Annual Survey of Services Sector Enterprises

• 02 May 2025

For Prelims: Service Sector, Digital India, AI, ML, Skill India Digital, PMKVY 4.0, Global Capability Centers (GCCs), Digital Literacy. 

For Mains: State of incorporated services sector enterprises in India, their contribution, associated challenges and way forward. 

Source: PIB 

Why in News? 

The Ministry of Statistics and Programme Implementation released findings from a pilot study on the Annual Survey of Services Sector Enterprises, aimed at filling critical data gaps in India's incorporated service sector, which is not covered by existing surveys like the Annual Survey of Unincorporated Sector Enterprises.  

• It covered those service sector enterprises which are registered under Companies Act and Limited Liability Partnership Act. 
• It found that 82.4% enterprises were Private Limited Companies, followed by Public Limited Companies (8%) and LLPs (8%). 

What is the Importance of Services Sector Enterprises for India? 

• Contribution to GDP: In FY 2024-25, the services sector contributed approximately 55% to India's Gross Value Added (GVA), up from 50.6% in FY14. 
  • It sustained strong growth at 7.6% in FY24, showcasing its resilience amid global challenges. 
• Employment Generation: The sector employs approximately 30% of India's workforce, encompassing industries such as information technology, finance, healthcare, education, tourism, and retail. 
• Global Trade: During April-December 2024, India's services exports stood at USD 280.94 billion. 
  • In telecommunications, computer, and information services, India accounts for 10.2% of global exports, ranking as the 2nd-largest exporter in this category. 
• Foreign Direct Investment (FDI): From April 2000 to December 2024, the services sector attracted USD 116.72 billion in FDI, constituting about 16% of India's total FDI inflows during this period. 
• Integration with Other Sectors: The 'servicification' of industry, or the growing integration of services like design, logistics, and after-sales support into manufacturing processes, has boosted productivity and added value to the industrial sector. 
• Critical for Urbanization & Digital India: The expansion of FinTech and digital payments, is critical for the success of Digital India.  
  • The Smart Cities Mission also depends on this sector for services like urban mobility, waste management, and e-governance. 

What are the Challenges Faced by the Services Sector in India? 

• Skill Gaps & Workforce Readiness: The Economic Survey 2023-24 indicates that only 51.25% of India’s youth are considered employable, possessing the skills needed to meet the rapidly evolving demands of the industry. 
  • According to WEF, only 5% of India's workforce, the youngest and largest in the world, is recognized as formally skilled. 
• Informal Employment Dominance: In 2017-18, around 78% of services sector jobs were informal. 
  • Gig workers (Swiggy, Ola, Uber) lack social security such as health insurance, retirement funds, or paid leave.  
• Global Competition & Protectionism: IT sector faces visa restrictions (e.g., H-1B rejections by US), rise of competing hubs (e.g., Philippines (BPO), Vietnam (IT)), and declining cost advantage (e.g., Indian IT wages rose 8-10% annually on an average). 
• Infrastructure Gaps: Larger units are yet to fully adopt AI and ML, which are essential for enhancing connectivity and customer engagement. 
  • A majority of MSME units in rural areas, run by women, SC-ST and other marginalized groups, do not have access to basic digital tools. 
• Post-Pandemic Vulnerabilities: Inbound tourism in India is still recovering from the pandemic, with foreign tourist arrivals at 90% of 2019 levels in the first half of 2024. 

How to Address Challenges in the Services Sector?   

• Upskilling: Expand Skill India Digital to certify workers in AI, cloud computing, and cybersecurity and increase vocational training institutes under PMKVY 4.0. 
  • The Prime Minister Internship Scheme (PMIS) should be vigorously pursued to enhance employability and bridge the gap between academic knowledge and industry requirements. 
• Strengthening Global Competitiveness: Negotiate free trade agreements (FTAs) with EU, UK, and Australia to reduce visa restrictions. 
  • Promote Global Capability Centers (GCCs) to leverage India's vast talent pool to support various functions like IT, R&D, and finance. 
• Digital Infrastructure and Cybersecurity: Strengthen cybersecurity by investing in robust frameworks, promoting secure cloud adoption—particularly in financial institutions—and enhancing digital literacy for safe and effective tech use. 
• Foster Growth in Tier-2 and Tier-3 Cities: NITI Aayog recommends decentralizing service-sector growth to Tier-2 and Tier-3 cities by boosting infrastructure and digital connectivity in smaller cities. 

Conclusion 

The services sector is vital to India's economy, contributing significantly to GDP, employment, and global trade. However, challenges like skill gaps, informal employment, and global competition hinder growth. Addressing these issues through upskilling, infrastructure development, and fostering growth in smaller cities can enhance sector resilience and global competitiveness.

Drishti Mains Question:

What are the key challenges facing India's services sector despite its economic dominance, and how can it become more inclusive and resilient?

UPSC Civil Services Examination, Previous Year Question (PYQ) 

Prelims

Q. In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight? (2015) 

(a) Coal production 

(b) Electricity generation 

(c) Fertilizer production 

(d) Steel production 

Ans: (b)

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Mains

Q. Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product(GDP) in the post-reform period” Give reasons. How far are the recent changes is Industrial Policy capable of increasing the industrial growth rate? (2017) 

Q. Normally countries shift from agriculture to industry and then later to services, but India shifted directly from agriculture to services. What are the reasons for the huge growth of services vis-a-vis the industry in the country? Can India become a developed country without a strong industrial base? (2014)