​India’s services sector has emerged as a pivotal driver of economic growth, contributing approximately 55% to the Gross Value Added (GVA) in the fiscal year 2024-25. ​

Key Growth Drivers

• Information Technology (IT) and Software Services: The IT industry achieved revenues of $254 billion in FY24, with exports nearing $200 billion. This robust performance is bolstered by a vast pool of skilled professionals and a burgeoning startup ecosystem.​

• Digital Transformation and AI Integration: India is positioning itself as a leader in artificial intelligence, with projections indicating that AI services could reach $17 billion by 2027. The government’s “IndiaAI Mission” and substantial investments in AI Centers of Excellence are fostering innovation across sectors.​

• Financial Services: The financial sector has seen significant growth, with bank credit to services reaching ₹48.5 lakh crore in 2024, marking a 13% year-on-year increase. Initiatives like Digital India have enhanced financial inclusion, expanding access to banking and financial services nationwide.​

• Tourism and Hospitality: In FY23, tourism generated 7.6 crore jobs and contributed 5% to GDP. Government schemes such as PRASHAD and Swadesh Darshan 2.0 are enhancing infrastructure and promoting domestic tourism.​

Challenges to Global Competitiveness

• Jobless Growth: Despite its substantial GDP contribution, the services sector employs only about 32% of the workforce, indicating a disconnect between sectoral growth and employment generation. ​

• Skill Mismatches: There’s a significant gap between the skills possessed by graduates and those demanded by industries, with only 45% of graduates meeting industry requirements. Addressing this gap is crucial for sustaining growth and competitiveness.​

• Regional Disparities: Service sector activities are predominantly concentrated in states like Maharashtra, Karnataka, and Tamil Nadu, leading to uneven economic development across the country. Bridging this gap requires targeted policies to promote service sector growth in underdeveloped regions.​

• Global Economic Sensitivity: The sector’s heavy reliance on external markets, particularly the U.S., exposes it to global economic fluctuations. Recent U.S. tariffs have heightened recession fears, potentially impacting client spending and, consequently, India’s IT exports.

To maintain and enhance its global competitiveness, India must implement strategies that address these challenges, including aligning educational outcomes with industry needs, promoting equitable regional development, and mitigating vulnerabilities to global economic shifts.