By Amit Kapoor and Ankita Nigham
India’s service sector, hailed as the ‘Old War Horse’ in the Economic Survey 2024–25, carries a legacy of strength and resilience. As the most dynamic and dominant engine of the Indian economy, it has long been central to its economic transformation, consistently driving growth, generating employment, and attracting investment across decades. Emerging as a predominantly agrarian economy during independence, with minimal industrial and service activity, India experienced a decisive turning point with economic liberalisation in the 1990s, spurring rapid expansion in key service industries such as information technology, 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 service sector continued to be the driving force of the Indian economy, contributing 54.4% to the country’s Gross Domestic Product (GDP). This substantial share not only highlights the sector’s dominance but also underscores its central role in shaping India’s growth trajectory. Over the period from 2014–15 to 2023–24, the service sector recorded an impressive average annual growth rate of 6.3%, showcasing steady and sustained expansion. In the fiscal year 2023–24 alone, the sector witnessed a robust growth of 9.0%, reflecting strong performance in key sub-sectors such as information technology, 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% 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% to India’s GDP in 2023–24. The sector maintained a moderate average annual growth rate of 4.4% 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% in 2022–23, but this momentum slowed significantly to just 2.7% in 2023–24. This sector is affected due to erratic rainfall patterns, rising input costs, and structural constraints such as 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% of the workforce in 2023-24 according to PLFS.
Source: EPWRF
The industrial sector contributed 27.8% 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%, 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 COVID-19 pandemic, with growing emphasis on Make in India, production-linked incentive (PLI) schemes, and investment in infrastructure. However, challenges such as global supply chain disruptions, high energy costs, and labour market inefficiencies continue to impact its pace of growth. The sector employees 24.2% of the workforce in 2023-24 according to PLFS data.
Source: RBI, KLEMS data
Over the past four decades, employment in India’s service sector has grown steadily, reflecting the country’s broader economic transformation. According to RBI’s KLEMS data, the share of total employment in service sector rose from around 15% in 1981–82 to over 30% by 2022–23. Business services saw a dramatic rise from just over 1.0% to more than 9.0%, reflecting increased demand for professional and technical roles. Trade consistently dominates, maintaining a share above 33%. Financial Services also grew steadily, rising from 1.8% to over 3.3%. Conversely, public administration dropped significantly, from 16.2% to just 4.6%, indicating shrinking government employment. Education and health sectors show modest but stable growth. Overall, the data highlights a gradual transformation toward private and skill-based service sectors over four decades. The trend highlights a clear shift in India’s employment landscape toward a more service-oriented economy, emphasizing the need for continued investment in skills development and service infrastructure.
Source: RBI, KLEMS data
The value added by India’s service sector has also seen a significant upward trend over the past four decades, based on the RBI KLEMS dataset. From 1981–82 to 2021–22, the service sector’s contribution to total value added has grown tremendously, increasing from over 30% to over 50%. Business Services grew sharply from 2.6% in 1980–81 to 18.6% in 2022–23, indicating the sector’s rising significance. Trade consistently maintained a high share, around 19% throughout. Education, Health, and Financial Services also show steady growth, reflecting increased investment and importance in social infrastructure. Conversely, the Other Services category had the highest share in 1980–81 (36.96%) but declined significantly to 14.86% by 2022–23. Overall, the composition of value added has shifted, with newer services gaining prominence over time.
The service sector in India holds 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%, rising from USD 154.3 billion in 2015–16 to USD 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 USD 178.3 billion, resulting in a sizable net surplus in the services trade.
Meanwhile, India’s merchandise trade continued to run a deficit, recording a USD 241.14 billion gap in the current account for 2023–24. However, the strong export performance of the service sector helped offset this shortfall. As a result, the combined trade deficit, taking into account both merchandise and services, was significantly reduced to USD 78.36 billion. This highlights the crucial balancing role that the service sector plays in stabilising India’s overall trade position.
Source: DGCIS, M/o Commerce & Industry
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% of total exports, highlighting India’s global leadership in IT, software development, and digital services. This was followed by Other Business Services at 26.2%, reflecting rising global demand for India’s professional, technical, and consulting expertise. The travel and transport sectors also made notable contributions, at 9.6% and 8.7% respectively, indicating robust growth in tourism and logistics. Financial services (2.5%) and personal, cultural, and recreational services (1.3%) further demonstrate the sector’s diversity and global relevance.
India’s growing dominance in global service exports is clearly reflected in its expanding share of the international market. According to UNCTAD, India’s share in global services exports has risen significantly—from just 1.9% in 2005 to 4.3% in 2023. Services exports now account for 9.4% 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% share of global exports in 2023. In the Other Business Services segment, which includes professional, technical, and consulting services, India holds a 7.2% share, ranking third globally. These figures not only emphasize the sector’s depth and diversity but also reaffirm India’s growing prominence as a global hub for high-value, knowledge-intensive services.
Opportunities Ahead
While India’s service sector has seen remarkable growth and diversification over the past few decades, it is not without its challenges—especially in the face of a rapidly changing global landscape. One significant area that remains underutilized 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% 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 prioritize reskilling and upskilling its workforce to prepare for a future where success will hinge on advanced digital capabilities. Areas such as cybersecurity, data science, cloud computing, blockchain, and AI development offer high-growth opportunities that require more specialized 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 nation’s AI capabilities and enhance India’s competitiveness on the global stage.
Furthermore, the service sector is uniquely positioned to address one of India’s most urgent challenges that is creating jobs for its large and growing population. With more than 65% of its population is under the age of 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 service 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 USD 1 trillion in service 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 service 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.
The article was published with Open Magazine on July 1, 2025.
