Smart Business Study

Manufacturing And Service Sectors

Different Sectors of the Indian Economy

The Indian economy can be divided into three broad sectors which are as follows: (Manufacturing And Service Sectors)

  1. Primary Sector: This sector comprises business activities wherein goods provided by nature are collected by human beings. Farming, mining, oil exploration, plantation, dairy farming, animal husbandry, fishing, forestry, etc. are examples of such business activities. The primary sector is popularly known as the agricultural sector because agriculture is the main occupation in this sector.
  2. Secondary Sector: This sector comprises business activities wherein products of the primary sector are modified to make them more useful to human beings. For example, iron ore and coal produced through mining are converted into steel. The textile industry, sugar industry, shipbuilding, oil refineries, and construction industry are examples of secondary sector activities. The secondary sector is also known as the manufacturing sector because the manufacturing of products is the main occupation in this sector.
  3. Tertiary Sector: This sector comprises business activities wherein various types of services are provided to facilitate primary-sector and secondary-sector activities. Transportation, warehousing, insurance, banking, communications, advertising, etc. are examples of such services. The tertiary sector is also known as the service sector because it is concerned with the provision of services.

Relative Significance of Three Sectors (Manufacturing and Service Sectors Of Business)

In an underdeveloped country, the primary sector (agriculture and allied occupations) makes the largest contribution to the national income. As the country grows and gets developed the contribution of the industrial and service sectors gradually increases. The following table shows the shares of different sectors in India’s national income.

YearPrimary SectorSecondary SectorTertiary Sector
Percentage Share of the Three Sectors in India’s GDP (At Factor Cost)

It can be seen that over the period of 60 years, the share of the primary sector has declined by more than 75% whereas the share of the secondary sector has increased by about 50%. The share of the territory (service) sector has more than doubled. Within the service sector, industry-related services such as trade, finance, insurance, storage, etc. have experienced a high growth rate. The fastest-growing segment of the service sector is the rapid expansion of knowledge-based services such as professional (accounting, marketing, financial, etc.) and technical (information technology, research, and development, quality control, etc.) services.

Year₹ CroreYear₹ Crore
Service Tax Collections

About 1.65 crore service sector enterprises are operating in India out of which 1 crore firms are in rural India and 65 lakh firms in cities and towns. These enterprises employ 3.35 crore persons. The contribution of the service sector to the Indian economy has been manifold: growing 10% annually, contributing to about a quarter of total employment, and over one-third of exports.

Service Sector Contribution to the Indian Economy (Manufacturing And Service Sectors)

The American Marketing Association defines services as “activities, benefits or satisfactions which are offered for sale or are provided in connection with the sale of goods.”

The services sector contributes the most to the Indian GDP. The services sector in India has the biggest share of the country’s GDP.

The contribution of the services sector has increased in the last few years.

The services sector contributed 66% of the growth in India between 2000 and 2010 but its share in

employment was 25%.

The service sector got an initial start with the development in the IT sector, because of which India got a boost in the form of BPOs serving the US and Europe.

This resulted in growth and demand for services for the domestic market also.

India has gained immensely from services-led growth in recent years.

It is possible to sustain the services-led growth in recent years.

It is possible to sustain the services-led growth because of the following reasons:

• Service sector (consisting of services like transport, communication, banking, insurance, warehousing, etc) has expanded considerably as it provides basic infrastructure for coping with the requirements of rapid industrialization.

• The expansion of the service sector points to the growing requirement for policy initiatives toward introducing greater efficiency and competition in this sector. This is essential to ensure sustained growth in the long run and for providing a boost in the export of services.

• Complexities of modern industrialization require more financial, legal, and accounting services.

• Modern civilized societies have created a great demand for health, education, entertainment, and family services.

• There may be a shift in employment from the manufacturing sector to the service sector. A shift in expenditure may also take place from commodities to services.

• The service sector institutes a growing tax base with vast potential.

A balanced growth will sustain the economy and take the country ahead on the path of development. Services-led growth on its own, cannot be enough for the economic health of the country. Growth in agriculture and industry is also required simultaneously to strengthen the demand for services.

