CHAPTER 2:

SERVICE SECTOR
IN INDIA
2. SERVICE SECTOR IN INDIA

According to Lovelock (2004) a service is any act of performance one party can offer to

another that is essentially intangible. As consumers, we use services every day. Turning

on a light, listening to the radio, taking a bus, getting a haircut, etc are examples of

service consumption at the individual level. The institution at which one studies is itself a

complex service organization. In addition to the educational services the facilities of

today's colleges and universities usually comprises of libraries, cafeterias, counseling

services, placement offices, a bookstore, photocopying services, telephones and internet

connections, etc. Business and organizations are also dependent on a wide array of

services, usually purchasing on a much larger scale than individuals. Suppliers of

services, who often face stiff competition, sometimes- appear to have' a very different set

of concerns. Fortunately, some suppliers know how to please their customers while also

running a productive, profitable operation, staffed by pleasant and competent employees.

2,1. Service Dominates Modern Economy

The service industry forms a backbone of social and economic development of a region.

It has emerged as the largest and fastest-growing sectors in the world economy, making

higher contributions to the global output and employment. Its growth rate has been higher

than that of agriculture and manufacturing sectors. It is a large and most dynamic part of

the Indian economy both in terms of employment potential and contribution to national

income. It covers a wide range of activities, such as trading, transportation and

communication, financial, real estate and business services, as well as community, social

and personal services. As per Jalan (1992) In India, services sector, as a whole.

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contributed as much as 68.6 per cent of thp overall average growth in gross domestic

product (GDP) between the years 2002-03 and 2006-07.

The most important services in the Indian economy have been health and

education. They are one of the largest and most challenging sectors and hold a key to the

country's overall progress. A strong and well-defined health care sector helps to build a

healthy and productive workforce as well as stabilize population. The 'Ministry of Health

and Family Welfare' is responsible for implementation of various programmes in the

areas of health and family welfare, prevention and control of major communicable

diseases as well as promotion of traditional and indigenous systems of medicines.

Accordingly, it is carrying out measures like National health policy, implementing

National Rural Health Mission (NRHM) in different States, conducting surveys and

studies, etc. While, education strongly influences improvement in health, hygiene and

demographic profile. The 'Ministry of Human resource Development' is involved in

eradicating illiteracy from the country. It is concerned with universalisation of elementary

education, achieving full adult literacy, laying down of National Policy on Education,

meeting needs of secondary and higher education for all, etc. India has achieved

impressive demographic transition owing to the decline of crude birth rate, crude death

rate, total fertility rate and infant mortality rate as well as gained high literacy rate in the

country.

The era of economic liberalization has ushered in a. rapid change in the service

industry. As a result, over the years, India is witnessing a transition from agriculture-

based economy to a knowledge-based economy. The knowledge economy creates,

disseminates, and uses knowledge to enhance its growth and development. One of the

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major functional pillars of this economy is Information Technology (IT) and IT-enabled

services (ITeS) industry. The 'Department of Information Technology' has been making

continuous efforts to make India a front-runner in the age of Information revolution. IT

continues to be a dominating sector in the overall growth of the Indian industry. A large

number of Indian software companies have acquired international quality certification.

Several policies have also been framed on the key issues of IT infrastructure, electronic

governance as well as IT education.

Another major and upcoming sei-vice industry has been media and entertainment.

It is basically an intellectual property-driven sector with small to large players spread

throughout the country. It covers film, music, radio, broadcast, television and live

entertainment. It plays a significant role in creating people's awareness about national

policies and programmes by providing information and education to all. The 'Ministry of

Information and Broadcasting' is responsible for formulation and administration of the

rules, regulations and laws relating to media industry. Besides, retailing has been one of

the fastest growing service sector both in terms of turnover and employment. Many

national and global players have been investing in the retail segment and are making all

efforts to further expand the sector. Out of the total retail outlets in the country, most of

them are related to food items.

