India’s services sector provides stability and agility to the economy

The services sector continues to be the backbone of India’s economic growth. Its share in gross value added is estimated to increase from 50.6% in 2013-14 to 55.3% in 2024-25. The country has outpaced many lower- and middle-income countries in expanding its services footprint. Services exports aided this transformation significantly. India has become the seventh-largest exporter of services and the fourth-largest in digitally delivered services. Globally, services are driving growth even in countries where manufacturing is slowing down due to weaker merchandise trade. This creates opportunities for services exports and domestic services output. However, global supply chains face disruptions caused by geopolitical uncertainties, posing downside risks.

The services sector continues to be India’s resilient growth engine, driving expansion through domestic absorption and global trade. This dynamism of services touches our daily lives in increasingly sophisticated ways. If you have ever tracked your delivery package in real time or accessed a customer service chatbot at 3 a.m., you have experienced the rise of ‘servicification’. The servicification of any activity, for instance, manufacturing, means that the sector increasingly relies on services as inputs, activities within firms, or bundled output. The modern economy is not just about goods and products anymore; it is about services seamlessly woven into every aspect of life. This phenomenon blurs the lines between manufacturing and services and boosts economic growth. The embedded service content within non-service economic activities has grown significantly within India.

The logistics sector has found its rhythm post-pandemic, thanks to digitization. Technology-driven route planning ensures your package takes the smartest path, while robotic sorting in warehouses trims delivery time. These systems are revolutionizing warehouses, turning fulfilment centres into efficiency models. Indian Railways, too, has caught the digital express—Wi-Fi at 6,112 stations, QR-based ticketing, and cloud-powered reservation systems have made passenger journeys smoother. On the roads, toll booths have evolved from bottlenecks to speed lanes with FASTag, slashing wait times from a painful 734 seconds to a breezy 47 seconds.

Evolved banking

Banking and financial services have evolved from the old, impersonal, paperwork-laden days. Today, digitally driven chatbots like SBI’s Intelligent Assistant now provide instant support, while machine learning models work behind the scenes to detect frauds like digital detectives. With digitization, insurance is also getting a high-tech facelift, assessing real-time risk profiles and processing claims faster than ever. The financial world is now where user experience is not just an afterthought—it is one of the main offerings.

Across industries, digital technology is the invisible force reshaping user experiences. In telecom, predictive maintenance ensures networks stay up before users notice a blip. Retailers use predictive analytics for hyper-personalised marketing, ensuring shoppers find precisely what they want before they even realise they need it.

For businesses and consumers alike, this shift is more than just technological—it is experiential. The future is not just about faster trains, safer roads, or AI-driven banking; it is about smooth services that become invisible—working silently in the background, making life easier.

This growing integration of services with manufacturing has implications for targeted policymaking at the state level. Five states that account for more than 50% of the services sector value added also contribute over half of the total industrial value added, indicating interdependence between the two sectors of the economy.

Economic activities thrive in different regions mainly based on their comparative advantages. Naturally, there is a notable contrast in how states perform within the services sector. A few states are highly productive in commercial services, such as financial, fintech, professional, IT, and real estate-related services. Many others depend on services which are not as productive. Many states with difficult topography face natural challenges to large-scale industrialization and the growth of commercial services.

Focus on productivity needed

States lagging in industrialization must focus on accelerating industrial productivity, which can strengthen their service sectors as industries become more ‘servicified’. The findings from DPIIT’s Business Reforms Action Plan and state-level data indicate a strong link between state-level business reforms and the extent of industrial activity.

Hence, states that have performed well in both industries and services may serve as models despite their limitations. Data also suggest that many states have an opportunity to identify, support, and scale up their smaller, unincorporated enterprises by implementing suitable policies and promoting deregulation. This will enable them to benefit from tax incentives, credibility, and better access to credit, all of which can help strengthen client relationships and business continuity.

A more tailored policy approach is necessary for each state. Policies that have tended to target individual sectors must be supplemented with unified strategies that foster inclusive growth. The interconnection between services and industries provides an opportunity for a comprehensive solution. Simplifying local procedures and regulations that impede growth and reduce compliance burden is essential to fostering this positive dynamic.

Sectors with a skilled workforce in digital and technical fields will benefit the most from digital technologies. Therefore, a key requirement for progress in manufacturing and services is the focus on appropriate skilling of the labour force. Clearly, the future is not about choosing between industry and services—it is about making them work together. In a world where everything is interconnected, smart collaboration between sectors will power the growth engine.

Antony Cyriac is adviser, Mamta is deputy director, Radhika Goyal is assistant director, and Ajay Ojha is economic officer with the economic division, department of economic affairs.

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