SectorWorkforce (%)
1. Primary47.1
3. Tertiary28.5
Distribution of India’s Workforce

Reasons for Growth of the Service Sector

Some prominent causes of the rapid increase in the service sector are given below:

  1. Economic Planning: The government of India launched five-year plans in 1951 to achieve rapid growth in the country. Industrialization requires industrial infrastructure (transport, communication, power, insurance, banking, finance, etc.) and social infrastructure (education, medical facilities, community services, etc.). Therefore, these services have expanded rapidly in the country.
  2. Increasing Urbanisation: Urbanization has been another cause of the expansion of the service sector in India. There has been a shifting of population from rural to urban areas. Urbanization leads to a rise in demand for infrastructure services such as communications, public utilities, and distribution services.
  3. Media: Television, the Internet, and other media have led to a spurt in tourism. Modern technology has made business more comfortable. Tourism in turn has promoted all types of services such as hotels, restaurants, travel agents, amusement parks, event management, etc. Expanding World Trade has also had a demonstration effect.
  4. Rise in per capita Income: Growing per capita income has led to demand for new and better services. Interior decoration, garden care, beauty parlors, slimming centers, health clubs, etc. are examples of these services. More leisure time creates demand for recreation and entertainment services such as water parks etc.
  5. Women’s workforce: A higher percentage of women in the workforce has created a demand for babysitting, household care, domestic help, and such other personal services.
  6. Greater Life Expectancy: An increase in life span has led to greater demand for healthcare and related services. Greater concern for ecology and resource scarcity requires time sharing, pollution control, and other services.
  7. Growing Complexity: Specialists are required for the maintenance of computers, air-conditioners, and other complex products. With the increasing complexity of modern industrial organizations manufacturing sector requires more accounting, finance, legal, public relations, and other services.
  8. Knowledge Economy: The service sector has been fuelled by “outsourcing”. In fact, India has taken the centre stage in the outsourcing world. This is evident from the phenomenal growth in the knowledge service industry.
  9. Skilled workforce: The boom in the service industry can also be attributed to the highly skilled workforce available in India. It is indeed ironic that the population, the mother of all misgivings, has in a way, contributed to the economic growth of India.
  10. Globalization: With increasing globalization, employees, particularly executives, travel right around the year across the globe. Tourism is also increasing as travel agencies are using creative advertising and customized service to woo tourists of every category.
Year% Tax Collections
Service Tax as Percentage of Total Tax Collections

Implications of Growth of the Service Sector 

The expansion of the service sector has significant implications for the population, employment, and trade prospects of the country. Some of these implications are as follows:

  1. The expansion of the service sector points to the need for policy initiatives toward introducing greater efficiency and competition in the sector. This is necessary to ensure sustained growth in the long run and to boost exports of services.
  2. There may be a shift in employment from the manufacturing sector to the service sector. A shift in expenditures may also take place from commodities to services.
  3. The service sector constituents a growing tax base with vast potential. Its growth has long-term implications for fiscal policy. The government of India has imposed a service tax on a large number of services.
  4. The services sector in India suffers from low productivity and poor quality. Sustained efforts are needed to improve both these aspects. Otherwise, the income levels of people employed in this sector may stagnate causing social tensions.
  5. Too much concentration on the service sector has led to a lack of due attention to paid to the agriculture sector which has resulted in a reduction in agri-production leading to inflation.
  6. The unparalleled growth in the service industry has resulted in a considerable shortage of service sector employees.

Low productivity, excessive regulations, lack of high-level skills, and inadequate infrastructure are the bottlenecks in the growth of service in India.

Manufacturing is key to a nation’s growth and prosperity since 1991. The manufacturing sector in India could not keep up with the level of development in other nations. Prime Minister, Modi’s “Make in India” is a strategic initiative to develop India as a manufacturing hub by encouraging foreign companies to manufacture their products in India.

The focus areas of this initiative are: providing employment, promoting foreign direct investment, and improving the share of the manufacturing sector in GDP.

YearGrowth (Percent)
Growth of the Service Sector

Concept of Service (Manufacturing And Service Sectors)

According to William Station, “services are those separately identifiable, essential intangible activities which provide want satisfaction, and are not necessarily tied to the sale of a product or another service.”

In the words of Philip Kotler, “A service is any activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything.”

The ultimate aim of marketing in the case of both products and services is the satisfaction of customers’ wants.

There are, however, several differences between products and services. A product is identifiable and one can feel its presence in many ways. But service cannot be identified. For example, a cab is a product but hiring it is a service. A cab can be identified but not its service. Secondly, in buying a product the buyer obtains an asset whereas in buying a service the buyer incurs an expense. For example, when you stay in a hotel, you take away nothing but the experience of a night’s stay. Many

services are the outgrowth of the sale of certain products. For example, when a cab is sold, the buyer needs financial assistance, insurance, and repair services.

