Unlocking Growth in India’s Services Economy: Trends, Challenges, and Reforms

India’s economic rise has followed a distinct path led by services, diverging from the traditional agriculture-industry-services model seen in other developing nations. By 2024-25, the services sector accounted for nearly 55% of India’s Gross Value Added (GVA), far ahead of the primary and secondary sectors. This structural shift reflects India’s growing reliance on services as both a source of employment and a driver of value creation.

The sector’s composition, however, remains diverse. It combines modern, high-value industries such as information technology (IT), finance, professional services, and real estate with traditional segments like trade, transport, and hospitality. The former have become engines of productivity and exports, while the latter continue to anchor household incomes and domestic consumption.

India’s Services-Led Growth Story

India’s global position in services trade has strengthened remarkably. Its share in global services exports rose from 1.9% in 2005 to 4.3% in 2023, making it the seventh-largest exporter in the world. Between 2000 and 2023, India’s services sector value added increased from USD 0.33 trillion to USD 1.6 trillion, an exceptional jump that placed it ahead of several high-income nations. IT, digital business services, and financial intermediation were the key growth drivers. If current trends persist, India’s services output could reach USD 15-16 trillion by 2047.

The sector’s performance also underscores its role as a stabilizing force for the economy. It expanded steadily from FY2012-13 to FY2019-20, showed resilience during the pandemic, and rebounded strongly with 9.18% growth in FY2021-22, staying at around 8.9% in FY2023-24. Key enablers of this resilience include digital delivery models, low capital intensity, and global integration of knowledge-based work.

Engines of Growth: Core Subsectors

Information Technology and Digital Services: The IT industry continues to be the most visible face of India’s services success. The GVA from Computer and Information Services increased nearly fourfold from Rs 2.4 trillion in 2011-12 to Rs 10.8 trillion in 2023-24, and its share in total services GVA rose from 6% to over 12%. This reflects a strong shift toward higher-value software, cloud computing, data analytics, and AI-enabled services.

Global players like Tata Consultancy Services Limited, Infosys Limited, and HCL Technologies Limited have capitalised on the surge in software exports and digital transformation demand. Their success has also strengthened India’s image as a trusted technology partner in global value chains, while newer firms in specialised verticals such as KPIT Technologies Limited and L&T Technology Services Limited continue to expand in engineering and R&D-driven fields.

Professional and Business Services: This broad grouping includes professional, scientific, legal, consulting, R&D, and real estate services. It contributes about 20% of total services output and grew from Rs 8.1 trillion in 2011-12 to Rs 17.7 trillion in 2023-24.

Companies like Infosys Limited and KPIT Technologies Limited (in consulting and engineering), Netweb Technologies India Limited (in enterprise computing), and L&T Technology Services Limited (in R&D and design) exemplify India’s expanding capabilities. These services complement broader industrial growth by offering advanced solutions and knowledge-based support.

Trade and Repair Services: Despite being a mature sector, trade and repair remain one of the largest contributors to services GVA, expanding from Rs 7.9 trillion to Rs 18 trillion between 2011-12 and 2023-24. It is highly employment-intensive and reflects the vibrancy of domestic consumption.

Retail companies such as Avenue Supermarts Limited, Vishal Mega Mart Limited, and V-Mart Retail Limited have benefited from the formalisation of retail networks and rising consumer demand in urban and semi-urban markets.

Education Services: The education sector has undergone rapid modernisation since the pandemic, with strong growth in blended and online learning models. GVA rose from Rs 2.7 trillion in 2011-12 to Rs 6.5 trillion in 2023-24. Ed-tech firms like NIIT Learning Systems Limited and PhysicsWallah Limited, along with content service providers such as MPS Limited, have leveraged digital platforms to expand access to affordable, quality education.

Emerging Growth Sectors

Healthcare and Wellness: India’s healthcare services have doubled their GVA to Rs 2.5 trillion, growing 11.7% in 2023-24, driven by public health schemes like Ayushman Bharat and digital initiatives under the Ayushman Bharat Digital Mission (ABDM).

Companies such as Apollo Hospitals Enterprise Limited, Max Healthcare Institute Limited, and Dr Lal PathLabs Limited have benefited from rising preventive care, diagnostics expansion, and digital health solutions. Despite notable progress, workforce shortages and regional healthcare disparities remain pressing challenges.

Telecommunications: The telecom sector, once constrained by regulatory and financial pressures, has regained momentum. Following reforms and major investments in 4G and 5G infrastructure, along with the BharatNet digital connectivity program, the sector now plays a crucial role as an enabler of India’s digital economy.

Key players like Bharti Airtel Limited, Reliance Industries Limited through Reliance Jio Infocomm, and Tata Communications Limited have driven this resurgence. Continued focus on affordable spectrum pricing, infrastructure sharing, and rural connectivity will be essential to sustain growth.

Travel, Tourism, and Hospitality: After one of the steepest contractions during the pandemic (-53.8% in FY2020-21), the travel and hospitality sector has recovered to near pre-pandemic levels. It currently contributes around 2.3% to services GVA and benefits from the revival in domestic tourism and cultural circuits.

