India’s Services Sector Drives Growth but Fails to Create Secure Jobs

Services Sector Makes Up 55% of Output, Employs Just 29.7% of Workforce

November 2, 2025

A new report from the government’s think tank NITI Aayog shows that even though services account for more than half of India’s total economic output, they employ less than a third of the country’s workforce. The imbalance signals a deeper structural fault in India’s development model, where growth is accelerating without offering meaningful or secure work to most people.

Between 2011–12 and 2023–24, India’s services sector added around 40 million jobs, raising its share of total employment from 26.9 percent to 29.7 percent, according to the report titled “India’s Services Sector: Insights from Employment Trends and State-Level Dynamics,” as cited by The Times of India. However, this increase is still far below the global average, where about 50 percent of the workforce is employed in services.

The report notes that even as the services sector has expanded its contribution to the economy in terms of output, it has not provided enough employment opportunities to match that growth. Most workers in India continue to remain in agriculture or low-productivity sectors because the shift of jobs into services has been too limited. The report describes this as a “slower structural transition.”

The core problem, the report explains, lies in the kind of jobs being created. Although the sector contributes around 55 percent of India’s gross value added, most service-sector employment is still informal and low-paid. Large numbers of jobs have emerged in retail and transport, which are essential to daily life but rarely offer security, training or upward mobility. This mismatch between growth and employment, according to Niti Aayog, is the central challenge of India’s services-led development path.

What this means in practice is that more people may now work in services, but many of them are stuck in roles that do not improve their lives or offer long-term prospects. Workers are often self-employed, underpaid and excluded from protections like health insurance or retirement benefits. The report does not treat this as a temporary phase but as a signal that the country’s growth model needs urgent repair.

The uneven nature of this growth is also reflected in who gets these jobs and where.

Cities show a much higher rate of service employment, over 60 percent, compared to rural areas, where less than 20 percent of workers are in services. Women, especially in rural India, are far behind. Only 10.5 percent of rural women work in services, versus 60 percent in cities. Even where women do participate, most of their jobs are in low-value segments like domestic work or informal retail, pointing to structural barriers in education, mobility and digital access.

The report compares leading states like Maharashtra, Tamil Nadu, Karnataka and Telangana with those still heavily reliant on agriculture and traditional sectors, such as Bihar and Madhya Pradesh. The high-performing states have better infrastructure, stronger institutions and closer ties between services and manufacturing. These factors attract investment and create skilled jobs. In contrast, the lagging states face weak demand for services and limited ability to upgrade work. NITI Aayog warns that if this divergence continues, it could deepen inequality and slow the country’s path to higher-value employment.

To shift the direction, the report recommends a clear four-part plan.

First, it recommends formalising informal work and extending social protection to gig workers, the self-employed and employees in micro, small and medium enterprises. Second, it calls for targeted skilling programmes and better digital access for women and rural youth. Third, it pushes for investment in new sectors such as green technologies and digital services. Finally, it suggests creating new service hubs in Tier-2 and Tier-3 cities to reduce pressure on metros and spread opportunities more evenly across regions.

The report also includes a companion study, “India’s Services Sector: Insights from GVA Trends and State-Level Dynamics,” which shows that the services share of GVA (gross value added) has risen from 51 percent in 2013–14 to 55 percent in 2024–25. Though this may suggest progress, it conceals an uncomfortable truth. According to Niti Aayog, even states that were once behind are beginning to catch up, but the pace is slow and patchy. Growth is visible, but the benefits remain out of reach for many.

The biggest takeaway from the report is that India’s services sector cannot be judged only by how much output it generates. It must be assessed by the quality of work it creates. Without secure, well-paying jobs that reach women, rural populations and underdeveloped states, the sector’s expansion offers a shallow form of progress. What appears as economic dynamism may, in fact, be hiding growing insecurity and exclusion. For India to harness the full power of its services economy, it will need a sharper focus on inclusion, protection and genuine opportunity.

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