Service Sector as Growth Engine

#GS-3 #Economy #Growth #Employment #Infrastructure #Planning #Inclusive Growth

Why in News

A recent editorial in The Financial Express examines the growing importance of the services sector in India.
The sector plays a major role in influencing the overall GDP and employment numbers across the country.
Experts argue that India needs better tools and data to monitor service sector trends and guide economic policies effectively.

The services sector serves as the backbone of the Indian economy by generating 54% of India’s GDP.
The sector also contributes 56.4% of Gross Value Added (GVA) to the national economy.
Service sector output grew by 9.1% in FY26, showing a strong jump from the 7.2% growth recorded in FY25.
India has climbed to become the world’s 7th-largest exporter of services today.
India's share in global commercial services exports doubled from 2% in 2005 to 4.3% in 2024.
Services exports acted as a vital cushion against the trade deficit, hitting a record USD 387.5 billion in FY25.
India now hosts over 2,100 Global Capability Centres (GCCs), growing rapidly from 1,700 GCCs in 2025.
These Global Capability Centres (GCCs) generate nearly USD 100 billion in annual revenue and employ over 2.5 million professionals.
The Financial, Real Estate, and Professional Services segment grew remarkably by 10.4% in FY26.
The Gross Non-Property Asset (GNPA) ratio of Scheduled Commercial Banks dropped to a historic low of 2.15% by September 2025.
India's digital payments system UPI consistently processes over 18 billion transactions per month.
The FinTech market in India was valued at approx. USD 689 billion as of 2023 and is projected to reach USD 2.1 trillion by 2030.
India improved its ranking on the Global Innovation Index (2025) to 38th place, rising sharply from 66th place in 2019.
Service sector employment expanded to 29.7%, accounting for 188 million workers during the 2023-24 period.

The services sector suffers from a Paradox of Jobless Growth, where rising revenues do not translate into mass job creation.
Major IT firms like TCS, Infosys, Wipro, HCLTech, and Tech Mahindra saw reduced headcounts despite growing revenues.
TCS alone reduced its total workforce by more than 23,000 employees due to automation.
Entry-level job openings in the technology sector halved from 18,000 to 10,000 in early 2026.
The ASUSE 2025 survey reveals that 55.7% of service workers are self-employed own-account workers operating informally.
Almost two out of every five regular service workers lack basic social security benefits.
NITI Aayog’s 2025 findings show that four states, namely Karnataka, Maharashtra, Tamil Nadu, and Telangana, account for nearly 40% of total services output.
GVA per worker in the informal sector grew by only 4.5% in 2025, while wage growth slowed down to 3.9%.
India's service exports remain heavily dependent on demand from western economies like the US and EU markets.
Services exports are projected to touch USD 465-475 billion in FY26, making the economy vulnerable to global shocks.
The India Skills Report 2025 highlights that only 54.8% of graduates meet current industry standards.
The Economic Survey 2025-26 points out that gig workers make up 2% of the workforce and this share may rise to 6.7% by 2029-30.
Roughly 40% of gig workers earn less than ₹15,000 per month without formal social protection.

India must establish a Unified Emerging Services Regulatory Authority (UESRA) to streamline oversight across different digital sectors.
The government should replace outdated educational models with a public-private Cognitive Apprenticeship framework to improve job-readiness.
Policymakers must promote spatial decentralization by building digital-ready infrastructure in Tier-2 and Tier-3 cities.
Micro-enterprises in the informal sector should be integrated into digital platforms like the Open Network for Digital Commerce (ONDC).
India must diversify its export markets by targeting non-traditional regions across Latin America, Africa, and Southeast Asia.
The government needs to fully operationalize a centralized digital social security registry tied to the e-Shram portal under the Code on Social Security, 2020.