Why in the News?
- India’s services sector is in the news after NITI Aayog released two comprehensive reports highlighting that the sector now contributes 55% to India’s GVA and nearly 30% to total employment.
What’s in Today’s Article?
- India’s Service Sector (Background, Statistics, etc.)
- NITI Aayog Report on Service Sector (Key Highlights, Policy Priorities, etc.)
India’s Service Sector: Driving Jobs and Growth in a Transforming Economy
- India’s service sector has emerged as the core pillar of its economic transformation, shaping the country’s journey from an agrarian economy to a knowledge and innovation-driven one.
- Encompassing a wide range of industries, including information technology, financial services, communications, education, healthcare, transport, tourism, and retail, the sector not only drives GDP but also represents India’s global competitiveness.
- The sector’s contribution to India’s Gross Value Added (GVA) has steadily risen over the years, while its employment potential has expanded across both traditional and modern sub-sectors.
- India is today the 7th largest exporter of services in the world, with a share of over 4% in global services exports.
Key Highlights and Insights from the NITI Aayog Reports
- Employment Growth and Rising Share in Workforce
- According to the latest twin reports released by NITI Aayog, “India’s Services Sector: Insights from Employment Trends and State-Level Dynamics” and “India’s Services Sector: Insights from GVA Trends and State-Level Dynamics”, between 2017-18 and 2023-24, India’s service sector added nearly 40 million new jobs, raising its employment share from 26.9% in 2011-12 to 29.7% in 2023–24.
- This means almost one in three Indian workers is now engaged in the services economy.
- The report also notes an improvement in employment elasticity, which rose from 0.35 pre-pandemic to 0.63 post-pandemic, indicating that job creation is increasingly responding to output growth.
- The sector’s ability to absorb labour displaced from agriculture and low-productivity industry makes it a crucial driver of inclusive growth.
- Contribution to GDP and Economic Stability
- The services sector’s contribution to India’s Gross Value Added (GVA) increased from 49% in 2011-12 to 55% in 2023-24, outpacing the secondary and primary sectors.
- It also recorded a Compound Annual Growth Rate (CAGR) of about 7%, showing consistent resilience even during economic downturns.
- Sub-sectors such as Information Technology (IT), financial and professional services, communication, and logistics have been the key growth engines.
- For instance, Computer and Information Services GVA increased nearly fourfold, from Rs. 2.4 trillion in 2011–12 to 10.8 trillion in 2023–24, highlighting India’s digital dominance and the rapid expansion of knowledge-based services.
- Traditional vs Modern Services
- While traditional services such as trade, repair, and transport continue to employ a large section of the population, modern services like IT, finance, R&D, and consulting have seen faster growth and higher productivity levels.
- The Professional, Scientific, and Business Services segment alone contributes about 20% of total services output, underlining the importance of high-skilled and innovation-driven activities.
- Conversely, postal, courier, and insurance services remain underperforming and require modernisation and digital transformation.
- Regional Trends and State-Level Dynamics
- The NITI Aayog’s state-level analysis reveals significant disparities in the development and composition of the services sector across India.
- Leaders: Karnataka, Maharashtra, Telangana, Tamil Nadu, Delhi, and Kerala dominate the modern service economy, driven by IT, finance, and professional consulting. Together, they account for 40% of total services output.
- Lagging States: Bihar, Uttar Pradesh, Jharkhand, and Odisha remain concentrated in low-value traditional services, with limited participation in high-value segments.
- Emerging Catch-Up: Encouragingly, lower-income states are showing “beta convergence”, meaning they are growing faster in services GVA, narrowing the regional gap over time.
- NITI Aayog recommends a “Build–Embed–Scale” framework to strengthen state-specific service ecosystems:
- Build - Invest in physical and digital infrastructure.
- Embed - Link services with industrial and skill ecosystems.
- Scale - Promote innovation and decentralised service delivery.
- Linkages with Income, Exports, and Digitalisation
- The correlation between a state’s service sector strength and its per capita income is strong; states with higher service contributions, like Karnataka and Telangana, record higher incomes.
- At the macro level, India’s services sector has become the largest recipient of FDI and a key contributor to foreign exchange earnings.
- India’s digitally deliverable services exports, such as software and IT-enabled services, have surged, supported by Global Capability Centres (GCCs) that employ over 1.6 million professionals.
- The report also highlights the growing importance of Digital Public Infrastructure (DPI), including UPI, DigiLocker, and e-governance systems, in enabling service delivery and financial inclusion across Tier-2 and Tier-3 cities.
Policy Priorities for the Road Ahead
- NITI Aayog stresses that service-led growth must be inclusive, sustainable, and regionally balanced.
- Key policy priorities include:
- Expanding digital and physical infrastructure across smaller cities.
- Establishing skill hubs for emerging areas such as fintech, AI, and healthcare.
- Promoting MSME integration into service supply chains.
- Strengthening data and institutional capacity for evidence-based policymaking.
- Encouraging green and sustainable services to align with India’s climate goals.
