India’s economy derives substantial strength from its broad and varied services sector, which continues to be a major driver of innovation, opportunity creation, and GDP growth. Yet, the recently released NITI Aayog Report 2025 presents a nuanced view of this progress, highlighting the persistent imbalance in employment generation within the sector. The report has put the spotlight on the evolution of jobs in this key area that accounts for the largest share of the country’s GDP.
While the services industry remains pivotal in sustaining national employment levels, the report emphasizes that job growth within the sector has been uneven. Despite its strong contribution to the economy, the services sector has not succeeded in providing equitable employment opportunities across different regions and demographics.
Persistent gender disparities, regional inequalities, and a high degree of informal employment signal an urgent need for more inclusive policies to ensure that all share the benefits of India’s economic expansion.
The 2025 NITI Aayog report, titled “India’s Services Sector: Insights from Employment Trends and State-Level Dynamics,” sheds light on the shifting landscape of employment in India’s service-driven economy. This highlights the sector’s growing contribution to job creation, with its share of total employment increasing from 26.9% in 2011–12 to 29.7% in 2023–24.
The report analyses employment patterns through seven key dimensions: geographic spread, gender representation, types of employment, age distribution, educational background, informality, and income levels. These dimensions help pinpoint underlying structural issues. Additionally, the report outlines various policy recommendations aimed at boosting productive and meaningful employment.
The report notes that, as of 2023-24, agriculture remains the largest employer in India, followed by the services and industrial sectors. Of the roughly 634 million workers in the country, around 188 million are engaged in service-related jobs. However, employment growth in the services sector has been uneven—urban regions have seen an increase in such jobs, while rural areas have witnessed a decline.
Informal web of the services sector
Let us begin by examining the employment elasticity figures presented in the report across various sectors before and after the COVID-19 pandemic. The findings indicate a broad increase across agriculture, manufacturing, and services in the post-pandemic period. In the services sector, elasticity has risen from 0.35 to 0.63—a positive trend, yet still below 1, suggesting that output growth continues to outpace job creation.
By contrast, agriculture and manufacturing now show elasticities exceeding 1. At the same time, this may reflect the pace of post-pandemic recovery; the spike in agriculture is concerning, as it underlines the lack of productive job opportunities elsewhere. Thus, the emphasis must shift towards fostering gainful employment.
Within the services sector, the employment composition reveals that 51 percent are regular wage earners, and 45 percent are self-employed. In subsectors like trade and transport, self-employment is notably higher. When regular wage jobs without social security are classified as informal, nearly 69 percent of jobs in the services sector become informal. Furthermore, the Annual Survey of Unincorporated Sector Enterprises indicates that 82.5 percent of service enterprises are small, family-operated, or owner-driven.
Amid this landscape, the report rightly identifies “Addressing Formalisation and Job Security” as a priority. However, its recommendations lean heavily on regulatory reforms and expanding access to social security, raising two critical questions: What disincentives hinder formalisation? And how will artificial intelligence (AI) affect formal employment?
Informal employment arises from both small informal firms and formal firms offering jobs without social protection. For informal enterprises, formalisation often implies higher compliance costs, taxes, and possibly lower profit margins—without immediate benefits. Meanwhile, the availability of a large pool of low-skilled workers curbs wage demands, maintaining the status quo for both employers and workers. A possible route to formalisation lies in stimulating domestic demand. Higher consumption among low-income groups—perhaps supported by income transfers, especially to women—could make formalization more lucrative and feasible for enterprises.
On the formal side, the reluctance to offer social security often stems from concerns over higher long-term costs and reduced flexibility. Outsourcing services such as cleaning or transport has been one strategy to cut these costs. Alternatively, the government could directly provide social security in a more expansive and reliable manner. Strengthening existing schemes to ensure adequate protection without placing undue burdens on employers may encourage broader adoption. Funding such programs could involve widening the tax base—for instance, by lowering income tax exemption thresholds.
The Impact of AI
The impact of AI also demands attention. According to a study cited by NITI Aayog, nearly half of white-collar jobs could be at risk due to automation. While AI is expected to create high-skilled roles in fields like data science, its net effect on employment is anticipated to be negative, particularly in sectors such as IT and fintech, which currently employ many formal workers.
This shift raises the prospect of displaced workers moving into the informal sector in the short term, underscoring the need for skill upgradation and active support for employment generation.
The services sector remains a cornerstone of India’s economy, accounting for 55 percent of total gross value added and adding nearly 40 million jobs over the past six years. Post-COVID, the sector’s employment elasticity surged to 0.63, but this gain masks a fragmented story. Knowledge-driven industries, such as IT, finance, healthcare, and transportation, are expanding rapidly—helped by globalization, digitalization, and platform models—yet they employ relatively few.
Meanwhile, labour-intensive subsectors such as trade, personal services, and education are showing weakening job responsiveness, while capital-intensive areas like telecommunications and insurance have begun shedding jobs. This contrast reflects a growing “growth-employment disconnect” within the services sector. High-value services generate significant output but few jobs, while traditional services support large numbers of workers but contribute less to the economy.
As a result, most workers are left outside social safety nets, and informality remains widespread even among the educated. The gender divide is stark: only 10.5 per cent of rural women work in services, compared to 60 per cent in cities, and rural women earn less than half of what men do. Notably, sectors such as IT, healthcare, and education exhibit better gender parity in pay.
Regional Disparities
Regional disparities are equally evident. States like Karnataka, Maharashtra, Telangana, and Tamil Nadu lead in modern services, while states such as Bihar, Madhya Pradesh, and Uttar Pradesh are still dominated by low-value activities like retail. Encouragingly, some lagging states are beginning to catch up, though full convergence remains distant. The path forward requires making services’ growth more job-intensive.
Policy proposals include formalising service enterprises, securing the rights of gig and SME workers, investing in rural and women-centric digital skilling, and nurturing Tier II and III cities as emerging service hubs. The government’s plan to start an Annual Survey of Service Sector Enterprises may be a pivotal step in this direction, helping to generate granular, enterprise-level data to guide future labour and sectoral policies.
The 2025 job market in India reflects a mix of optimism and caution, with the services sector continuing to grow, fuelled by advancements in technology, finance, and digital transformation. While urban areas are witnessing a surge in gig work, digital entrepreneurship, remote jobs, and the contribution of start-ups and MSMEs—especially in IT and customer service—rural India still struggles due to inadequate infrastructure, limited internet access, and traditional employment patterns. This disparity, highlighted by NITI Aayog’s findings, underscores the need for inclusive growth.
To ensure equitable and sustained expansion in the services sector, India must focus on policies that enhance rural participation, incentivise female labour force involvement, promote skilling and reskilling initiatives, develop regional service hubs beyond metropolitan cities and drive digital transformation among small and medium enterprises.
