Growth and significance of the service sector in India

Marketing and Service Management · Unit IV · Topic 12 of 15 · 4 min read

The share of services in India's GVA from the Economic Survey 2024-25, the factors behind the rapid growth of the service sector, its role in economic growth and employment, the effect of Covid-19 and the recovery after it, and the problems the sector faces.

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1. Size of the sector
2. Factors responsible for the growth
3. Significance: role of services in economic growth
4. Covid-19 and the recovery
5. Problems of the service sector
How this is examined

Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

The examinable core. “Explain the factors responsible for growth of service sector in India” (December 2019, April 2023, August 2024), “reasons for the rapid growth” (November 2022), “growth and significance” (April 2021), “growth during Covid-19” (April 2022), “growth after recovering from the covid era” (February 2025), “role of service in growth of economy” (October 2023) and, with characteristics, January 2026. One figure from an official source and a list of factors make the answer.

1. Size of the sector

The service (tertiary) sector covers trade, hotels and restaurants, transport, storage and communication, financial services, real estate and professional services, public administration, defence and other services. India is unusual in that services, not manufacturing, became the largest sector as the economy developed.

According to the Economic Survey 2024-25 (Ministry of Finance, January 2025), the share of services in India’s total gross value added (GVA) rose from 50.6% in 2013-14 to about 55% (55.3%) in 2024-25, on first advance estimates. The sector grew at an average of about 8% a year in the pre-pandemic years and 8.3% in the post-pandemic years 2022-23 to 2024-25. Services are also India’s largest source of export growth, led by software and business services.

Trap. Do not write a figure you cannot defend. “More than half of India’s GVA, about 55% in 2024-25 (Economic Survey 2024-25)” is safe. Later estimates may revise it; the point the examiner wants is that services are the largest and fastest-growing sector.

2. Factors responsible for the growth

Rising income and urbanisation. As income rises, demand shifts from basic goods to services — health, education, travel, entertainment, eating out (Engel’s law). Urban living increases demand for transport, housing and domestic services.
Liberalisation from 1991. Opening of banking, insurance, telecom, aviation and broadcasting to private and foreign investment created competition and new services.
Information technology and IT-enabled services. A large pool of English-speaking, technically trained graduates made India a global centre for software, BPO, KPO, and global capability centres.
Digital public infrastructure. Aadhaar, UPI, and the spread of cheap mobile data enabled digital payments, e-commerce, fintech and online services.
Growth of financial services. Expansion of banking, insurance, mutual funds, stock markets and financial inclusion schemes.
Specialisation and outsourcing by industry. Manufacturing firms buy services (logistics, advertising, maintenance, legal and accounting) from specialists instead of doing them in-house.
Changing lifestyles and working women. Demand for childcare, food delivery, cleaning, fitness and beauty services.
Tourism and hospitality. Domestic and foreign tourism, aided by improved transport and government promotion.
Government spending and policy. Expansion of public health, education and administration; schemes such as Digital India (2015), Skill India and Startup India.
Demographic advantage. A young, growing working-age population supplies service workers and creates demand.

3. Significance: role of services in economic growth

Largest contributor to national output and the main driver of GDP growth.
Employment in trade, transport, IT, health, education and construction-linked services; services absorb workers leaving agriculture.
Exports and foreign exchange: software and business services exports help offset the merchandise trade deficit.
Foreign investment: services attract a large share of FDI inflows.
Support to agriculture and industry: banking, insurance, transport, storage and marketing services are inputs for every other sector.
Quality of life: health, education, communication and entertainment raise welfare directly.
Regional development and urbanisation: IT hubs such as Bengaluru, Hyderabad and Pune have reshaped regional economies.

4. Covid-19 and the recovery

During Covid-19 (2020-21) (April 2022). The lockdowns hit contact-intensive services hardest: trade, hotels and restaurants, transport, tourism, entertainment and personal services contracted sharply. At the same time some services grew:

IT and IT-enabled services, as work moved online;
e-commerce, home delivery and digital payments;
telecom and internet services;
health care, diagnostics, pharmacies and telemedicine (the Telemedicine Practice Guidelines were issued in March 2020);
online education (ed-tech) and OTT entertainment.

After Covid (February 2025). Contact-intensive services recovered from 2021-22 onwards as restrictions ended; air travel, hotels and tourism returned with pent-up demand. The pandemic left lasting changes: wider digital adoption, hybrid work, growth of global capability centres in India, faster adoption of UPI, and a larger online share in retail, health and education. The Economic Survey 2024-25 reports post-pandemic services growth of 8.3% a year on average (2022-23 to 2024-25), above the pre-pandemic average.

5. Problems of the service sector

much of the employment is informal, low-paid and without social security (the Code on Social Security, 2020, in force from 21 November 2025, extends cover to gig and platform workers);
skill gaps and uneven quality;
growth concentrated in a few cities and States;
dependence of IT exports on foreign demand and automation risks;
infrastructure bottlenecks in transport and urban services;
weak link between services growth and manufacturing jobs.

How this is examined

“Explain the growth of service sector in India and its factors” (10 marks) is answered with a short opening on the sector’s share (section 1, one official figure) and the ten factors in section 2, each with one line of explanation. For “growth during Covid-19” or “after the covid era” write section 4 with examples of services that shrank and those that grew. “Analyse the role of service in growth of economy” (October 2023) takes section 3. A 6-mark “reasons for rapid growth” note lists six factors.

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