India’s Service Sector Boosts Economy: GVA Contribution Rises to 55.3% in FY25

The Economic Survey 2024-25 has confirmed the dominance of the service sector in India’s economic landscape, terming it the ‘Old War Horse’. The sector has been instrumental in sustaining GDP growth, particularly when global merchandise trade slowed down.

With its contribution to the total GVA increasing from 50.6% in FY14 to 55.3% in FY25, the service sector remains a critical pillar of economic progress. Post-pandemic, its growth accelerated, averaging 8.3% between FY23 and FY25, significantly contributing to employment and domestic consumption.

Rise in Services Exports

India’s share in global services exports has steadily increased, reaching 4.3% and ranking 7th worldwide. The sector’s export growth surged to 12.8% during April-November FY25, a notable rise from 5.7% in FY24. This expansion is largely driven by IT services and business services, which together account for 70% of total service exports.

Financial Support Fuelling Growth

Bank credit to the service sector stood at ₹48.5 lakh crore as of November 2024, registering a 13% YoY growth. Computer software and professional services witnessed the highest YoY credit growth at 22.5% and 19.4%, respectively. Additionally, the sector attracted ₹29.8 billion in FDI equity inflows during April-September FY25, with the insurance sector receiving over 62% of the total investments.

Key Growth Drivers of the Service Sector

• Logistics and Connectivity

Indian Railways recorded an 8% growth in passenger traffic, while road transport contributed 78% of the total transport GVA in FY23. Digitised tolling via FASTag and improved road safety measures have enhanced connectivity. Meanwhile, India’s aviation sector is the fastest-growing globally, with record aircraft orders placed to accommodate rising air traffic.

• Tourism and Hospitality

The tourism industry contributed 5% to GDP in FY23, generating 7.6 crore jobs. International tourist arrivals have rebounded to pre-pandemic levels, with India now accounting for 1.45% of global tourist arrivals.

• Real Estate and Infrastructure

The real estate market is witnessing a surge, with an 11-year high in residential sales in 2024. Housing demand is projected to reach 93 million units by 2036, supported by metro expansions and enhanced road connectivity.

• IT and Global Capability Centres (GCCs)

The IT sector remains a strong pillar of India’s economy, with revenues hitting $254 billion in FY24 and exports nearing $200 billion. India’s GCCs, employing 1.9 million professionals, have grown from 1,430 in FY19 to over 1,700 in FY24, solidifying the country’s position as a global IT hub.

• Telecommunications Boom

India has the second-largest telecom market, with 1.18 billion subscribers and 941 million broadband users as of October 2024. The average monthly data usage per user grew to 19.3 GB in FY24, up from 12.1 GB in FY21, underscoring the nation’s digital revolution.

Policy Framework and Future Strategy

A NITI Aayog study categorises service sub-sectors into four segments—defend, accelerate, transform, and untapped—each with specific policy recommendations. To further boost the sector, emphasis is being placed on skilling the workforce and regulatory simplifications.

With 72.6% of unincorporated enterprises operating in the service sector, efforts are being made to formalise businesses to maximise growth opportunities. The government aims to enhance training initiatives, strengthen MSMEs, and attract higher foreign investments to drive sustained expansion.

Conclusion

India’s service sector has solidified its position as the primary growth engine of the economy. With rising GVA contributions, increasing global exports, and expanding domestic demand, it is set to play a crucial role in shaping the nation’s economic trajectory.

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