Economic Survey 2025-26: India’s services sector emerged as a stabilising force amidst global uncertainty

Against the backdrop of global uncertainty and subdued global industrial activity, India’s services sector has emerged as a stabilising force, contributing more than half of the country’s Gross Value Added (GVA) and serving as a major driver of exports and employment, the Economic Survey 2025-26 has pointed out.

Economic Survey 2025-26 updates

Highlighting the sector’s rapid expansion in digitally delivered, knowledge-intensive, and experience-led segments, as well as its comparative strength in trade and foreign direct investment, the Survey, through a detailed examination of recent developments and high-frequency indicators has established that services have underpinned economic momentum, buffered external shocks, and supported urban employment dynamics.

As per the Economic Survey Service’s share in GDP rose to 53.6% in H1 FY26; its share in GVA stood at the highest ever — 56.4% — as per First Advance Estimates (FAE) of FY26 which shows the rising weight of modern, tradable and digitally delivered services.

India is the world’s seventh-largest exporter of services, with its share in global services trade more than doubling from 2% in 2005 to 4.3% in 2024.

According to the Survey the services sector continued to be the largest recipient of foreign direct investment (FDI) inflows, accounting for an average of 80.2% of total FDI during FY23-FY25, up from 77.7% in the pre-pandemic period (FY16-FY20).

Sub-sector analyses-spanning tourism, IT and IT-enabled services, transport, telecommunications, real estate, media and entertainment, and space services-reveal both the diversity and the emerging opportunities within the sector, the Finance Ministry which tabled the Economic Survey in the Parliament on Thursday said.

Critical reform measures, including developing new niche areas like the Orange economy, new hiking trails, marina development, and Ocean commercialisation will help the services sector to remain a powerful engine of sustained and inclusive economic growth in the years ahead, it pointed out.

Not only does it continue to underpin domestic growth, but services have also emerged as the most stable and resilient component of GDP, acting as a high-growth, low-volatility anchor, as is the case across the globe as per the Survey.

The sector has recorded average annual growth of around 7-8% year after year, in sharp contrast to the more pronounced cyclical fluctuations observed in agriculture and industry.

Even as services continue to anchor growth, the rapid technological progress which helped services ascend scales is now outpacing the growth in firm-level and worker- level adaptation, creating skill gaps and disruptions, the Survey has flagged.

“Coupled with tighter immigration, data protection/localisation norms and remittance rules, the promise of being the ‘stabilising force’ is now under challenge,” it has pointed out.

Stating that improvements in digital and physical infrastructure, connectivity, logistics and urban services have broadened the domestic base of services-led activity, the Survey said that the expansion of digitally delivered, knowledge- intensive and experience-based services has strengthened India’s underlying comparative advantages.

“The government’s proactive approach to trade policy, evident in the negotiation of comprehensive free trade agreements and economic partnerships, has facilitated greater market access, professional mobility, and regulatory cooperation, thereby enhancing the global competitiveness of Indian services,” it said.

“In parallel, targeted interventions in skill development, urban infrastructure, and innovation ecosystems have sought to bridge regional and sectoral disparities, foster entrepreneurship, and align workforce capabilities with evolving market needs,” it added.

Emphasising that while technologies are enhancing productivity and enabling new service models, the Survey said the pace of change is outpacing workforce and firm-level adaptation.

“As a result, many economies face widening skills gaps, with rising demand for specialised capabilities in areas such as data analytics, cybersecurity, cloud computing, and AI, alongside greater automation of routine service tasks,” it said.

Tighter immigration regimes in several advanced economies and intensifying global competition for skilled talent are further influencing the cross-border delivery of services, it added.

Against this global backdrop, going forward ,sustaining India’s position in the global services market will depend on productivity gains, continued innovation, ongoing investment in skills aligned with emerging technologies, and further simplification of regulatory processes, the Survey pointed out.

How effectively the sector responds to these factors will shape its contribution to India’s growth trajectory in the years ahead, it said.

The Survey has suggested key areas for improvement across major service ssegments.

For IT and IT-enabled services, it said the sector’s future would depend on timely reskilling, the wider diffusion of digital technologies, and the creation of a supportive policy environment for innovation and scaling.

Key reforms include recognising the unique requirements of data centres, such as access to green energy, facilitating visas for skilled professionals, providing tax clarity for digital services, and the need to promote mission-driven, industry-linked research, as well as predictable funding and strong public-private collaboration.

“Tourism requires the creation of niche segments, such as long-distance hiking trails, and a national marina development policy to unlock the blue economy. Streamlining permissions for live events, opening up heritage venues, and facilitating foreign artist participation will help realise the potential of the concert and orange economies,” it said.

“Space and ocean services are poised for rapid expansion through commercialisation and public-private partnerships. Collectively, these efforts can enable the services sector to remain competitive, employment-intensive and resilient, while supporting sustained and inclusive economic growth,” it concluded.