Basis of DistinctionServicesProducts
StandardizationIntangible – cannot often be physically possessedTangible – can be physically possessed
PerishabilityUsually perishableOften non – perishable
StorageUnused capacity cannot be storedCan be stored for use in future
InseparabilityInseparable from the service providerCan be separated
ProductionPerformed, not producedProduced
BasisMore people basedMore technology based
SupplySupply cannot be adjusted easily to demandSupply can be adjusted to suit the demand
It is difficult to standardize and patent qualityIt is difficult to standardise and patent qualityQuality can be easily standardized and patented
ValueValue is based on experienceValue is based on ownership
Ownership to the payerOwnership not transferredOwnership is transferred to the buyer
Distinction Between Services and Products

In the marketing of services, certain marketing functions such as transportation, warehousing, and inventory control are not needed. But these functions are essential in the marketing of products.

Characteristics of Services

Services have several unique features which often create special marketing problems. These features are as follows:

  1. Intangibility: The most distinguishing feature of a service is that it is intangible. It has no shape, size, or other physical dimensions. When you buy a bathing soap you can feel, touch, smell, and use it to check its quality. But when you pay fees for a year in college, the education for which you are paying is intangible and you cannot judge its effectiveness at the time of paying the fees. The intangible nature of services has many implications
    • A service cannot be touched.
    • Precise standardization is not possible.
    • A service cannot be patented.
    • There is no transfer of ownership.
    • There are no inventories.
    • Intangibility creates problems with promotion.
    • As it’s not possible to give samples, buyers are unable to judge the quality and value prior to purchase. The seller is unable to display, illustrate or demonstrate the service in use. Therefore, the buyer has to rely on the seller’s reputation and promise. Intangibility has certain advantages also. First, there is no problem with physical distribution. As there is practically nothing to store, no warehousing problem arises. The loss that may arise on account of a decline in the value of inventory also does not affect services.
  2. Inseparability: In most cases, a service cannot be separated from the person who sells it. For example, an electrician has to be physically present to provide the services. Therefore, the production and consumption of services are inseparable. This is in sharp contrast to products that can be produced and stored for sale in the future. Inseparability has significant implications for marketing. First, in most cases, a direct sale is the only feasible channel of distribution. Middlemen can be employed in a few cases as agents. For example, insurance and finance services are often distributed through agents. The consumer being a part of the process, the delivery system must go to market or the customer must come to the delivery system. Secondly, the scale of operations is limited as the physical presence of the service provider is necessary.
  3. Perishability: Services cannot be produced before the sale and stored for future demand. An empty seat in an aircraft, a spare berth in a train, or an unsold seat in a cinema hall represents a service capacity-which is lost forever. Thus a service not fully utilized represents a total loss. Demand fluctuations create problems in the marketing of services. For example, during peak demand hotels, buses, and airlines are insufficient to meet the entire demand. On the other hand, the capacity remains underutilized during slack demand. Therefore, efforts are made to shift some of the demand from peak season/hours to off-peak season/ hours. Hotels and airlines offer concessional charges during the off-season and charge much higher rates during the peak seasons. Mahanagar Telephone Nigam Limited (MTNL) also offers concessional rates during the night.
  4. Heterogeneity: Since the human element is dominant in rendering services, it is almost impossible to standardize the quality of services. Two waiters in a restaurant or two clerks in a bank rarely provide the same quality of service. Even the same provider may not provide identical services. The doctor who gave you complete satisfaction on your first visit may behave differently on your next visit. Although there is a standard procedure for booking a hotel room and computerized reservation system has minimised the human element. But when you go to the reception counter of the hotel, the person who hands over the key to your room affects the quality of services through his behavior. The room, the food, and the facilities may be all perfect, but the person carrying the luggage to your room and the boy providing room service, and other hotel employees who interact with you make all the difference in your assessment of the hotel. Therefore, internal marketing becomes necessary in the case of services. Internal marketing means making the staff rendering services conscious of the need for providing total customer satisfaction and making them competent for this purpose.
  5. Ownership: When you buy a product,e.g., a shirt or a book you become its owner. But when you buy a service, e.g., a seat in an aircraft you do not become its owner. In the case of services, the payment is not for purchase but only for the use of the facility. A service is purchased for the benefit it provides. Thus, special marketing problems arise due to the unique characteristics of services. These problems and the marketing strategies for overcoming them are summarised in the following.
Service CharacteristicsImplicationsMeans of Overcoming Characteristics
IntangibilitySampling difficult. Difficult to judge quality and value in advance. Not possible to patent or have a copyright. Relatively difficult to promoteFocus on benefits. Use brand names. Use personalities to personalize service. Develop reputation. Increase tangibility (e.g., its physical representation
InseparabilityRequires presence of performer/ producer. Direct sale. The limited scale of operations. Geographically limited market.Learn to work in larger groups. Work faster. Train more service performers.
HeterogeneityDifficult of standardizing quality.Careful selection and training of personnel. Define behavior norms. Reduce the role of the human element. Mechanise and automate the maximum possible operation.
PerishabilityCannot be stored. The problem of demand fluctuation.Better match between supply and demand by price reductions in low-demand season.
OwnershipA customer has access to but not ownership of the facility or activity.Stress advantages of non-ownership such as easier payment scheme.
Implications of Service Characteristics and Ways of Overcoming Tham

