From Better Data to Better Policy: India's Services-led Growth Story

India's services sector has emerged as the backbone of the economy. Today, it contributes more than 50% of GVA and is the second-largest source of employment after agriculture, supporting an estimated 19.6 crore workers in 2025 (as per PLFS). The sector is characterized by heterogeneity spanning from trade, tourism, transport and hospitality to IT, finance, healthcare, education and professional services. It is one of the key drivers of productivity, exports and economic resilience over the past two decades. So much so that services exports are at the cusp of overtaking the merchandize exports in near term. Yet measuring the performance of services has remained a challenge. Unlike manufacturing, which has long been tracked through the Index of Industrial Production (IIP), India has not had a comparable high-frequency indicator to monitor services activity.

Recognising this gap, the Ministry of Statistics and Programme Implementation (MoSPI) recently introduced the Index of Services Production (ISP), a monthly indicator that measures changes in the real output of the formal services sector. ISP marks an important step towards strengthening India's statistical system and improving the monitoring of the country's largest economic sector.

MoSPI recently launched another important services statistic, the Annual Survey of Incorporated Services Sector Enterprises (ASISSE) which will collect information on output, fixed assets, employment, compensation of employees and other operational characteristics of incorporated service enterprises across the country. Together, the ISP and ASISSE signal the Government's growing recognition that the services economy requires an equally robust statistical system.

Both ISP and ASSSE attempt to correct the statistical blind spots in services data collection and will empower the implementation of the recommendations contained in the twin services reports from NITI Aayog released last year (India's Services Sector: Insights from GVA Trends and State-Level Dynamics and India's Services Sector: Insights from Employment Trends and State Level Dynamics). These reports highlighted that while India’s engine of growth is creating value, it is lagging in generating high-quality formal employment at scale. The reports describe India's services growth as output-intensive rather than employment-intensive. It also noted that India's services employment elasticity remains below many middle-income economies, suggesting that faster growth has not translated into employment at the same pace. Strengthening the employment intensity of services, therefore, will be critical as India advances towards becoming a developed economy by 2047.

NITI’s twin reports can be viewed as a diagnostic health checkup while MoSPI's ISP/ASSSE are tools to facilitate real time monitoring of the services sector, but the roadmap of capitalizing on the services potential was laid out in the Union Budget 2026-27 which explicitly targets a 10% share in global services by 2047.

Implementation of this vision was proposed through a High-powered "Education to Employment and Enterprise" Standing Committee. The committee, anchored in NITI Aayog, is tasked with identifying policy and regulatory reforms needed to make services a key driver of Viksit Bharat, promote employment and exports, improve competitiveness and prepare the workforce for emerging technologies such as AI, while addressing cross-sectoral policy bottlenecks.

The Budget recognizes that the services sector plays an equally important role in driving India's next phase of economic growth. Unlike earlier budgets, where services received attention through isolated sectoral schemes, Budget 2026 adopts a much broader approach. It treats services as an ecosystem that spans across healthcare, tourism, education, hospitality, design, creative industries, sports and digital technologies.

Healthcare received significant attention through expansion of Allied Health Professional institutions, aimed to add 1 lakh trained professionals over five years, alongside new veterinary and para-veterinary institutions, caregiver training programmes, regional medical hubs, ayurveda and mental health institutes. Tourism received support through a National Institute of Hospitality, training for 10,000 tourist guides and a National Destination Digital Knowledge Grid. The creative economy was promoted through AVGC, content creator labs and a new National Institute of Design, while new training programmes were proposed in semiconductors, biopharmaceuticals, hospitality, care economy and inland waterways to align skills with industry demand and employment. Budget also introduced tax and regulatory reforms to strengthen IT services through expanded safe harbour provisions, faster Advance Pricing Agreement (APA) approvals, tax incentives for data centre and GCCs.

Taken together, these developments reflect a broader policy shift. The Government is not only investing in the services sector but also strengthening the institutions and statistical systems needed to support its long-term growth. At the same time, a services-led growth strategy does not mean that manufacturing has become less important. In fact the distinction between manufacturing and services is blurring. Modern manufacturing increasingly depends on services such as R&D, design, logistics, finance, and professional services. This growing "Servicification" of manufacturing means that the two sectors should not be viewed as competing alternatives. A strong manufacturing base creates demand for high-value services, while a competitive services sector can improve manufacturing productivity, efficiency and global competitiveness.

As India moves towards its vision of Viksit Bharat 2047, the services sector will play an increasingly central role in driving productivity, creating large-scale, formal and upwardly mobile employment across different skill levels, expanding exports and fostering innovation. Building a globally competitive services economy will require not only investments in skills and infrastructure but also robust institutions, timely data and responsive policies. Budget 2026, supported by a stronger statistical framework, represents an important step in that direction, placing the services sector at the heart of India's development journey.

(Views expressed are personal.)