India Industry Sectors

By: EW World Economy Team   Date: 24 June 2013

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The Indian economy is incredibly diverse – made up of traditional industries such as village farming, fishing, and handicrafts, as well as modern sectors such as telecommunications, transportation, and tourism.

Much of the economy though is built on informal businesses. The informal economy was recently estimated as comprising 60 percent of net domestic product, 68 percent of income, 60 percent of savings, 31 percent of agricultural exports and 41 percent of manufactured exports. Similarly, within the retail industry, 90 percent of the market is controlled by small-scale, family-run operations with big chains making up just 10 percent.

In the long run, the Indian economy will be driven by the service sector, private enterprises and domestic demand. A glance at India’s 500 most valuable companies, that together account for over 90 percent of the market capitalisation of the Bombay Stock Exchange, shows that about two-thirds of them are part of large family-owned conglomerates, or “business groups”. These conglomerates have the ability to expand India’s international presence, yet have seen an over-concentration of power – sparking cronyism, corruption, and easy money.

Meanwhile, unlike most developing countries, where economic growth has seen the economy shift from agriculture to industries before gradually expanding the service sector, in India, the economic shift has bypassed industries growth to immediately begin rapid expansion of the services sector instead.

India Industry Sectors

In 2012, the services sector accounted for 62.6 percent of India’s total GDP. The rapid growth of the services sector in India over the last two decades has been linked to the liberalisation and reforms of the 1990s.

In the first three decades (1950s to 1970s) after India’s independence in 1947, India was largely an agrarian economy – with a small services sector (29.8 percent of GDP in the 1950s) made up mainly of government monopolies. Although the service sector started to grow in the mid-1980s, it accelerated only in the 1990s when India initiated a series of economic reforms after the country faced a severe balance of payment crisis. Among the reforms in the services sector, as part of an overall reform process, was the removal of FDI restrictions and streamlining of approval procedures, leading to greater privatization.

Today, services is the fastest growing sector in India, contributing significantly to GDP, GDP growth, employment, trade and investment. Even during the global economic slowdown from 2008 to 2009, the services sector remained resilient to external shocks. In 2009-10, the services sector grew at 9.96 percent compared to 8.81 percent growth in industries and 1.57 percent in agriculture. India’s services trade also reached $240 billion in 2010, compared to just $6 billion in the 1980s.

From 2000-2010, transport, storage and communication services were the fastest growing services sub-sector, followed by financing and business services. IT enabled services, such as Business Process Outsourcing, have also grown rapidly in the recent years and will continue to rise.

Unfortunately, services sector employment in India is still low compared to its share in GDP. Just 28 percent of India’s labour force were employed in services in 2012. Within the organised services sector, the public sector dominates the employment in services, while the private sector has not been very successful in creating organised services sector employment.

The Indian government though hopes that growth in tourism and tourism-related services, such as hotels, will hold large potential for job creation, while India's large English-speaking skilled work force can make the nation a major exporter of software services and skilled manpower.

On the other hand, more than 53 percent of India's population still depend on agriculture for employment. However, agriculture contributes only 17 percent to India’s GDP.

According to Economist statistics, India is the world’s second largest agricultural producer behind China. In 2010, India’s agricultural output was $304 billion. India also ranked within the world's five largest producers for over 80 percent of agricultural produce items, including many cash crops such as coffee and cotton.

The country is the 6th largest producer of Meat (including Livestock and fisheries), the 2nd largest producer of fruits and vegetables, the largest producer and consumer of tea, and also the largest consumer of tea in the world (accounting for more than 15 percent of the global tea trade), the 2nd largest producer and consumer of rice and the largest producer of sugar.

However, poor infrastructure and unorganised retail cause India to experience some of the highest food losses in the world. Public investment in agriculture needs to be augmented, especially in rural infrastructure, irrigation and agricultural research and development – and better access to institutional credit for farmers should also be of high priority to the government to encourage growth in India's agricultural sector. According to the FAO, crop yields in India are still just 30-60 percent of the best sustainable crop yields achievable in the farms of developed as well as other developing countries.

Finally, the Industry sector makes up 18 percent of India’s GDP and employs 19 percent of the labour force. Among the major sub-industries include textiles (the largest industry in terms of employment), chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software and pharmaceuticals.

Read more about India's economy, including industry information, featured analysis and trade statistics below.

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