Chapter 7: Services: From Stability to New Frontiers

Introduction 

• The services sector contributes more than half of the Gross Value Added (GVA). 
• India is the world's seventh-largest exporter of services, with its share in global services trade more than doubling from 2% in 2005 to 4.3% in 2024. 
• The sector remains the largest recipient of Foreign Direct Investment (FDI) inflows.
• Services have also emerged as the most stable and resilient component of GDP.
  • The sector has recorded average annual growth of around 7-8 % year after year.

Chapter precap 

Global Services Trends and India's Experience

• Structural Rebalancing 
  • The COVID-19 pandemic severely disrupted contact-intensive services (e.g., tourism) while accelerated the expansion of high valued digitally delivered services (e.g., IT, finance).
  • Services growth in the post-pandemic period has faced headwinds from slower global growth.
  • India, by contrast, has remained relatively resilient, with services growth in 2024 staying close to its pre-pandemic levels. 
• Shifts in Trade and Capital Flows 
  • India recorded a relatively stronger expansion in services trade as a share of GDP, compared to several advanced economies.
  • Services accounted for an average 53.5 % of global FDI during 2022-2024. 
  • In India, Services-sector FDI inflows accounted for an average of 80.2 % of total FDI during FY23-FY25, up from 77.7 % in the pre-pandemic period.
  • Information and communication services (25.8 %) received highest FDI followed by professional services, Finance and insurance, energy and gas and trading.

Recent Trends In India's Service Sector Performance

Services Exports 

• Average growth in services exports has more than doubled from 7.6 % in the pre-pandemic period (FY16-FY20) to 14.0 % during FY23-FY25. 
• Software services account for over 40 % of total services exports. 
  • Professional and management consulting services have emerged as the second-largest contributor. 

Trade agreements for Promoting Services 

• India has increasingly leveraged free trade agreements, comprehensive economic partnerships, and bilateral engagements to enhance market access and competitiveness. 
• E.g., Under India-UK CETA Concluded (Jul 2025), the UK has granted comprehensive market access across 137 services sub-sectors, reducing barriers and easing cross border mobility.

Servicification of manufacturing

• Services are increasingly integrated into manufacturing through activities such as design, R&D, logistics, software development, etc. 
• Domestic services value added accounted for about 17.7 % of India's manufacturing export value in 2020. 

Sub-Sectoral Performance and Drivers

Tourism Sector 

• In FY24, travel and tourism contributed 5.22 % to GDP while supporting an estimated 8.46 crore direct and indirect jobs, or about 13.3 % of total employment in the overall economy. 
  • Domestic tourism remained the backbone of the sector. 
  • International Tourist Arrivals (ITAs), including foreign tourist arrivals (FTAs) and arrivals of non-resident Indians (NRIs), rose to 20.57 million, marking an increase of 8.9 % over 2023. 
• Medical tourism's share in foreign tourist arrivals rose from about 2.2 % in 2009 to around 6.5 % in 2024.
  • Skilled medical professionals and established healthcare infrastructure, medical and wellness tourism have emerged as a key comparative advantage for India.

Information Technology and IT-Enabled Services

• The expansion of Global Capability Centers (GCCs) into Tier 2 and Tier 3 cities has supported more geographically dispersed employment and strengthened linkages with local innovation and startup ecosystems.
• India's data centre capacity is projected to reach about 8 GW by 2030
  • Despite generating nearly 20 % of the world's data, India hosts only about 3 % of global data centres. 
• Deep Tech companies experienced a 78 % rise in funding in CY2024. 
• Technology startup ecosystem (the world's third largest) comprises about 32,000-35,000 startups. 
• Cybersecurity market is estimated at about USD 6.0 billion in 2023, growing at about 30 %. 
  • India is placed among the world's most cyber-resilient countries (as per the International Telecommunication Union's Global Cybersecurity Index).

• India has improved its ranking in UNCTAD's Frontier Technology Readiness Index, from 48th in 2022 to 36th in 2024 among 170 economies. 
  • Weaker outcomes in ICT penetration and skills are key constraints in the wider diffusion of frontier technologies across firms and regions. 

