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2. Review of Literature

2.2 Services: Concepts and Definition

output and use of factor as input; urbanization; demographic transition and changes in in- come distribution in explaining the structural transformation. Rowthorn and Wells (1987) describe the patterns of structural change in terms of changes in pattern of employment in advanced economies. They notes that the employment in agriculture declines with the economic development of a country. In contrast, employment in most other services activ- ities such as health and education, modern welfare starts to expand with the development process. Structural change involves strengthening of economic linkage among different sectors within the economy through integrating domestic economy and improving the pro- ductivity in all major sectors in the economy United Nations (2006). Landesmann and Scazzieri (1996) describe an association between high growth rate of national income and production, changes in qualitative composition and characteristics in production of na- tional income.

and classified employment in services sector as unproductive (Eschenbach and Hoekman, 2006).

Hill (1977) classified services on the basis of their characteristics. The author defined services as those activities which brought about some changes of some persons or some goods and these changes are the results of the activity of some other economic units. Ac- cording to Hill (1977),

“A service may be defined 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 activity of some other economic unit, with the prior agreement of the former person or economic unit” (p. 318).

The author draws two basic distinctions among the services, services that affect person and services that affect goods. Services affecting person comprises economic activities that changes consumer’s mental and physical condition. The changes in the consumers’ mental and physical condition are brought at the request of the consumer as a direct consequence of some producer’s activity. Examples of such services are transportation, hairdressing, medical treatment, education etc. Here, services such as transportation, hairdressing brings about some physical change of the consumer, while education brings some mental changes to the consumer. He further adds that some of the services are temporary physical transfor- mation that can be easily reversible, e.g. transport; whereas medical surgery is permanent and irreversible kind of service in nature. Another characteristic of services is that the con- sumption and production of service must have to take place simultaneously. Hill further argues that services must be consumed simultaneously with their production; as such ser- vice cannot be detached from the producer in the way that goods can be done. Bhagwati (1984) categorises services sector on the basis of necessity and non-necessity of physical presence of consumer and producer, these are mobile provider and immobile user (con- struction worker), mobile user and immobile provider (hospital services, theatre services), and mobile user and mobile provider (lectures, haircuts etc.). Importantly, physical prox- imity between consumer and producer is not necessary in some of the services such as banking and insurance. The reason for this is the rapid technological progress in the pro- duction and consumption of these services. A distinction between different activities based on labour productivity has been put forward by W. J. Baumol. He pointed out that the basic source of differentiation among economic activities resides in the role played by labour in

those activities. Referring to Baumol (1967), Nayyar (2012) mentions that labour played an incidental requisite for the attainment of some manufacturing final product; whereas, labour is an important end in itself for a number of services. From an operational ap- proach Griliches (1992) states that services can be defined from the point of view of their non-tangible and non-commodity notion. The author mentions that everything except agri- culture, mining, construction and manufacturing can be defined as services. He includes activities like transportation, communication, public utilities, wholesale and retail trade, fi- nance, insurance and real estate (FIRE), repair, personal, business, health, legal, and other services and activities of the federal and local governments in services. Katouzian (1970) discusses the heterogeneous nature of services sector in consumption and production and classifies the services sector into three broad categories. The first category, named as new services includes education, consumption and modern clinical and medical service, enter- tainment services such as cinema, night club etc. The second category named as compli- mentary category, includes banking; finance; transport and wholesale; and retail trade. The third category termed as old services consist of those services which grew before indus- trialisation and whose importance and contribution has continuously declined over time.

Domestic service is an example of this category service. According to him, historically the demand for first category services is highly sensitive to the growth of per capita in- comes, and it is also an increasing function of the amount of per capita leisure time and state of scientific knowledge etc. The second category services are complementary to the process of industrialisation and expands in response to a rise in demand of industrial sec- tor. A relatively straightforward definition of services has been put forwarded by Chand (1983). The author opines that goods are visible and tangible objects, whereas services are invisible and hence intangible objects. However, Chand points out that classification of economic activities suffers from conceptual problems and there is no concord in the defini- tion for classification. Hirsch (1989) distinguishes services output according to user’s point of view. His classification includes, first, instant consumption which satisfies immediate consumption needs, e.g. transport entertainment, haircuts. The second group enhances the user’s consumption capacity by reducing cost-benefit ratio of per unit consumption, e.g. health, education, finance and insurance services. In the third group he includes those services that enhance user’s productive capacity by reducing the cost-benefit ratio per unit of output, e.g. maintenance, training and services included in the second group.

Ghani (2010) divides services into two broad categories, modern impersonal services and traditional personal services. Examples of modern impersonal services are such as com- munication, banking, insurance and business related services. The traditional personal services include trade, hotel, restaurant, beauty shops, barber, education and health. At the international level the standardised industrial classification was brought by International Labour organization in the year 1923 and economic activities were classified under fol- lowing three broad categories, primary production, which includes agriculture and mining;

secondary production, comprising manufacturing and construction, and services, compris- ing transport; commerce; administration etc. (Central Statistical Organization, 2008). The Statistical Commission of United Nations recommended an International Standard Indus- trial Classification (ISIC) of all economic activities. The ISIC is based on internationally agreed concepts, definition, principles and consistent classification rules. The economic activities under ISIC are divided into a four level structure, named as sections and these are alphabetically coded. The sections are subdivided into broad groups such as agricul- ture, forestry and fishing; manufacturing; and information and communication. Further classification of these sectors becomes more detailed successively and these are numer- ically coded as two digit; three digit; and at the greatest disaggregated level a four digit class (United Nations, 2008). In the National Accounts Statistics of India, the services sec- tor includes, i) trade; ii) hotel and restaurants; iii) railways; iv) other transport including tourist assistance activities as well as activities of travel agencies and tour operators; v) storage; vi) communication; vii) banking and insurance; viii) real estate and ownership of dwellings; ix) business service including accounting, software development, data process- ing services, business and management consultancy, architectural, engineering and other technical consultancy, and advertising and other business services; x) public administra- tion and defence; xi) other services including education medical and health, religious and other community services, legal services, recreation and entertainment services; and, xii) personal services and activities (Sharma et al., 2007).