Types of Services

Services may be classified into the following broad categories:

1. Commercial Services: These include services provided by traders (wholesalers, retailers, agents, etc.) transporters (roadways, railways, airways, shipping) communications, insurance, banking, financial institutions, warehouses, advertising agencies, etc.

2. Professional Services: These include the services of chartered accountants, lawyers, engineers, consultants, architects, doctors, and other professional experts.

3. Personal Services: These comprise tailoring, beauty parlors, laundry, cinema houses, amusement parks, guest houses, etc.

4. Public Utility Services: These refer to the services provided by posts and Telegraph Departments, Police, Fire Service, Water supply, electric supply, sanitation, courts, universities, etc. 

Problems of the Manufacturing Sector

Manufacturing means making something by hand or by using mechanical devices to create something useful. Manufacturing usually takes place in factories, plants, mills, or other places designed for the purpose and involves the division of work into specialized jobs performed in sequence by workers. The manufacturing sector or secondary sector of the economy is engaged in converting primary or semi-finished products into finished goods. It obtains raw materials from extractive and genetic industries. The oil industry is a Manufacturing industry that converts the crude oil extracted from the earth into a variety of petroleum products. The cotton textile industry makes use of cotton that is produced by the extractive industry. The manufacturing sector in India has to face a number of problems, which are being discussed:

  1. Shortage of Raw Materials and Power: There is an acute shortage of basic raw materials required by the manufacturing sector. Sometimes small- scale units are not in a position to obtain raw materials of requisite quality at reasonable prices. For example, the handloom industry is facing a shortage of yarn. Some bogus units secure the quota of scarce materials and sell them at higher prices. Small businesses are also facing the problem of shortage of power due to which they are unable to make full utilization of the plant capacity. Most of them cannot install power generators to ensure uninterrupted operation.
  2. Use of Traditional Techniques and Lack of Latest Technical Know-how: Small units are using old techniques of production because they cannot afford new machines and the latest technology. Hence, the cost of production of small units is higher and the margin of profit is low.
  3. Lack of Adequate Finance: Finance is the lifeblood of all industries, The small-scale industries do not have sufficient funds of their own for fixed capital investment. Institutional lenders are generally reluctant to advance money to small industries since they are not in a position to offer the guarantee required by banks and financial institutions. Financial institutions ask for a lot of information and many of the small forms get fed up at this stage and give up the project. The shortage of funds makes it difficult for them to install modern machinery and tools to maintain well-organized and fully equipped factories.
  4. Marketing Problems: Problems faced by the small Sector in maintaining their products are briefly enumerated below:
    • Lack of standardization, poor design; poor quality, poor fund
    • Financial weakness
    • Competition, poor bargaining power
    • Lack of quality control, lack of knowledge of marketing
    • Lack of after-sales service
  5. Weak Organization and Management: Large firms are well organized and managed by exports. Generally, the smaller units are managed by their owners, who are not in a position to get the services of professionals. There is a lack of proper division of work and the benefits of specialization are not available.
  6. Lack of Trained Personnel: There is a dearth of small scale entrepreneurs who posses bath the motivation and competence to make a project viable and successful. Small units cannot recruit and select skilled managers and technical personnel as they look for better opportunities in the big business sector.
  7. Other Problems: (a) Shortage of skilled human resources, (b) cheap power( particularly in rural areas), (c) concentration of industries in some regions, (d) rigid labor laws.

The government of India should take appropriate steps to create an environment conducive to the rapid growth of the manufacturing sector in our country. India has been used for competence in manufacturing. But we have looked at manufacturing as a cost, not as a core capability. What is holding back India from capitalizing on its capability in manufacturing are:

  1. Low focus on quality
  2. Poor Infrastructure
  3. No funding in R&D
  4. Poor manufacturing systems and processes
  5. Poor Work culture
  6. Low human capital


  1. All economic activities may be grouped into primary (agriculture), secondary (manufacturing), and tertiary (service) sectors
  2. The relative significance of the service sector in terms of contribution to national income has increased rapidly in India.
  3. The service sector has expanded in India due to economic planning, urbanization, media, increase in income, women’s workforce, greater life expectancy, and growing complexity.
  4. There is a need to improve efficiency, competition, and quality in the service sector.
  5. Services are of several types–commercial, professional, personal, and public.
  6. Services are characterized by intangibility, inseparability, perishability, heterogeneity, and non-transfer of ownership.

