Services Sector Defined


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

The term services sector refers to, at the most aggregate level, a large group of activities that include trade, hospitality (hotels, restaurants), transportation, communication, entertainment, health, education, public services and so on. It can be argued that, even at the aggregate level, the services sector is more heterogeneous than the other two sectors, agriculture (primary sector) and industry (secondary sector). Thus if the primary sector involves producing goods directly from natural resources (agriculture, fishing, hunting, mining and so on) and secondary sector involves modifying material goods into other more useful products and commodities, then the tertiary sector or the services sector includes all activities that do not produce or modify material goods (Illeris 2007).

In other words unlike the output of agriculture, mining or manufacturing which are material and tangible, the output of the services sector such as teaching, cleaning, selling, curing and entertaining have no physical form and therefore are immaterial or intangible (Noon 2003).
Given its nature and heterogeneity, there is a large body of literature where scholars have debated on the precise definition and identification of the services sector.
scholars have argued that even in the most advanced countries where the services sector accounts for the largest proportion of all economic activities, it is defined negatively or as a residual comprising all economic activities that do not belong either to the primary and secondary sector (Illeris 2007).
Scholars have also attempted to arrive at precise and positive definition of the services sector.   T. P. Hill wrote a set of influential papers on the concept and definition of the services sector as being distinct from goods (Hill 1977, Hill 1979). In an early review on what constitutes the production of goods and what would be services, Hill (1977) provides a positive definition of the services sector. In a detailed discussion of the concept, definition and measurement of the services sector, Hill makes a distinction between ‘services affecting goods’ and ‘services affecting persons’. And thus proposes a definition of the services sector “as a change in the condition of a person, or of a good belonging to some economic unit, which is brought about as the result of the activity of some other economic unit, with the prior agreement of the former person or economic unit”.   Despite its ‘vagueness’ in part, the positive definition by Hill was nevertheless influential and contributed to the UN System of National Accounts (1993).
The internationally accepted definition of what constitutes services is given by the UN SNA (1993). According to the SNA (1993), “Services are not separate entities over which ownership rights can be established. They cannot be traded separately from their production. Services are heterogeneous outputs produced to order and typically consist of changes in the conditions of the consuming units realized by the activities of producers at the demand of the consumers. By the time their production is completed they must have been provided to the consumers.” And “The production of services must be confined to activities that are capable of being carried out by one unit for the benefit of another. Otherwise, service industries could not develop and there could be no markets for services. It is also possible for a unit to produce a service for its own consumption provided that the type of activity is such that it could have been carried out by another unit.”

Friday, 18th Dec 2015, 04:54:52 AM

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