India's Services Sector Employment at 30%: Challenges and Opportunities for Growth Beyond Global Averages

New Delhi:

India's services sector currently employs approximately 30 percent of the nation's workforce, significantly below the global average of 50 percent, indicating a delayed structural transition according to a report released Tuesday by NITI Aayog.

The report, titled "India's Services Sector: Insights from Employment Trends and State-Level Dynamics," highlights that while services remain the backbone of India's employment growth and post-pandemic recovery, substantial challenges continue to exist.

"Services employment increased to 29.7 percent in 2023-24 compared to 26.9 percent in 2011-12, generating 40 million jobs in the past six years," the Aayog noted.

"Nevertheless, it continues to trail behind the global average of 50 percent, revealing a slower structural transition," the report stated, recommending structural reforms, expedited social protection measures, digitization of informal worker registration, and formalization of care services to enhance formal employment opportunities within the sector.

The report emphasized that despite services contributing over half of national output, they provide less than a third of jobs, with most positions being informal and low-paying.

"This disconnect between growth and employment constitutes the central challenge for India's services-led development," the report observed.

It pointed out that more than 60 percent of urban workers are employed in services, compared to less than 20 percent in rural areas.

"Gender disparities remain pronounced: only 10.5 percent of rural women work in services compared to 60 percent of their urban counterparts, with their participation largely restricted to low-value activities," according to the report.

The analysis indicates India faces a growing mismatch where education levels are rising faster than the quality of service jobs, highlighting the urgent need to align skills development with sectoral requirements.

"Retail trade and transport dominate services jobs in larger states, sustaining employment but at low productivity levels," the report stated, adding that modern services (IT, finance, professional services) are flourishing in southern and western hubs, driving growth but absorbing fewer workers.

The report highlighted that while states such as Maharashtra, Tamil Nadu, Karnataka, and Telangana have established dynamic service hubs with high productivity, Bihar, Madhya Pradesh, and others remain concentrated in low-value, traditional segments.

"Employment generation varies considerably across sub-sectors, informality remains widespread, and job quality continues to lag behind output growth," it noted.

To address these disparities, the report outlines a four-part policy framework focused on: formalizing and extending social protection to gig, self-employed, and MSME workers; implementing targeted skilling and digital access initiatives to expand opportunities for women and rural youth; investing in emerging and green economy skills; and promoting balanced regional development through service hubs in Tier-II and Tier-III cities.

This assessment represents one of the first dedicated analyses of employment in the services sector, extending beyond aggregate trends to present a disaggregated and multi-dimensional profile of the services workforce. By connecting historical insights from the NSS 68th Round (2011-12) with the latest PLFS data (2017-18 to 2023-24), it provides a comprehensive long-term perspective on structural shifts, offering valuable insights into the sector's employment landscape and implications for inclusive growth.

In a companion report also released Tuesday, titled "India's Services Sector: Insights from GVA Trends and State-Level Dynamics," NITI Aayog noted that the services sector has become fundamental to India's economic growth, contributing nearly 55 percent of national gross value added (GVA) in 2024-25, up from 51 percent in 2013-14.

"While inter-state disparities in services sector shares have modestly widened, there is clear evidence that structurally lagging states are beginning to catch up," it observed.

The report stated that this emerging pattern of convergence suggests India's services-led transformation is gradually becoming more geographically inclusive and broadly based.

At the sectoral level, the report recommended prioritizing digital infrastructure, logistics, innovation, finance, and skilling to accelerate diversification and competitiveness.

For state-level development, it advocated developing tailored service strategies based on local strengths, improving institutional capacity, integrating services with industrial ecosystems, and expanding urban and regional service clusters.