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Service Sector of GDP

By: Punam Sharma

  • Service sector is broadly divided into construction, trade, hotels, transport & communication, finance, insurance, real estate, community and social & personal services.
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Sectoral Contribution to total Service Sector

 

  • Since 1951, trade, hotel, transportation & communication sector has always had the highest share in service sector.
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  • Over the years, share of finance, insurance, real estate & business service has been increasing from 24% in FY1951 to around 31% in FY2014.
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  • However, community social & personal services share has fallen from 29% in FY1951 to 19% in FY2014 while construction share in service sector has hovered around 11% to 15%.
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  • Service sector over the years has been the major contributor to overall GDP growth surpassing agriculture share.
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  • Over the years, share of service sector to total GDP has increased sharply from 35% in FY1951 to 67% in FY2014.
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Service Sector contributation to total GDP

 

  • Service sector has always recorded positive growth. Since FY1952 till FY2014, sector average growth rate is around 6%.
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Gross Capital Formation (GCF) in Service Sector
 

  • GCF in service sector as % to total GCF over the years has always been the highest ranging from 49% to 70%.
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  • Service sector GCF share to total GCF was 58% for FY2013.
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Gross Capital Formation (GCF) in Service Sector

 
”% to total GCF

 

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Consumer Price Index (CPI)

By: Punam Sharma

  • Consumer level price changes of goods and services are measured by CPI.
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  • Earlier India did not have a single CPI but there were four CPI namely CPI-Industrial workers, CPI- Rural Labourer, CPI-Agricultural Labourer and CPI-Urban Non-Manual Employees.
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  • However CPI-Urban Non-Manual Employees has been discontinued and a new index was launched.
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  • New CPI index (base 2010) was launched in January 2011 which measures changes in prices of goods and services consumed by rural and urban population.
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  • In the new CPI, food which has been major contributor to inflation has been given higher weightage.
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  • However, the most important factor is that new CPI captures price changes in service sector (contributing 60% of GDP) which is not captured in the whole sale price index (WPI).
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  • After the Urjit Patel Committee report, RBI monitors inflation at CPI level more closely.
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  • Charts below shows broad breakup of the index and CPI-inflation trend over the years.
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Percentage of CPI

 
Inflation Trend

 

  • We can observe from the above chart that food having highest weightage of around 49% has been the major contributor for the high inflation.
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  • Food inflation has increased from around 4% in January 2012 to 9.14% in July 2014. Food inflation had gone as high as 14.45% in November 2013.
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  • Over the years, clothing, bedding and footwear inflation has decreased from around 22% in January 2012 to 8.73% in July 2014.
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  • Miscellaneous inflation which mostly includes composition of service sector has hovered around 6 to 9% over the years.
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Difference between component weightings in CPI-Rural and CPI-Urban
 
Difference between component weightings in CPI-Rural and CPI-Urban

 

  • From the above chart, we can observe that CPI-rural level has higher component weightings with food having share of around 59%.
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  • Most important difference is that housing inflation is not included in CPI-rural and only captured at CPI-urban level.
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  • Indian economy is broadly divided into 3 sectors which contribute to the gross domestic product of (GDP)1 of the country namely agriculture and allied activities, industry and services.
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  • Agriculture and allied activities include agricultural products, livestock, forestry & logging, fishery.
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  • Share of agriculture and allied activities sector to total GDP was 13.94% in FY2014.
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  • Over the years, there has been a continuous decline in the share of agriculture and allied activities sector to total GDP from around 52% in FY1951 to around 14% in FY2014.
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  • The falling share of agriculture and allied sectors in GDP can be attributed to the expected outcome of a fast growing and structurally changing economy.
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Agriculture & Allied activities Sector Contribution to total GDP

 

  • Agriculture and allied activities sector grew by 4.7% in FY2014 compared to a 1.4% growth in FY2013.
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  • Post the negative growth in FY2003, agriculture and allied activities sector has shown positive average growth of around 4.09% (FY2004 to FY2014).
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Trend of Agriculture & Allied activities-GDP & Growth

 

  • Gross capital formation (GCF) in agriculture and allied Sectors as % to GDP in this sector has been showing a steady increasing trend from 13.5% in FY2005 to 21.2% in FY2013.
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  • Agriculture and allied activities sector GCF share to total GCF was 7.7% for FY2014.
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Agritulture & Allied activities sector Gross Capital Formation

 

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