More service jobs needed for India to become prosperous: NITI Aayog

New Delhi: Although the services sector accounts for more than half of India’s ₹330 trillion economic output, the sector employs only a third of the country’s workforce, and hence increasing employment intensity in this sector is critical to avoid a jobless growth future, federal policy think tank NITI Aayog said on Tuesday.

NITI Aayog stated in a report that India’s services sector expansion has been more output-intensive than employment-intensive, indicating a disconnect between gross value added in the economy and job creation.

To harness the sector’s potential, India must improve the quality, inclusiveness, and resilience of service jobs, according to the think tank’s report “India’s services sector: insights from employment trends and state-level dynamics”.

India employs 188 million people in the services sector.

NITI Aayog’s emphasis on creating well-paid jobs in the services sector is significant because the manufacturing sector has been the focus of the government's efforts to create remunerative jobs for people who may shift from low-paid agricultural activities.

However, increased automation and capital-intensive expansion of factories mean reduced labour requirements in the manufacturing sector. Uncertainties in global trade, due to tariffs and geopolitics, are also affecting the manufacturing sector.

NITI Aayog said that while services remain the mainstay of India’s employment growth and post-pandemic recovery, job creation remains uneven across segments, informality remains widespread, and job quality continues to lag behind output growth.

Inclusion is key

According to NITI Aayog, India needs a new policy approach that treats services as a central pillar of the country’s employment strategy, rather than as a residual sector.

“Gender gaps, rural-urban divides, and regional disparities underline the need for an employment strategy that integrates formalization, inclusion, and productivity enhancement at its core,” the think tank said in a statement on the report.

The think tank proposed several measures to boost employment generation in the services sector, which should play a central role in India’s employment strategy.

These include speeding up the formalization of the sector and extending social protection to the self-employed, gig workers, and those in micro, small, and medium enterprises. This is critical for improving job quality, according to NITI Aayog. Targeted skilling, digital infrastructure, and safe mobility can enable women and rural youth to access high-growth services. Investing in technology-led skilling and balanced regional growth is also important.

Traditional services such as trade, transport and education continue to dominate employment, but are witnessing a slowdown in job creation, while modern services such as information technology, finance and professional services offer higher productivity and wage potential, but remain limited in scale, NITI Aayog member Arvind Virmani said in a message included in the report.

“Services sector must be positioned as a driver of equitable, employment-intensive development,” Virmani noted.

Unlocking the full potential of service employment will be central to achieving the vision of ‘Viksit Bharat’ by 2047, where growth is matched by broad-based, high-quality jobs that sustain an inclusive and competitive economy, the report said.

Over the past three decades, services have expanded rapidly as a source of employment worldwide, according to the report.

Between 1992 and 2022, the global share of workers employed in services increased from 35.5% to 49.8%, according to the report, which cited the International Labour Organisation.

India’s transition, however, has been slower. The services sector’s share in employment grew from 22.1% in 1992 to 31% in 2022, an increase of only 8.9 percentage points, which is significantly below the global average, according to NITI Aayog.