trade, hotels and restaurants. For Jammu and Kashmir, the leading sector has been transport, storage and communication. However, trade, hotels and restaurants turned in 2 per cent annual growth, a reflection of turbulent years in a state that has the potential to be India’s leading tourist destination.

The high growth of the service sector has been particularly important because this has enabled the absorption of workforce shifting out of agriculture, providing earning opportunities even for those with low education and skills. The variation across states underlines the diversity within the country and regional inequalities in opportunities.

Indian States Development Scorecard, a weekly feature by Indicus Analytics, focuses on the progress in India and across the states across various socio-economic parameters.  

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