Other BriefingsIndia’s Services Sector Performance and Contribution to GDP in 2025: An Overview
The services sector is a major contributor to the economy in India, recording about 55 percent of GVA in 2025, on the back of technology, finance, and digital integration. As output rises faster than employment, the gap signals a move toward innovation-led expansion and expanding opportunities in high-value, export-oriented service models.
India’s services sector continues to be the principal driver of national growth in 2025, contributing approximately 55 percent of gross value added (GVA). According to NITI Aayog’s report, “India’s Services Sector: Insights from GVA Trends and State-Level Dynamics 2025”, services have consistently outperformed both industry and agriculture in terms of output and productivity.
At current prices, India’s GDP for FY 2024-25 is estimated at INR 3.5 quadrillion (US$4.2 trillion). Based on this estimate, the services sector contributes around INR 1.92 quadrillion (US$2.3 trillion) to national output. However, employment in the services sector account for only about 29.7 percent of India’s workforce, highlighting a widening productivity gap between output and job creation.
This gap reflects a deeper structural transformation in the Indian economy. The services sector is becoming increasingly capital, and technology-intensive, moving away from traditional labor-driven models. For investors, this growth presents opportunities for higher value creation, enhanced efficiency, and stronger integration with global value chains — signaling a transition toward a more innovation-led growth paradigm rather than job-intensive expansion.
Sectoral breakdown: Top performers in the services sector in India
The performance of India’s services sector in 2025 remains diverse, with distinct growth leaders and lagging sub-segments. Key growth drivers include information technology (IT), IT-enabled services (ITeS), financial intermediation, professional consulting, healthcare, and logistics. Together, these segments have positioned India as a global hub for digital and business solutions; exports of computer and business services now account for more than two-thirds of the country’s total services exports.
In contrast, traditional services such as trade, transportation, retail, and hospitality continue to play a vital role in employment generation but lag behind in productivity and digital transformation. Informality remains widespread in these sectors, where contract and self-employed workers dominate, constraining both wage growth and efficiency improvements.
Between April and November FY 2024-25, India’s services exports recorded robust growth of 12.8 percent, up from 5.7 percent in the previous year. This surge has propelled India into the top five globally for services export growth, underlining its competitiveness in high-value, technology-driven domains.
Tourism and hospitality, though showing steady post-pandemic recovery, still face challenges related to capacity, workforce retention, and compliance costs. This trend reinforces the broader pattern: capital-intensive and digitally enabled sub-sectors are outperforming labor-dependent ones. For investors, this points to the long-term potential of scalable, export-linked, and technology-driven service models.
A noteworthy structural shift in 2025 is the emergence of green and sustainable services, such as environmental consulting, renewable energy management, and ESG reporting. Driven by India’s commitment to achieving net-zero emissions by 2070, demand for sustainability-related professional services has expanded at over 11 percent annually.
Simultaneously, financial technology (fintech) and digital payments continue to reshape domestic commerce. India now processes over US$3 trillion worth of annual digital transactions through UPI, highlighting increasing digital adoption across the services ecosystem.
State level dynamics: Regional patterns and disparities
State-level analysis reveals marked regional disparities in the contribution made by the services sector. Southern states such as Karnataka, Telangana, Tamil Nadu, and Kerala have emerged as ‘high-intensity service economies’, where services contribute over 60 percent of GVA. In these states, output growth has significantly outpaced employment generation, reflecting a productivity-led rather than employment-driven expansion model.
In contrast, several northern and eastern states, including Uttar Pradesh, Bihar, and Jharkhand, continue to record lower service-sector GVA shares and slower diversification away from agriculture. This uneven pattern is further mirrored in urban–rural contrasts: in major metropolitan areas, services account for over 60 percent of employment, while in rural regions the share remains below 20 percent.
Gender participation is also reflected in these disparities. Only around 10.5 percent of rural women are employed in the services sector, compared to nearly 60 percent of urban women who work in service-related occupations.
Meanwhile, ’emerging states’ such as Odisha, Chhattisgarh, and Madhya Pradesh are beginning to bridge the gap through targeted skill development initiatives and infrastructure investments. Yet, persistent bottlenecks in logistics, digital infrastructure, and institutional capacity continue to constrain growth. For foreign investors, this points to the importance of state-specific assessments, and considering talent availability, power reliability, and e-governance maturity before committing to new investments. “Emerging states” refers to Indian states that are not yet among the country’s traditional economic leaders (such as Maharashtra, Karnataka, Tamil Nadu, or Gujarat) but are now showing accelerated economic activity, investment momentum, and industrial potential.
