Eco Survey: Services sector a growth anchor, skill gaps creating challenges

Economic Survey 2025-26 says India's services sector continues to underpin growth, exports amid global uncertainty, but rapid technological change, AI adoption are outpacing skill adaptation

Even as India’s services sector continues to anchor growth, the rapid technological progress that helped it ascend scales is now threatened by skill gaps at the firm and worker-level, creating disruptions, noted the Economic Survey 2025-26.

 

The Survey added that coupled with tighter immigration, data protection, localisation norms and remittance rules, the promise of being the “stabilising force” is now under challenge.

 

In the current financial year, India’s services sector has continued to underpin growth despite heightened global uncertainty. Services exports have become a central pillar of India’s external sector and a key driver of growth.

 

Their share in GDP averaged 9.7 per cent during FY23-25, up from 7.4 per cent in the pre-pandemic period.

 

 

“Amid subdued global goods trade due to policy uncertainty and geopolitical disruptions, services exports have provided a critical buffer. This role has strengthened further in H1 FY26, with the share of services exports in GDP rising to 10.0 per cent, from 9.7 per cent in H1 FY25,” it noted.

 

The survey, however, pointed that AI is increasingly shaping global services trade, particularly digitally deliverable services. In a survey conducted to see the impact of AI on services, the Survey added that AI-intensive services— software, business, and financial services— exports grew significantly faster than less AI exposed services after the AI diffusion phase.

 

The Survey also talks about “servicification” of manufacturing. “As manufacturing becomes increasingly technology and data-intensive, services such as ICT, finance, compliance, and after-sales support account for a growing share of value creation. International experience suggests that this integration is a crucial channel for enhancing value addition, export competitiveness, and employment.”

 

Firm-level studies for India indicate that greater use of service inputs is positively associated with export participation, export intensity, and more stable or even higher employment in manufacturing, added the Survey. Complementing this, an analysis by the Centre for Social and Economic Progress using OECD-TiVA and Indian input-output data shows that domestic services value added accounted for about 17.7 per cent of India’s manufacturing export value in 2020, with sectoral shares exceeding 20-25 per cent in electronics, metals, textiles and electrical equipment and 15 per cent or more in several labour-intensive industries.

 

The Survey added improvements in logistics, transport, ICT, warehousing, and business services, along with reduced frictions in services trade, can enhance manufacturing competitiveness, export sophistication, and employment.

 

“Servicification thus highlights the complementarity between manufacturing and services, rather than the trade-offs, and offers India a pathway to raise manufacturing value addition while supporting jobs within a services-enabled growth framework.”

 

Orange Economy

 

The Economic Survey has pitched live concerts and entertainment events as high-multiplier, services-intensive activities which generate economic value beyond ticket sales, by supporting tourism, employment and urban services. Termed as Orange Economy, driven by creativity, culture, and intellectual property, the Survey has pegged it as an emerging lever of growth for media, tourism and allied services. The Survey also proposed opening up of heritage monuments for such events and facilitating the visa and foreign exchange permissions for the foreign performers or artists.

 

Live entertainment has rebounded strongly since the Covid-19 pandemic, crossing ₹100 billion in 2024 and generating spillovers. In India, the concert economy is nascent but is consistently scaling, supported by a young population, rising incomes, digital ticketing platforms and improving urban infrastructure, the Survey said. Last year, British rock band Coldplay performed five sold-out concerts across Mumbai and Ahmedabad. This year, American rock band Linkin Park and singer John Mayer are the highlight events. However, there continued to be a lack of live event venues and restrictions on the foreign payments that can be made to artists coming from abroad.