NITI Aayog report warns India’s services sector risk becoming a ‘low-wage job trap’
New Delhi: India's services sector remains overwhelmingly informal, with the majority of workers lacking access to job security or social protection, according to two reports under the Services Thematic Series, released by NITI Aayog CEO B.V.R. Subrahmanyam on Monday.
The launch event was attended by Dr. Arvind Virmani, Member, NITI Aayog, and Dr. V. Anantha Nageswaran, Chief Economic Adviser to the Government of India, along with senior officials, industry representatives, and academics.
The first report, “India’s Services Sector: Insights from GVA Trends and State-Level Dynamics”, analyses both national and state-level data to understand how services-led growth is evolving across India.
It finds that while inter-state disparities in services output have modestly widened, lagging states are beginning to catch up, indicating a trend towards more regionally balanced growth.
The services sector, which now contributes nearly 55 percent to the national Gross Value Added (GVA) in 2024–25, has emerged as the cornerstone of India’s economic performance.
The report calls for targeted investments in digital infrastructure, logistics, innovation, finance, and skilling to enhance competitiveness.
It also recommends state-specific strategies aligned with local strengths, improved institutional capacities, and the development of urban and regional service clusters to sustain momentum.
The second report, “India’s Services Sector: Insights from Employment Trends and State-Level Dynamics”, provides a multi-dimensional analysis of the services workforce, examining patterns across sub-sectors, gender, regions, education, and occupations.
It highlights the sector’s dual structure—modern, high-productivity segments that generate limited employment and traditional ones that remain labour-intensive but largely informal.
It goes beyond aggregate trends to reveal the sector’s dual character: modern, high-productivity segments that are globally competitive yet limited in employment intensity, and traditional segments that absorb large numbers of workers but remain predominantly informal and low-paying.
The report shows that while services remain the mainstay of India’s employment growth and post-pandemic recovery, challenges persist. Employment generation is uneven across sub-sectors, informality remains widespread, and job quality continues to lag behind output growth.
Gender gaps, rural–urban divides, and regional disparities underline the need for an employment strategy that integrates formalisation, inclusion, and productivity enhancement at its core.
Without formalisation, services risk becoming a low-wage trap despite being the fastest-growing part of the economy.
The report notes that the traditional sub-sectors like trade, transport, and hospitality dominate employment but remain hotspots of informal work.
It proposes a four-pronged policy roadmap to address these issues: enhancing formalisation and social protection for gig and MSME workers; promoting skilling and digital inclusion for women and rural youth; investing in emerging and green economy skills; and fostering regional service hubs in Tier-2 and Tier-3 cities.
By positioning the services sector as a central pillar of Viksit Bharat @ 2047, the reports outline a clear roadmap for states and industry to unlock the next phase of growth—anchored in digital expansion, innovation, skilled human capital, and globally integrated service value chains.
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