However, to supplement the achievements and meet the shortfalls in all the sub-

sectors of the service industry, travel and tourism sector has to be developed in a

sustainable manner. Being one of the largest industry in terms of gross revenue and

foreign exchange earnings, it stimulates growth and expansion in other economic sectors

like agriculture, horticulture, poultry, handicrafts, transportation, construction, etc. as

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well as gives momentum to growth of service exports. It is a major contributor to the

national integration process of the country as well as preserver of natural and cultural

environments. The 'Ministry of Tourism' has been undertaking several policy measures

and incentives so as to boost the sector such as the announcement of the National

Tourism Policy.

All this shows that services hold immense potential to accelerate the growth of an

economy and promote general well-being of the people. They offer innumerable business

opportunities to the investors. They have the capacity to generate substantial employment

opportunities in the economy as well as increase its per capita income. Without them,

Indian economy would not have acquired a strong and dominating place on the world

platform. Thus, service sector is considered to be an integral part of the economy and

includes various sub-sectors spread all across the country.

Service organizations vary widely in size. At one end of the scale are huge

international corporations operating in such industries as airlines, banking, insurance,

telecommunications and hotels. At the other end of the scale is a vast array of locally

owned and operated small business, including restaurants, laundries, beauty parlours, etc.

2.2. Composition of Service Sector in India

The service sector is remarkably diverse. It comprises a wide array of industries

that sell to individual consumers and business customers, as well as to government

agencies and non profit organizations. Service make up the growing bulk of today's

economy and also account for most of the growth in new Jobs. The size of the service

sector is increasing in almost all economies around the world. As a national economy

develops the relative share of employment among agriculture, industry and services
changes dramatically. Even in emerging economies, service output is growing rapidly

and often represents at least half of the GDP. In developed, countries knowledge biased

services defined as those that are intensive users of high technology and/or have,

relatively highly skilled work forces are proving the most dynamic components. In India,

the national income classification given by Central Statistical Organization is followed.

In the National Income Accounting in India, service sector includes the following:

1. Trade, hotels and restaurants (THR)

•1.1 Trade

1.2 Hotels and restaurants

2. Transport, storage and communication

2.1 Railways

2.2 Transport by other means

2.3 Storage

2.4 Communication

3. Financing, Insurance, Real Estate and Business Services .

3.1 Banking and Insurance

3.2 Real Estate, Ownership of Dwellings and Business Services

4. Community, Social and Personal services

4.1 Public Administration and defense (PA & D)

4.2 Other services

In numerous countries, increased productivity and automation,in agriculture and

industry, combined with growing demand for both new and traditional services, have

jointly resulted in a continuing increase over time in the percentage of the labor force that

is employed in services. There's a hidden service sector within many large corporations

that are classified by government statisticians as being in manufacturing, agricultural, or

natural resources industries. These so called internal services cover a wide range of

activities, including recruitment, legal and accounting services, pay roll administration,

office cleaning, landscape maintenance, supply chain management, advertising and many

other kinds of services. Organizations are increasingly choosing to outsource the internal

services that can be performed more efficiently by a specialist subcontractor.

The opening up of the service economy means that there will be greater

competition. In turn, more competition will stimulate innovation, not least through the

application of new and improved technologies. Customers needs and behaviour evolves

too, in response to changing demographics and values, as well as new options. Both

individually and in combination, these developments will require managers- of service

organizations to focus more sharply on marketing strategy. However, the willingness and

ability of the managers in service firms to respond to the dramatic changes affecting the

service economy will determine whether their own organizations survive and prosper or

go down to defeat at the hands of more agile and adaptive competitors.

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2.4. Technology is a Key Driver of Service Innovation

The tenn technology, as commonly used, refers to the practical application of

cutting edge tools and procedures. Innovative service providers are interested in how they

can use new technological developments to automate and speed up processes, reduce

costs, facilitates service delivery, relate more closely to their customers and offer them

more convenience, add appeal to existing products and make it possible to develop new

types of services. In recent years, the focus has been on IT and specifically, the merger of

computer and telecommunications technology that facilitated the development of wireless

services and the Internet, whose best known components are e-mail and the World Wide

Web.

