The Backbone of Aspiration

INDIA’S SERVICES SECTOR, hailed as the ‘Old War Horse’ in Economic Survey 2024-25, carries a legacy of strength and resilience. As the most dynamic and domi­nant engine of the economy, it has long been central to India’s economic transformation, consistently driving growth, generating employment, and attracting investment over decades. Emerging as a predominantly agrarian economy at the time of Independence, with minimal industrial and services activity, India experienced a turning point with economic liber­alisation in the 1990s, spurring rapid expansion in key service in­dustries like information technology (IT), telecommunications, finance, and professional services. Since then, the services sector has emerged as a cornerstone of India’s economic development, significantly contributing to domestic output and global trade.

In 2023-24, the services sector continued to be the driving force of the economy, contributing 54.4 per cent to India’s GDP. This substantial share not only highlights the sector’s dominance but also underscores its pivotal role in shaping India’s growth trajectory. Over the period of 2014-15 to 2023-24, the services sector recorded an impressive average annual growth rate of 6.3 per cent, showcasing steady and sustained expansion. In fiscal 2023-24 alone, the sector witnessed a robust growth of 9 per cent, reflecting strong per­formance in key sub-sectors like IT, telecommunications, finance, real estate, transport, and profes­sional services. This remarkable surge also illustrates the sector’s resilience and adaptability, par­ticularly in the post-pandemic recovery phase and amid global economic uncertainties. The sec­tor not only leads in output but is also a major source of employ­ment, accounting for 29.7 per cent of the workforce in 2023-24, according to the Periodic Labour Force Survey (PLFS).

In comparison, the agriculture sector, while still vital to rural livelihoods and food security, contributed a relatively smaller 17.8 per cent to India’s GDP in 2023-24. The sector maintained a moderate average annual growth rate of 4.4 per cent between 2014-15 and 2023-24. However, its performance has been more volatile, influenced by monsoons, input costs, and policy chang­es. For instance, it expanded by a healthy 6.3 per cent in 2022-23, but this momentum slowed significantly to just 2.7 per cent in 2023-24. This sector is affected by erratic rainfall patterns, rising input costs, and structural constraints like limited irrigation and fragmented land holdings. Despite challenges, agriculture continues to play a critical socio-economic role, especially as it provides employment to 46.1 per cent of the workforce in 2023-24, according to PLFS.

The industrial sector contributed 27.8 per cent to GDP in 2023-24, making it the second-largest contributor after services. Between 2014-15 and 2023-24, the sector achieved an average annual growth rate of 5.7 per cent, reflecting a moderate but steady expansion in manu­facturing, mining, electricity, utilities, and construction. The sector has shown signs of recov­ery following the disruptions caused by the pandemic, with growing emphasis on Make in India, production-linked incentive (PLI) schemes, and investment in infrastructure. However, challenges like global supply chain disruptions, high energy costs, and labour mar­ket inefficiencies continue to impact its pace of growth. The sector employed 24.2 per cent of the workforce in 2023-24 ac­cording to PLFS data.

Over the last four decades, employment in India’s services sector has grown steadily, reflecting the country’s broader eco­nomic transformation. According to the Reserve Bank of India’s (RBI) KLEMS data, the share of total employment in the services sector had risen from around 15 per cent in 1981-82 to over 30 per cent by 2022-23. Business services saw a dramatic rise from just over 1 per cent to more than 9 per cent, reflecting increased demand for professional and technical roles. Trade consistently dominates, maintaining a share above 33 per cent. Financial ser­vices also grew steadily, rising from 1.8 per cent to over 3.3 per cent. Conversely, public administration dropped significantly, from 16.2 per cent to just 4.6 per cent, indicating shrinking gov­ernment employment. The education and health sectors show modest but stable growth. Overall, the data highlights a gradual transformation towards private and skill-based services over four decades. The trend highlights a clear shift in India’s employment landscape towards a more service-oriented economy, emphasis­ing the need for continued investment in skills development and services infrastructure.

The value added by India’s services sector has also seen a sig­nificant upward trend over the last four decades, based on the RBI KLEMS dataset. From 1981-82 to 2021-22, the services’ contribu­tion to total value added has grown tremendously, increasing from over 30 per cent to over 50 per cent. Business services grew sharply from 2.6 per cent in 1980-81 to 18.6 per cent in 2022-23, in­dicating the sector’s rising significance. Trade consistently main­tained a high share, around 19 per cent throughout. Education, health, and financial services also show steady growth, reflecting increased investment in and importance of social infrastructure. Conversely, the other services category had the highest share in 1980-81 (36.96 per cent) but declined significantly to 14.86 per cent by 2022-23. Overall, the composition of value added has shifted, with newer services gaining prominence over time.

