NITI Aayog Releases Reports on India’s Services Sector

India's Services Sector: Robust Contribution Amid Structural Flaws

On October 30, 2025, NITI Aayog released two comprehensive reports highlighting trends in India’s services sector, a domain contributing an estimated 55% of the country's Gross Value Added (GVA). However, the irony is stark: while services drive India’s economic engine, they employ only about one-third of the workforce. This disconnect between output and employment leaves crucial questions unanswered about inclusivity, regional balance, and long-term structural viability.

Institutional Architecture Governing Services Sector Policy

The services sector in India operates at the intersection of multiple ministries and schemes. The Ministry of Commerce and Industry oversees services exports, particularly IT-BPM through organizations such as Software Technology Parks of India (STPI). Urban services and tertiary infrastructure fall under the purview of the Ministry of Housing and Urban Affairs, while informal sector workers—accounting for a majority in service-related employment—come under schemes like the Unorganized Workers’ Social Security Act, 2008. Funding, however, remains patchy. Despite substantial GVA contributions, services lack a dedicated cross-ministry fiscal framework akin to agriculture or manufacturing.

Moreover, the reports mention the importance of strengthening Tier-2 and Tier-3 city service hubs, yet this ambition lacks fiscal reinforcement. The absence of earmarked investments for logistical and digital infrastructure in these regions compromises the promise of spatially inclusive growth. To compound the institutional challenge, India still lacks a national skill policy targeting emerging service subsectors like clean technologies or artificial intelligence-based analytics.

The Disconnect Between Output and Employment: A Persistent Problem

The sector added an estimated 40 million jobs between 2017–18 and 2023–24 but still falls short in its employment elasticity (0.63) when compared to manufacturing and construction. Even within high-growth subsectors—IT-BPM, finance, real estate—the jobs created are largely urban-centric and often miss marginalized demographics. Rural services remain mired in informality, low productivity, and low wages—a point corroborated by the gender disparity figures in rural regions, where women earn less than half of men’s wages.

These structural tensions mirror global trends in service-driven economies but are more acute in India due to regional imbalances. Southern and western states—such as Karnataka, Maharashtra, and Tamil Nadu—account for over 60% of India’s total services GVA, leading to spatial inequities that exacerbate north-south divergence. Delhi and Karnataka boast the highest per-capita services GVA, reflecting concentrated diversification that leaves hinterland states disengaged from the high-value services output.

The stark decline in female participation from 25.2% in 2017–18 to 20.1% in 2023–24 further underscores systemic cracks. Worse, wage disparities persist even in urban services: while women earn 84% of men’s wages in sectors like ICT and healthcare, they lack equitable representation at leadership levels. Such skewed dynamics inhibit the sector’s promise of inclusive growth.

The International Lens: A Contrast with Ireland's Services Model

India’s aspiration to position itself as a global services hub often invites comparisons with Ireland—a country that pivoted its services-heavy economy around high-value IT exports and financial services. Ireland’s model differs sharply in two respects: first, its strategic focus on upskilling through the National Skills Strategy 2025, which aligns workforce capabilities with emerging service trends. Second, Ireland’s targeted fiscal incentives for regional development ensured that services hubs are not monopolized by major cities like Dublin. Contrasted with India, where Tier-2 cities suffer inadequate urban infrastructure, Ireland offers an instructive case for balancing regional development without sacrificing international competitiveness.

Structural Flaws and Institutional Gaps

The sector’s reliance on informal employment raises significant concerns about its contribution to long-term economic stability. Though the reports suggest measures like extending social protections to gig workers and MSMEs, the absence of operational clarity renders these goals aspirational at best. Furthermore, infrastructure deficits—particularly in logistics and digital access—disproportionately disadvantage smaller cities and emerging economies within India, undermining the concept of inclusive regional hubs.

Similarly, the optimism around skilling initiatives remains tempered by real-world outcomes. While the reports advocate gender-sensitive skilling programs for rural areas, previous government schemes like Skill India have struggled with implementation scalability and certification validity. Women and rural youth, touted as core beneficiaries, face persistent barriers ranging from lack of childcare support to digital illiteracy.

On policy coordination, the tension between state-level execution and central prioritization is evident. High-value service sectors predominantly thrive in states with robust governance and infrastructure, such as Karnataka and Maharashtra. Conversely, policy efforts to uplift lagging regions—e.g., Bihar and Uttar Pradesh—face entrenched governance bottlenecks. This centre-state friction risks perpetuating uneven prosperity across geographies.

Looking Ahead: Metrics for Success

What would success for the services sector look like? At the minimum, spatial equity needs measurable progress—state-specific GVA baselines must show convergence by 2030, and employment elasticity must exceed 0.8, moving closer to manufacturing benchmarks. Sector formalization could evolve through a central-level framework for gig and informal workers, ideally under an expanded National Labour Code.

It is also crucial to track female participation and wage parity as metrics of inclusivity. Schemes targeting leadership representation for women—particularly in ICT and healthcare—would help alleviate gender inequities. Digital infrastructure expansion in rural areas must go hand-in-hand with sustainable service-oriented skilling programs focused on sectors like green technologies.

UPSC Integration

• Prelims MCQ 1: Which state leads India in per-capita services GVA? A) Maharashtra B) Karnataka C) Gujarat D) Telangana Answer: B) Karnataka
• Prelims MCQ 2: What is the employment elasticity of India's services sector as per NITI Aayog’s reports? A) 0.75 B) 0.63 C) 0.55 D) 0.80 Answer: B) 0.63

Mains Question: Assess the structural limitations of India’s services sector in achieving inclusive and regionally balanced growth. How far can targeted investments in Tier-2 and Tier-3 cities address these challenges?

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