The ability of firms to generate business through technology driven service

innovations is often dependent on customers having access to the necessary equipment

and infrastructure. It's predicted that the growth of broadband telecommunications, which

speeds customer's interactions with Web sites, will provide a powerful stimulus for use

of Internet channels.

2.5. Performance of Service Sector in India

During the process of growth over the years 1950-51 to 1999-2000, the Indian

economy has experienced a change in production structure with a shift away from

agriculture towards industry and tertiary sector.

• The share of agricultural sector in real GDP at 1993-94 prices declined from 55.53%

in the 1950's to 28.66 % in 1990's.The share of industry and services increased from

16%to 27.12% and 28.09% to 44.22% respectively during the same period. During

the 1950's it was the primary sector which was the dominant sector of the economy

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 and accounted for the largest share in GDP. But the whole scenario changed

subsequently, and especially in the 1980's.

• The service sector output increased at a rate of 6.63% per annum in the period 1980-

81 to 1989-90 (i.e. pre-reform period) compared with 7.71% per annum in the period

1990-91 to 1999-2000 (i.e. post- reform period). The tertiary sector emerged as the

major sector of the economy both in terms of growth rates as well as its share in GDP

in 1990s. It is to be noted here that while agriculture and manufacturing sectors have

experienced phases of. deceleration, stagnation and growth, the tertiary sector has

shown a uniform growth trend during the period 1950-51 to 1999-2000 (Joshi, 2004,

2008a).

• The share of this sector in GDP further increased to 55.1% in 2006-07 .This sector

accounted for 68.6% of the overall average growth in GDP in the last five years

between 2002-03 and 2006-07 (Economic Survey, 2006-2007).

• In 2011-12, sei-vice sector,grows by 9.4% and its share in GDP goes up to 59%. .

(Economic Survey, 2011-2012).

2.6. Service Sector Requirements '

Retaining desirable customers in the face of active competition requires an understanding

of how relationships are created and nurtured. Today, the emphasis is on developing

relationship marketing strategy that will enhance satisfaction among targeted customers

and build loyalty. To achieve this loyalty, the service firms know that they must develop

a customer centered understanding of service quality and ensure everyone in the

organization understands his or her role in nieeting customers' expectations. In today's

highly competitive service markets make progress by continually re-thinking the way

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they do business, looking for innovative ways to serve customers better and taking

advantage of new developments in technology.

Targeting, acquiring and retaining the "right" customers is at the core of many

successful service firms. Once a firm has won customers who will generate a growing

revenue stream for the firm in the future. Building relationships is a challenge, especially

when a firm has many customers but when implemented well, customer relationship

management (CRM) systems provide managers with the tools to understand their

customers and tailor their services, cross-selling and retention efforts, often on a one-on-

one basis.

Loyalty is a word that has been used to describe fidelity and devotion to a

country, cause or an individual. More recently it has been used in a business context to

describe a customer's willingness to continue patronizing a firm over the long years,

purchasing and using its goods and services on a repeated and preferably exclusive basis

and recommending the firm's products to friends and associates. Thus, a loyal customer

is a consistent source of revenue over a period of many years.

Thus, the relationships create value forxindividual consumers through inspiring

greater confidence, offering social benefits and providing special treatment which in turn

leads to customer satisfaction and thus building, loyalty and thus lastly leading to the

profitability of the firm.

2.7. Stock Broker Services

A stock broker is a regulated professional broker who buys and sells shares and

other securities through market makers or agency firms on behalf of investors. A broker

may be employed by brokerage firm. Stock brokers and Services offered by Stock
brokers is one of the most important things to learn before starting investment in share

market. If one is interested in investing in the stock market one of the first important

things one needs is a reliable and affordable stock broker. At one point in time, a stock

broker was considered to be the highest price that the person was extremely difficult to

understand. In today's world, stock brokers have become very different, they began to

make their services cheaper to obtain and in a way that is easier to understand. One of the

most important rules of the stock market is that nobody is allowed to trade in the stock

market, unless they are a certified Stock broker.