The Indian services sector has significant strategic impor­tance, not only within the domestic economy but also through its growing contribution to external trade. Between 2015-16 and 2023-24, India’s services exports grew at an impressive average annual rate of 10.4 per cent, rising from $154.3 billion in 2015-16 to $341.1 billion in 2023-24. This robust growth reflects India’s increasing global competitiveness in key service areas such as IT, business consulting, and financial services. In contrast, services imports during 2023-24 stood at $178.3 billion, resulting in a size­able net surplus in the services trade.

India’s merchandise trade, meanwhile, continued to run a deficit, recording a $241.14 billion gap in the current account for 2023-24. However, the strong export performance of the services sector helped offset this shortfall. As a result, the combined trade deficit, taking into account both merchandise and services, was significantly reduced to $78.36 billion. This highlights the crucial balancing role that the services sector plays in stabilising India’s overall trade position.

India’s services sector delivered a strong export performance in 2023, with a wide array of sub-sectors contributing significantly to total service exports. Lead­ing the charge were telecom­munications, computer and information services, which accounted for 48.4 per cent of total exports, highlight­ing India’s global leadership in IT, software development, and digital services. This was followed by other business services (OBS) at 26.2 per cent, reflecting the rising global de­mand for India’s professional, technical, and consulting ex­pertise. The travel and trans­port sectors also made notable contributions, at 9.6 per cent and 8.7 per cent respectively, indicating robust growth in tourism and logistics. Finan­cial services (2.5 per cent) and personal, cultural, and recreational services (1.3 per cent) further demonstrate the sector’s diversity and global relevance.

India’s growing dominance in global services exports is clearly reflected in its expanding share of the international market. According to the United Nations Conference on Trade and Development (UNCTAD), India’s share in global services exports has risen significantly—from just 1.9 per cent in 2005 to 4.3 per cent in 2023. Services exports now account for 9.4 per cent of India’s GDP, underscoring their integral role in the national economy. Notably, India ranks as the second-largest global exporter in the telecommunications, computer, and in­formation services category, commanding a 10.2 per cent share of global exports in 2023. In the OBS segment, which includes professional, technical, and consulting services, India holds a 7.2 per cent share, ranking third globally. These figures not only emphasise the sector’s depth and diversity but also reaf­firm India’s growing prominence as a global hub for high-value, knowledge-intensive services.

WHILE INDIA’S SERVICES sector has seen remark­able growth and diversification over the last few de­cades, it is not without its challenges—especially in the face of a rapidly changing global landscape. One significant area that remains underutilised is tourism. Despite India’s rich cultural heritage, diverse geography, and historical sites, the sec­tor has yet to reach its full potential due to issues like inadequate infrastructure, limited international marketing, and bureaucratic hurdles. In 2023, India recorded 18.9 million international tourist arrivals, which is just 1.4 per cent of the global tourist arrival of ap­proximately 1,300 million. By enhancing connectivity, simplify­ing visa processes, improving cleanliness and safety, and investing in quality tourist facilities, India can transform tourism into a robust driver of both employ­ment and foreign exchange earnings.

Another pressing chal­lenge is the impact of emerg­ing technologies, particular­ly artificial intelligence (AI), on the structure of service jobs. As AI continues to auto­mate routine and repetitive tasks, sectors like call centres and business process out­sourcing (BPO), once major employment engines, are at risk of shrinking. This evo­lution demands a proactive shift in strategy. India must prioritise reskilling and up­skilling of its workforce to prepare for a future where success will hinge on advanced digital capabilities. Areas such as cyber security, data science, cloud computing, blockchain, and AI development offer high-growth opportunities that re­quire more specialised and innovative skill sets. If India is to maintain its global leadership in IT and digital services exports, it must invest heavily in education, continuous learning, and research to stay ahead in a technology-driven world. Govern­ment initiatives like the IndiaAI Mission, with an allocation of ₹10,300 crore over the next five years, aim to strengthen the country’s AI capabilities and enhance its competitiveness on the global stage.

Furthermore, the services sector is uniquely positioned to address one of India’s most urgent challenges: creating jobs for its large and growing population. With more than 65 per cent of its population under 35, the demand for quality employment is immense. Services such as healthcare, education, logistics, fintech, and e-commerce are labour-intensive and can absorb a significant portion of the workforce if properly nurtured. The rise of digital platforms and gig-based employment models also presents new ways to generate income, particularly in semi-urban and rural areas.

The services sector is not merely an economic contributor; it is a strategic pillar in India’s aspiration to become a developed economy. Achieving the ambitious target of $1 trillion in services exports by 2030 will depend on the strength and resilience of this sector. By fostering innovation, investing in human capital, em­bracing digital transformation, and enhancing the ease of doing business, the services sector can drive inclusive and sustainable growth. In doing so, it will not only strengthen India’s position in the global economy but also ensure prosperity and opportunity for millions at home.

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