Companies like Indian Hotels Company Limited, InterGlobe Aviation Limited, and Thomas Cook (India) Limited stand at the forefront of this recovery. Domestic travel, theme-based tourism hubs, and MSME-led hospitality networks are driving steady momentum.

Audio-Visual, Media, and Gaming: This relatively young segment, with a GVA share of just 0.7%, is one of the fastest-growing due to mass digital adoption, affordable data, and vernacular content demand. It encompasses OTT streaming, online gaming, and digital content production.

Companies such as Zee Entertainment Enterprises Limited, Sun TV Network Limited, PVR Limited, and Info Edge (India) Limited have thrived in this dynamic environment. Nevertheless, challenges such as fragmented regulation and weak monetisation models hinder full-scale expansion.

Regional Diversification and State Performance

Growth in India’s services sector is not uniform across regions. States like Karnataka, Maharashtra, Tamil Nadu, and Telangana are leading high-value service economies with strong IT, financial, and professional service bases. These four states together contributed about 40% of the total services GVA in 2023-24.

Between 2011-12 and 2023-24, Karnataka’s services sector contribution to its Gross State Value Added (GSVA) surged from 56.8% to 65.9%, largely due to Bengaluru’s dominance in technology. Telangana followed, with its service share rising from 52.8% to 62.4%, driven by Hyderabad’s thriving innovation ecosystem. Tamil Nadu’s services sector grew modestly, benefiting from a diversified base in finance, healthcare, and logistics. Meanwhile, Kerala’s service contribution increased from 57.5% to 64.3%, propelled by strong trade, tourism, and remittance inflows.

In contrast, Maharashtra’s service share increased from 51.1% to 59.5% between 2011-12 and 2023-24, fuelled by Mumbai’s financial leadership and Pune’s IT and startup base. Delhi continues to be a services outlier, with services contributing more than 85% of its GSVA. Meanwhile, states like Bihar, Madhya Pradesh, and Odisha remain reliant on low-value and informal service activities, underlining the need for decentralized development.

Reform Priorities for Sustained Growth

To sustain momentum and make services-led growth more inclusive, India needs a multi-layered reform approach spanning infrastructure, skills, and regional strategy.

• Strengthening Export Infrastructure: Expansion of 5G networks, cloud services, and edge data centres is essential for export-driven digital services like fintech, cybersecurity, legal tech, and EdTech. Establishing data exchange and cyber-trust infrastructure will also elevate India’s credibility as a global service hub.
• Building Innovation-Driven Clusters: India can build globally competitive clusters in health-tech, design, and climate services through targeted R&D zones, academia-industry partnerships, and digital manufacturing tie-ins.
• Decentralizing Growth Beyond Metros: Developing Tier-2 and Tier-3 cities with investments in logistics, digital connectivity, and skill hubs will distribute job creation more evenly. Cities like Coimbatore and Durgapur could emerge as specialized talent and analytics centres through focused AI and cloud-computing training programs.
• Leveraging Regional Strengths: States can align service priorities with local comparative advantages. Assam could anchor logistics and energy-linked services; Uttar Pradesh could promote digital religious tourism; Punjab and Haryana could strengthen agri-logistics, while Andhra Pradesh could scale port-based services. Rajasthan and Jharkhand could focus on creative MSME-linked industries such as craft design and heritage e-commerce.

Gujarat, with GIFT City and a strong financial ecosystem, can become a hub for global financial and energy-related services. In contrast, Madhya Pradesh, Chhattisgarh, and Odisha could build wellness, logistics, and climate-focused services around their resource base.

• Enabling Skill Renewal and Worker Protection: Future-ready skilling must align with the expansion of technology-based services and platform economies. Policies that recognize gig work, ensure social protection, and link skilling with regional job clusters can unlock inclusive service growth.
• Integrating Services and Manufacturing: Incorporating IT-enabled logistics, design, R&D, and finance into manufacturing clusters like Coimbatore, Hosur, and Tiruppur can enhance productivity linkages across sectors, creating multiplier effects throughout the economy.

Policy and Investment Outlook

India’s next phase of service-sector growth will depend on how effectively states and policymakers bridge structural gaps in digital infrastructure, human capital, and institutional capacity. As global demand for knowledge-intensive and technology-driven services expands, India’s comparative advantage remains intact, but must evolve from cost competitiveness to innovation-based differentiation.

Investors can expect opportunities in high-growth, underpenetrated domains such as healthcare delivery, educational technology, financial platforms, and climate-driven data services. With proactive reforms and regional cluster development, even lagging states can become dynamic contributors to India’s service economy.

Conclusion

As of 2023-24, the services sector contributes 54.5% of India’s GVA, growing at a CAGR of around 7% over the past decade. It remains the key driver of exports, employment, and urban expansion. The next decade will be defined by how the country broadens this growth to every region and ensures that digital, financial, and professional services create value across all income and skill levels.

With targeted investments in infrastructure, skill development, and inclusive policy frameworks, India’s services sector can continue to propel the nation toward its Viksit Bharat 2047 vision, anchored in innovation, equity, and resilience.

Written By Adhvaitha Nayani BA

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