There are a wide range of capabilities and services that any stock .broker can offer,

at the same time, there ar.e different ranges of fees to be collected from them. In general, a

stock broker will charge a commission as fee or a fixed amount of fee, or a combination

of both. In regards to the services a stock broker can tender you; there are three basic

levels that include only execution, portfolio management and stock recommendations

(advice).

If a stock broker deals only with the buying and selling of particular shares as per

the instructions received from you, this is generally called as execution only or by

dealing only with the more flexible terms. With this type of service, they do not offer you

any advice on any action you want to make. Generally, investors who are experienced

investors or beginner in stock market investing will use this type of service. This type of

service, is cheaper and extremely efficient.

Portfolio management is another important services offered by Stock brokers.

Portfolio management is particularly detailed and the most expensive type of service'with

the advice and dealing with advice is usually a little more expensive than execution only
 because the stock broker will offer advice and views on what happens in the stock

market. The stock broker, at this level of service will also take time to explain everything

that you may not understand very well.

In the portfolio management service offered by the stock brokers, you can

separate these into two other categories, these are advisory and discretionary. When

under the category of advisory, the stock broker will generate a proposal for your

portfolio, but the stock broker will not take any action without your consent.

With the increase in the number of services offered on the stock market, the

number and types of brokers have also increased. In the past we were able to easily

.divide stock brokers into either full service or discount ones..Now it is difficult to

categorize brokers into separate classes, but still, we will be able to distinguish them

according to the types of services they provide.

2.7.1. Discount Brokers

In the past, discount stock brokers played the role of order takers. Today, their-

functions have evolved into a higher level of services. Discount brokers now provide

many professionally done researches in the investment area and offer their clients

investment advices.

The fees that discount brokers charge in return to their services are less than those

charged by full service brokers. Still, if price is your main criterion for choosing a broker,

then you might prefer a deep discount broker. Deep discount brokers charge less than

discount brokers. They have substantially improved the services they offer to their clients

and now they provide stronger online platforms. Thus, their fees are very reasonable with

respect to the services they offer.

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2.7.2. Full Service Brokers

Discount brokers may charge less but their advices don't encompass the wideness

that is offered by full service stock brokers. Full service brokers offer their clients a

comprehensive portfolio of services. By signing with such a company you can benefit

from stock picking and retirement planning services. Additionally, full service brokers

provide many additional services that are aimed at the achievement of the investor's

particular financial goals.

2.8. Offline Trading

Before 1^' April 2000, the only option available with the investor was offline

trading. In offline trading an investor maintains an account with broker. An investor can

do trading either by visiting the broker or by calling to broker. In this type of trading

investor does not make use of internet or terminal anywhere. In this type of trading an

investor is totally dependent on the broker. The only benefit in this type of trading is that

exposure limit is much more as compared to online trading. In offline trading in the initial

period, an investor has to give only account opening charges and there is no need to pay

any margin amount. The credit worthiness of investor or his turnover will increase his

credit limit and due to these an investor gets benefit to trade more and so an investor can'

earn good amount of profit. The brokerages also differ to online trading. An investor gets

certain attractive benefits if its volume is large. The offline traders get more services from

broker but investors are not having any rights with them. The receipt and payment is done

mostly by cheques as there is no net banking facility. An investor has to inform to broker

regarding the cheque to be issued or paid. In offline trading, investor can use the credit

limit by paying the amount due through cheque, after a day also. The trader gets the daily

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report from the broker. The trader gets a contract note from the broker at the end of

trading day. This method was much popular till the date there was no online trading but

nowadays it has been decreased. In this method there is a great ambiguity regarding the

price at which trade has been executed.

