Sectoral Aspects of Indian Economy: Tertiary Sector, Role and Importance of Service Sector

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Tertiary Sector

Tertiary Sector: Tertiary sector is also called as Service Sector.

Tertiary sector Activities

Every economic activity which involves service comes under tertiary sector. The following services are provided -

  • Public Administration: Services provided by government to its citizens.

  • Financial Services: To provide finance to individuals and business groups. Financial services include Banking, Insurance and other financial services.

  • Transport Services: Both private organizations and government are providing transport services to people in the country. Ex: Road transporting, Railway transporting, Airway and waterway transporting.

  • Trade, Hotels and Restaurants

  • Real estate and Business services

  • Communication: Services related to communication such as telephone services, internet services etc.

  • Education: To impart skills in people of the nation.

Role and Importance of Service Sector

  • India now became a Service Sector Economy. More than 50% of GDP is contributed by service sector. At the time of Independence, it was just 15% (in 1950). Service sector of India has been expanding and growing very fast.

  • Service Enterprise are classified based on investment in equipment as per MSMED Act, 2006.

    • Micro Service Enterprise: Investment in equipment does not exceed 10L rupees.

    • Small Service Enterprise: Investment is more than 10 L and less than 2 cr.

    • Medium Service Enterprise: Investment is more than 2 cr. and less than 5 cr.

Contribution of Service Sector

  • Share in National Income: Service sector has the largest share of India’s GDP. It is around 54% in 2016. India is seventh-largest service sector by nominal GDP and third-largest service sector by PPP.

  • Contribution to Employment: Most of Indian youth population is trying to get employment in service sector. Also, the opportunities are many in service sector. This sector is providing employment to 27% of the work force. Also, this is providing more salary than any other sectors. They belong to various fields such as matriculates, graduates in arts, commerce, science, engineering, medicine and other professional and vocational streams. There is existence of large varieties of services which are provided round the year unlike seasonal employment in agriculture.

  • Attracting Funds from Foreign Countries: More foreign countries are showing interest to invest their funds in service sector to earn more profit. They include Banking, insurance, trade, transport, hotel services etc.

  • Contribution of Service Sector to Exports: Our business services which include – IT, consultancy, legal services, etc. have become world standard. India exporting many software services.

Tertiary Sector Includes Two Other Categories

  • Quaternary Sector – Which includes intellectual activities like R&D, Libraries, Education, IT, Consultancy etc.

  • Quinary Sector – which includes highest level of decision-making ex: Top executives etc.

Note: Classification of Manufacturing and Service Enterprises based on investment in equipment and machinery, as per MSMED Act, 2006, is no more valid. The government has given a new turnover-based classification of MSMES in Feb, 2018. As per MSMED Act, 2006 the classification for manufacturing and service enterprises is different. But Classification based on turnover is – same for both sectors.

Classification of MSME
Classification of MSME

Classification of MSME (Both Manufacturing and service Enterprises)

Classification based on annual turnover (in rupees)


Not exceeding 5 cr.


Between 5 cr. to 75 cr.


Between 75 cr. to 250 cr.

Linkage Among the Three Sectors

All the three sectors are interlinked. In fact, they complement and supplement each other.

Example: Education is a service (Service Sector Activity). In order to develop strong skilled people, we need advanced infrastructure. This infrastructure is possible because of Secondary sector activities (like construction of buildings, grounds, and other practical labs.). At the same time people need to be healthy. Great nutrition should be provided to students as per schedule. This is possible because of agriculture and allied sector activities (primary sector activity). Without any one of the activities we may not be able to generate skilled people. This clearly shows that All the three sectors are interlinked.

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