Urbanization is also redefining state-level service economies. Cities such as Hyderabad, Bengaluru, and Pune have evolved into Global Capability Center (GCC) hubs, while Gurugram and Noida dominate professional and financial services. At the same time, Tier-2 cities like Indore, Kochi, and Visakhapatnam are emerging as dynamic “service corridors,” driven by improved air connectivity and lower operational costs. The government’s Smart Cities Mission has further accelerated service-sector integration across these urban clusters, attracting IT, design, and consulting firms to expand beyond traditional metropolitan centers.
Policy implications and strategic insights for foreign investors
India’s sectoral policies in 2025 continues to favor services-led expansion. Several developments hold significance for investors assessing India’s services landscape.
1. Digital transformation as a growth catalyst
India’s ongoing Digital India and National Broadband Mission programs have expanded digital infrastructure and connectivity. These initiatives underpin growth in fintech, e-commerce, artificial intelligence, and GCCs; sectors attracting both foreign direct investment (FDI) and technology partnerships.
2. Skill development and formalization
The shift toward higher value services demands a more skilled workforce. Policy interventions such as the Skill India Mission and the Code on Social Security 2020 aim to improve labor mobility and extend protections to platform workers. For investors, this means needing to align hiring and training strategies with emerging compliance frameworks.
3. State level investment differentiation
As services clusters mature, competition among states to attract investment is intensifying. States like Telangana and Tamil Nadu are offering fiscal incentives for IT parks, data centers, and knowledge hubs, while emerging states provide lower operational costs. Firms entering India should calibrate location strategies according to state specific policy frameworks, connectivity, and human capital availability.
4. Linkages between manufacturing and services
The services sector increasingly acts as a productivity multiplier for manufacturing; through logistics, design, R&D, after-sales, and IT integration. Investors seeking diversification may benefit from adopting a hybrid service manufacturing model, especially within special economic zones and industrial corridors.
5. Supportive regulatory environment
Services continue to attract the highest share of FDI inflows; about 19.1 percent in the first half of FY 2024-25. Liberalization measures in insurance, education technology, and professional services, alongside streamlined compliance via the National Single Window System, are further enhancing India’s attractiveness.
Trade diversification is another critical factor shaping investor sentiment. India’s expanding Bilateral Trade Agreements and renewed focus on cross border digital trade aim to position services exports at the center of its global engagement strategy. Sectors such as education technology, health services, and financial analytics are increasingly exported to markets in the Middle East, Southeast Asia, and Africa. The government’s commitment to transparent digital tax frameworks and harmonized data regulations strengthens investor confidence in India as a regional service hub.
Also Read: India’s FDI Trends in Q1 FY 2025-26
Looking ahead — trends shaping the services economy in India
Over the next five years, India’s services sector is expected to contribute over two-thirds of incremental GDP growth. Several structural shifts will define this trajectory:
1. Acceleration of digital services
Rapid expansion in AI, cloud computing, cybersecurity, and fintech will deepen global integration and productivity. India’s digital services exports are forecast to exceed US$350 billion by 2030.
2. Workforce transformation and formalization
Converting informal service jobs into formal employment remains a policy priority. Labor code implementation and digital skill programs will determine whether growth becomes more inclusive.
3. Regional ecosystem competitiveness
States that expand broadband, logistics networks, and higher-education ecosystems will attract the next wave of investment. Regional differentiation will likely sharpen, requiring investors to maintain flexible, multi-state strategies.
4. Service manufacturing integration and exports
Integration of logistics, business services, and digital infrastructure within manufacturing ecosystems will enable Indian firms to move up the global value chain. This blurring of sectoral lines presents both challenges and opportunities for diversified investors.
Finally, the role of India’s services sector in achieving its US$7 trillion economy goal by 2030 cannot be overstated. The NITI Aayog report highlights that sustained services-led growth could add 1.5-2 percentage points to annual GDP growth if digital, education, and infrastructure policies continue to advance. For foreign investors, India’s combination of demographic dividend, digital readiness, and reform continuity makes its services economy one of the most promising globally.
Outlook
India’s services sector will remain central to achieving the government’s vision of becoming a developed economy by 2047. Sustained attention to digital transformation, employment formalization, and regional diversification will be essential to translate output growth into inclusive development.
For businesses, understanding sub-sector dynamics and state level ecosystems will be key to strategic positioning. As indicated in the NITI Aayog report, the services sector is both India’s growth engine and its next major reform frontier.
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