Understanding India’s Services Revolution

Abstract

This paper analyzes the factors behind the recent growth of India�sservices sector. The highgrowth of services output in the 1990s was mostly due to the rapidexpansion ofcommunication, banking, business services (including the IT sector)and communityservices. While factors such as a high income elasticity of demandfor services, increasinginput usage of services by other sectors, and rising exports, wereimportant in boostingservices growth in the 1990s, supply side factors including reformsand technologicaladvances also played significant roles. Going forward, the growthpotential of Indian servicesexports is well known, but the paper also finds considerable scopefor growth in the Indianservice economy provided that deregulation continues. In addition,the paper shows thatemployment growth in the Indian services sector has been quite modest,thus underscoringthe need for industry and agriculture to also grow rapidly.