Transport Services

• Directly contribute around 4.5 % to GVA. 
• Ports: 
  • Cargo handled at Indian ports increased from about 1052 million tonnes in FY15 to around 1603 million tonnes in FY25.  
  • The average turnaround time of container vessels at major ports declined from approximately 43 hours in FY15 to nearly 30 hours in FY25.
• Aviation Services 
  • In FY25, overall air passenger traffic increased by 9.4 %, reaching 411.8 million passengers.
• Railway freight services

• Operational efficiency has also improved, with average daily freight loading rising from 4.2 million tonnes in 2024 to about 4.4 million tonnes in 2025. 
• Rail freight services offer a 50 % cost-effective cargo route compared to road transport. 

Telecommunication

• Contribute directly to about 1.2 % of GVA.
• Total telephone connections rose from about 933 million in 2014 to over 1.2 billion by November 2025.
  • Tele-density increased from 75 % to 86.8 %.
• Internet subscriptions expanded from about 25 crore to 101.8 crore by September 2025. 
• India has developed end-to-end indigenous 4G and 5G (NSA) core network technologies.

Commercialising Space and Ocean Services

• Space sector is valued at about USD 8.4 billion (around 2 % of the global space market), it is projected to expand to USD 44 billion over the next decade. 
• Commercial launches have been a key export source, with India launching 393 foreign satellites for 34 countries between 2015 and 2024. 

Media and entertainment services

• Sector's size is around ₹2.5 trillion in 2024. 
• Digital media emerged as the primary growth engine, contributing approximately one-third of the sector's total revenues.
• Broadcasting and advertising have shifted decisively from linear TV to OTT and mobile platforms
• The concert economy (part of Orange Economy) is in nascent stage but scaling in India, supported by a young population, rising incomes, digital ticketing platforms etc.

Real estate and housing services

• The 'real estate and ownership of dwellings' sector has contributed about 7 % to GVA. 

Conclusion and Way Forward

• The expansion of digitally delivered, knowledge-intensive and experience-based services has strengthened India's underlying comparative advantages. 
• key areas for improvement
  • For IT and IT-enabled services, timely reskilling, the wider diffusion of digital technologies, and the creation of a supportive policy environment for innovation and scaling. Policy supports include 
    • Recognition of data centres and cloud service providers as a distinct category, rather than classifying them as "commercial buildings" under the National Building Code, 2016. 
    • Releasing more anonymised public data to leverage scalable cloud-based Digital Public Infrastructure while maintaining robust security standards. 
  • Tourism requires the creation of niche segments, such as long-distance hiking trails, and a national marina development policy to unlock the blue economy.
• Singapore's model offers valuable lessons for India. 
  • Since the early 2000s, Singapore has implemented successive multi-year Research, Innovation and Enterprise (RIE) plans to align public R&D investment, industry participation and talent development with evolving economic priorities.

What does the budget say?

• Care Economy: Training of 1.5 lakh caregivers in the coming year, aligned with the National Skills Qualifications Framework (NSQF).
• Tourism Promotion:
  • Medical Value Tourism: Support for states to set up five Regional Medical Hubs.
  • Skilling: Establishment of a National Institute of Hospitality and upskilling of 10,000 tourist guides across 20 iconic sites.
  • Digital Infrastructure: Creation of a National Destination Digital Knowledge Grid.
  • Niche Tourism: Development of ecologically sustainable trails—Mountain, Turtle, and Bird-watching trails.
  • Heritage Tourism: 15 archaeological sites to be developed as experiential destinations using immersive technologies.
• Orange Economy (AVGC):
  • Focus on Animation, VFX, Gaming, and Comics, projected to need 2 million professionals by 2030.
  • AVGC Content Creator Labs in 15,000 schools and 500 colleges.
  • Establishment of a new National Institute of Design in eastern India.
• IT & Digital Services Support:
  • Software and KPO services grouped under "Information Technology Services" with a 15.5% safe harbour margin.
  • Safe harbour threshold raised from ₹300 crore to ₹2,000 crore.
  • Data Centres: Tax holiday till 2047 for foreign cloud service providers using data centres in India.

Glossary