2.8.1. Features of Offline Trading

a) Simple

It is the simplest form of trading. As we know that investor can trade just by calling or

visiting the broker. Thi§. method of trading does not require any computer literacy.

b) Easy to understand and operate

As this method of trading does not require computer literacy it is easy to understand and

operate. Moreover, it is seen that aged persons operate through these mode.

c) Direct Contact

In this mode of trading as there is direct contact of investor with the broker all the doubts

or queries can be easily resolved and so there is very little chance of any ambiguity.

d) Reliability

In this mode investors blindly rely on broker so the advices given by them play a very

critical role and so accountability of the broker increases. i

e) Convenient

As it is simple and easy to understand it is convenient for investor to use this mode of

trading. Moreover, an investor who is novice to the stock market uses this mode of

trading.

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f) Additional Services from Stock Broker

Normally in this mode an investor gets additional services from broker. In case of bullish

or bearish trend broker advices about the best position. In addition to these broker also

gives regular tips to investor regarding investment. In offline trading the biggest benefit is

regarding exposure, so that an investor can do more trade and earn good margin of profit.

Thus, an offline trader gets more services from the broker.

2.9. Online Trading

The web based trading commenced from 1^' April, 2000 with 79 members seeking

permission for online trading. Orders are communicated to the stock exchange through

web based interface (so called website). The SEBI committees on internet based

securities trading services has allowed the net to be used as an Order Routing System

(ORS) through registered stock brokers on behalf of their clients for execution of

transaction. Under the ORS the client enters requirements (security, quantity, price,

buy/sell) in broker's site. They are checked electronically against the clients account and

routed electronically to the appropriate exchange for execution by the broker. The client

receives a confirmation on execution of the order. The customer's portfolio and ledger

accounts get updated to reflect the transaction. The user should have the user id and

password to enter into the electronic ring. In web based trading one should have demat

account and bank account. The system permits only registered client to log in using user

ID and password. Order can be placed using place order window of the website,

a. The client has to enter stock code and other parameters such as quantity and price of

the scrip on the place order window.

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b. The client can review the order placed by clicking the review option. He can also reset

to clear the values.

c. Satisfactory orders are sent by clicking the Send option.

d. The client receives an order confirmation message with order number and value of the

order.

e. If the order is rejected by the broker or stock exchange for certain reasons such as

invalid price limit, a related message appears at the bottorn of the screen. The time taken

to execute the order is 10 seconds.

f When the trade is executed, the broker asks for the transfer of funds by the investor to

his account. Stocks are credited/debited according to the buy/sell order in the demat

accounts. Internet trading provides total transparency between a broker and an investor in

the secondary market. With online trading investors can see themselves the price at which

the deal takes place. Confirmation and execution of the trade reaches the investor within

the least possible time, within 30 seconds. Instant feedback is available about the

execution.

2.9.1. Features of Online Trading

-a) Speed

Speed is the most important thing in online trading. As price fluctuates in every seconds,

so it becomes necessary for a trader to place the order at correct time. As in online trading

it hardly takes 10 seconds to place the order and for execution of trade it will take 30

seconds. Thus speed is the important feature in online trading. Time matters a lot in stock

market.

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b) Secrecy

As'it is web based trading so secrecy is maintained regarding contract.

c) Ease in payment and receipt

In online trading trader has to maintain a separate bank a/c for executing the deal. So it

becomes too much easy to make payment or receive in case of online trading.

d) Digital Contract

It is a contract note between investor and company in which broker acts as intermediary.

Digital contract means the contract of the trade will be delivered in investoV's online

account with the broker. There is no need to get physical bill. Moreover, an investor can

know the brokerage, tax charged and the net amount which is credited.

e) Quarterly Statement

In online trading an investor receives quarterly statement. It is a summarize statement of

contracts made within last 3 months.

f) Online Fund Transfer Facility

In online trading, an investor's bank account is linked with Demat account. The funds can

be transferred from bank account to Demat account in fraction of seconds.

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