The Indian Scene
As is evident from Chart 2, since 1980 the growth of the services sector in India has outpaced aggregate GDP growth.This is quite marked from the mid-1980s onwards, and barring only two years, the growth rate has been higher in services than overall for every other year since 1984. As a consequence of this, the share of services in GDP has been constantly increasing over this period, as shown in Chart 3. However, it should be remembered that while 43 per cent (the ratio in 1996-97) is a high ratio, it is still relatively low by international standards, as expressed in Chart 1.
Chart 2 >> Chart 3 >>

Chart 4 shows the rate of growth of the various services sub-sectors over the 1990s. Not unexpectedly, financial services show the fastest rate of growth, followed rather closely by trade, hotels and restaurants. Community and personal services show the lowest rate of growth within the services sectors, in a pattern not unlike that of aggregate GDP growth.
Chart 4 >>

It is interesting to assess the share of services in the GDP of public and private sectors separately. Chart 5 describes this. Within the public sector, the share of services has been broadly stable at around 60 per cent. This reflects the basic division of government expenditure, which has changed very little as between goods and services over this period, as well as the pattern of public service provision which has also changed relatively little.
Chart 5 >>
 
However, in the private sector, the share of services has gone up, from around 29 per cent at the start of the 1980s, to as much as 35 per cent or more by the middle of the 1990s. Related to this, there has been a rise and then a fall in the share of services GDP which is accounted for by the public sector, as shown in Chart 6.
Chart 6 >>
 
It is frequently argued that the services sector has become more capital intensive, and that it has in fact done so at a faster rate than the other sectors in the economy. The latter proposition is not borne out by the data presented in Chart 7, which suggests that the share of capital stock in the economy which is accounted for by the services sectors has actually been falling continuously since 1980, albeit relatively gently. It has gone from nearly 50 per cent in 1980 to just under 45 per cent in 1996-97.
Chart 7 >>
 
In fact, it turns out that the capital-output ratio in the services sector has actually been falling over this period, contrary to the general perception. Chart 8 plots the movement of capital-output ratios in the services sectors, as well as in all other goods producing sectors taken together. In the early 1980s, the services sector tended to be much more capital intensive than other sectors, by a factor of around one and a half. However, over time the capital-output ratio in services has gradually declined - indeed quite substantially so - while that in the other sectors taken together has if anything increased slightly. In services, the capital-output ratio fell from 3.8 in 1980-81 to just 2.7 in 1996-97. Meanwhile, in the other sectors the average ratio increased from 2.2 to 2.5 over the same period. This has brought the two ratios closer together, to the point where there is hardly any difference between the two by 1996-97.
Chart 8 >>