The World economy is dominated by service sector. The importance of services sector can be judged by the fact that 64.2% of world GDP in 2009 is contributed by services. The contribution of the services sector in India is 55.2% to its GDP providing employment for 25.4% of the India’s work force. India is the 12th place in the world based on the contribution of services to their respective economies. United States top the table followed by Japan and China in the list of service sector contribution to their Economies and thereby to the world Service GDP. Though China is ranked third, the share of services to its national GDP is just 39.2%. The China’s GDP is three times more than India and hence service sector share despite being 39.2% is far ahead of India in absolute terms. China (10.5%) followed by India (8.9%) are fastest growing economies in the world. When the world was reeling under recession, all the top twelve economies of the world registered negative growth in services, but China(9.4%), India(6.8%) and Brazil(2.6%) registered positive growth in Services.Prior to the Uruguay Round, Services were considered to offer less potential for trade expansion than goods due to the existence of technical, institutional and regulatory barriers. But the development of new transmission technologies facilitating the supply of services and gradual liberalization of hitherto regulated sectors like transport, banking and insurance combined with changes in consumer preferences, enhanced the “tradability" of services. These developments increased international services flows and created a similar need for multilateral disciplines as in the area of goods. The Indian economy, since 1991, has opened her door in a systematic way to LPG forces. It has its impact on all the sectors, FDI flows have increased enormously to India.FDI involves the transfer of financial capital, technology and other skills to the host country. FDI contributes to capital, technology, Entrepreneurship, Managerial, Professional and technical Expertise (Brewer1989) the host economy benefits from the additional economy activity, creating employment and tax revenue. Entry by foreign firms can also increase competition in domestic markets, reduce monopoly profits, and stimulate quality upgrades of products and services by all firms in the sector. FDI also stimulates economic growth, and has a larger impact than domestic investment. India should utilize the opportunity, the liberalization has provided, in attracting the FDI in services sector to the optimum and regulate it towards growth
