TLDR;
This video provides a detailed analysis of India's service sector, drawing from the Economic Survey of India. It covers the sector's contribution to GDP, growth trends, FDI inflows, and the impact of artificial intelligence. The discussion also extends to recent trade agreements and emerging concepts like the "Servicification of Manufacturing."
- The service sector is a major engine of India's economic growth, contributing over 50% to the country's Gross Value Added (GVA).
- India ranks seventh globally in service provision, with a significant increase in its share of global service trade.
- The integration of Artificial Intelligence (AI) is transforming the service sector, driving innovation and efficiency.
Introduction to the Economic Survey and Service Sector [0:01]
The lecture series focuses on the Economic Survey of India, with this session dedicated to the service sector. Previous lectures covered basic data and the agricultural sector, including production statistics, emerging trends like food processing and crop diversification, and government policies. This lecture will mirror that structure, examining data, key areas within the service sector, FDI inflows, and the impact of agreements with countries like Oman, the UK, and the EU. It will also address the influence of AI and the concept of "Servicification of Manufacturing," alongside discussions on energy, tourism, and communication. The aim is to provide a comprehensive overview relevant to both preliminary and main examinations.
Service Sector's Role in GDP and GVA [3:49]
The service sector falls under the tertiary sector of the economy, encompassing activities like banking, education, tourism, transportation, and software consultancy. Advanced economies typically have a larger contribution from the secondary and tertiary sectors to their GDP. In India, the service sector plays a dominant role, contributing over 50% to the Gross Value Added (GVA). Specifically, the service industry's contribution to GVA has increased from 50.6% in 2014 to 55.3% in 2025. India is the seventh largest service provider globally, with its share in global service trade rising from 2% in 2005 to 4.3% recently. There is potential for further growth through investment in emerging fields and enhanced consultancy services.
Growth Trends and FDI in the Service Sector [8:18]
The average growth rate of India's service exports has nearly doubled post-COVID, increasing from 7.6% between 2016 and 2020 to 14% in 2023-2025. The service sector has attracted significant Foreign Direct Investment (FDI), accounting for 80.2% of total FDI inflows, surpassing investments in construction, manufacturing, and agriculture. In 2025, the IT and IT-enabled services sector generated $203 billion in revenue. India has also earned $433 million by launching 393 foreign satellites for 34 countries between 2015 and 2024. The growing role of ISRO and private companies in the space sector enhances India's service capabilities.
Contribution to GDP and Growth Rate [12:43]
The service sector's contribution to India's GDP has increased by 1.5% compared to pre-COVID levels. While the contributions from agriculture and construction have slightly decreased, the service sector is expected to contribute 51.1% to the GDP, up from 49.9% in the financial year 2025. This includes trade, hotels, transport, communication, financial services, real estate, professional services, public administration, and defence. The growth rate in the service sector is projected to be 9.1%, a significant jump from the previous 7.2%.
FDI and Employment in the Service Sector [16:48]
The service sector accounts for 80.2% of total FDI inflows into India, with the information and communication technology sector receiving the largest share, followed by professional services and finance and insurance. The service industry provides 30% of the employment in India, with more job creation compared to the secondary sector. However, service sector jobs are predominantly in urban areas, particularly in South India, with states like Tamil Nadu, Karnataka, Andhra Pradesh, Telangana, and Maharashtra contributing significantly to the sector.
Gender and Regional Disparities in the Service Sector [20:32]
There is a significant gender disparity in service sector employment, with only 10.5% of rural women participating compared to 60% of urban women. Interestingly, women in certain service sector roles, such as IT, ICT, health services, rural education, and public administration, earn more than men. Four states—Karnataka, Maharashtra, Tamil Nadu, and Telangana—contribute 40% of the service sector revenue. Improving connectivity and public transportation in suburban areas can provide more opportunities for women to participate in the service sector.
Service Exports and the Impact of AI [24:40]
Service exports contribute 9.7% to India's GDP, with software services being the largest contributor, followed by expert services in fields like medicine, engineering, and management. The integration of Artificial Intelligence (AI) has significantly boosted business growth and innovation in the service sector. AI adoption has led to cost-cutting, reduced infrastructure needs, and expanded global reach. India ranks third globally in AI readiness, driven by government support, research and development, and private sector adoption.
Trade Agreements and Opportunities for the Service Sector [29:34]
Recent trade agreements with the UK, Oman, and the European Union offer new opportunities for India's service industry. The Comprehensive Economic and Trade Agreement (CETA) with the UK provides access to 137 service sectors, including software, health, and engineering. The Comprehensive Economic Partnership Agreement (CEPA) with Oman allows Indian companies 100% FDI ownership. The Trade and Economic Partnership Agreement (TEPA) with the European Union is expected to benefit India's IT professionals and service providers in cultural and entertainment sectors.
Servicification of Manufacturing [32:34]
"Servicification of Manufacturing" refers to the increasing integration of services into the manufacturing process, from design and R&D to after-sales service and software updates. For example, car manufacturing involves design engineering, advertising, after-sales service, and software-based value-added services. This concept highlights the growing dominance of services in construction and manufacturing sectors, with potential for increased value addition through software and various service-related activities.
Future Discussion [35:54]
The next lecture will cover specific sub-sectors within the service industry, including tourism, energy, and software, discussing the challenges and government policies aimed at addressing them.
