Abstract

This report examines the transformative impact of the service sector on India’s economy during the post-globalization phase of the 1990s, highlighting its emergence as a key driver of gross domestic product (GDP) growth. The service sector’s rise, which accounted for approximately one-fourth of global trade between 1970 and 2014, challenges traditional economic paradigms that emphasise industrialisation. India’s economic evolution is characterised by a direct transition from agriculture to services, bypassing the manufacturing stage—a phenomenon described as a “mutation of growth.” The contribution of services to GDP surged from 38.6% in the 1980s to 55.39% in 2020, supported by foreign direct investment (FDI) and an average annual growth rate of about 8% from 1950 to 2020.

Key factors driving this shift include national policies aimed at deregulation and liberalisation, as well as global trends favouring modern services such as finance, insurance, and information technology. The expansion of outsourcing and the unbundling of services within global value chains have further accelerated this growth. Furthermore, regional disparities in service sector contributions are evident, with states like Karnataka achieving a remarkable service sector share of 66.19% in total gross value added (GVA) during 2019-20. This report emphasises the significant roles of privatisation and globalisation in reshaping India’s economic landscape while also highlighting the importance of skilled labour, technological advancements, and a large domestic market in establishing a competitive global identity for the Indian service sector.

Apurva K. H., Yareseeme, A. S., Jha, J. (2021) Examining the role of Service Sector in Karnataka’s economic growth and learning policy lessons. Centre for Budget and Policy Studies, Bangalore