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Friday’s Economic Survey 2025 report paints a stark picture of the challenges facing the services sector — a key driver of the country’s economy. One of the most compelling suggestions in the report if for companies in the sector to, above all else, put the well-being and future of employees first.
Catch all the updates from the economic survey here.
Despite showing resilience and contributing to overall GDP — growing by 7.1% in the first half of the 2024-25 fiscal — the sector faces pressure from global competition, technological advances, and a workforce in need of upskilling, among others.
Per the report, the services sector has consistently outperformed other sectors, contributing approximately 55% to India’s GDP. It encompasses a wide range of industries — IT, finance, hospitality, and healthcare. .
Key Challenges
1. Global Competition: The increasing globalisation of services has intensified competition, the report states, adding that Indian service providers face pressure from international players who offer similar services at competitive prices. This scenario demands continuous innovation and improvement in service quality.
2. Technological Disruption: The rapid pace of technological advancements, particularly in areas such as artificial intelligence (AI) and automation, poses a dual challenge. While these technologies can enhance efficiency, they also threaten job security and require a workforce that is skilled in new technologies.
Also read: Using AI to cut jobs may result in more tax, warns Eco Survey
3. Skill Mismatch: A significant proportion of the workforce in the services sector lacks the necessary skills to meet evolving industry demands. The Economic Survey states, “…90.2% of the workforce has equivalent to or less than a secondary level of education,” highlighting the urgent need for improved training programs.
4. Regulatory Hurdles: The services sector is often bogged down by complex regulatory frameworks that can stifle growth and innovation. The report says there is a pressing need for “simplifying regulations” to foster an environment conducive to expansion and competitiveness.
5. Infrastructure Constraints: Inadequate infrastructure, particularly in transportation and digital connectivity, remains a bottleneck for the services sector. The survey notes that “improved infrastructure is essential for enhancing operational efficiency and expanding market reach.”
6. Workforce Well-being: The survey stresses the importance of addressing mental health and well-being in the workforce. It states, “High stress levels and poor working conditions can lead to decreased productivity and increased attrition rates.”
Also read: Economic Survey 2025 projects India’s insurance sector to grow fastest among G20 nations in 5 years
Strategies for Improvement
To overcome these challenges, the Economic Survey suggests several strategies:
Investment in Skill Development: Enhancing educational and vocational training programmes is crucial to equip the workforce with relevant skills. Initiatives like the Pradhan Mantri Kaushal Vikas Yojana (PMKVY) should be expanded to include more sectors.
Embracing Technology: Service providers must adopt and integrate new technologies to improve efficiency. This includes investing in AI and automation while also focusing on reskilling employees to adapt to these changes.
Streamlining Regulations: The government should work towards simplifying regulatory frameworks to reduce the burden on service providers. This will promote innovation and encourage new entrants into the market.
Enhancing Infrastructure: Significant investment in infrastructure, particularly digital and transportation networks, is necessary to support the growth of the services sector.
Focus on Employee Well-being: Companies should prioritise mental health and wellness programmes to create a supportive work environment that fosters productivity and retention.
According to the economic survey, investing in skill development, embracing technological advancements, and improving regulatory and infrastructural frameworks will allow India to unlock the full potential of its services sector, ensuring it remains a cornerstone of economic progress.
Also read: Economic Survey 2025 | CEA says GDP to recover in second half of FY25: Report
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