What is an example of a service industry?

An example of a service industry is a consulting firm that provides professional advice and expertise to clients in a specific field, such as management consulting or financial consulting. Other examples of service industries include healthcare, hospitality, education, and transportation, among others. In a service industry, the primary focus is on providing intangible goods or services to customers, rather than physical products.

What is the service sector?

That is a very accurate description of the service sector! The service sector has become increasingly important in modern economies, accounting for a large percentage of employment and economic activity. This is in contrast to the primary sector (agriculture, forestry, mining) and the secondary sector (manufacturing and construction), which have declined in importance in many developed countries. In the service sector, businesses focus on meeting the needs and want of customers through the provision of services such as consulting, maintenance, repair, education, entertainment, and transportation. The sector is highly diverse and encompasses a wide range of skills and activities, from highly specialized professional services to more basic consumer services. As you noted, the service sector plays a crucial role in the economy, and understanding its importance and dynamics is essential for businesses and policymakers alike.

What service sector Business?

There are many types of businesses that operate in the service sector, offering a wide range of services to customers. Some common examples include consulting firms, law firms, accounting firms, marketing agencies, financial institutions, healthcare providers, educational institutions, transportation companies, and personal care services. Each of these businesses provides different types of services to meet the needs and wants of their customers and may specialize in a particular area of expertise or serve a particular demographic or industry.

Service sector jobs examples.

Service sector jobs are jobs where people provide services to other people or businesses. Some examples of service sector jobs are customer service representatives, sales representatives, IT support specialists, nurses, accountants, personal trainers, travel agents, hairstylists, lawyers, and restaurant servers.

Functions of the service industry.

The service industry performs various functions that are critical to the economy and society. Here are some of the main functions of the service industry:
Provision of services: The primary function of the service industry is to provide intangible goods and services to consumers, businesses, and other organizations. These services include healthcare, education, financial services, entertainment, transportation, and many others.
Employment generation: The service industry is a significant employer and a source of jobs for millions of people. It offers opportunities for people with different skills and backgrounds to find work and build careers.
Innovation and creativity: The service industry is a hub of innovation and creativity, where new services and business models are developed to meet changing consumer needs and preferences. This constant innovation helps to drive economic growth and improve living standards.
Contribution to GDP: The service industry contributes significantly to the Gross Domestic Product (GDP) of most countries, making it a crucial component of the economy.
Trade and commerce: The service industry plays a vital role in facilitating international trade and commerce. Services such as banking, insurance, and transportation are essential for businesses to operate globally.
Social welfare: The service industry provides critical services that contribute to the well-being of individuals and communities, such as healthcare, education, and social services.
Support to other industries: The service industry provides support to other sectors of the economy, such as manufacturing and agriculture, by offering services such as logistics, marketing, and distribution.
Overall, the service industry performs essential functions that are crucial to economic growth, social welfare, and quality of life.

The importance of the service sector.

The service sector is an essential part of the economy, and its importance has been growing in recent decades. Here are some reasons why the service sector is important:
Employment: The service sector is a significant employer, providing jobs for millions of people around the world. As traditional manufacturing and agriculture jobs decline, the service sector has become a vital source of employment for many workers.
Economic growth: The service sector is a key driver of economic growth, contributing significantly to the Gross Domestic Product (GDP) of most countries. The growth of service industries such as information technology, finance, and healthcare has been particularly strong in recent years.
Innovation: The service sector is a hub of innovation and creativity, driving the development of new services, business models, and technologies. Innovation in the service sector has led to new opportunities for businesses and consumers, creating new markets and driving economic growth.
Trade: The service sector is essential for facilitating international trade, particularly in areas such as finance, transportation, and logistics. This has contributed to the growth of globalization and the expansion of international trade.
Quality of life: The service sector provides critical services that contribute to the well-being of individuals and communities, such as healthcare, education, and social services. These services are essential for improving the quality of life of people and creating a more equitable society.
Diversification: The service sector provides opportunities for diversification and economic resilience. By expanding into service industries, countries can reduce their dependence on traditional sectors and build a more diversified economy.
In summary, the service sector is important for employment, economic growth, innovation, trade, quality of life, and diversification. Its growth and development will continue to be critical to the success of economies around the world.

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