India’s Services Sector at a Crossroads: High Growth Masks a Looming Low-Wage Job Trap, Warns NITI Aayog 

Based on recent NITI Aayog reports, India’s services sector presents a stark duality: while it is the dominant engine of the economy, contributing nearly 55% to the Gross Value Added (GVA) and employing 188 million people, it is plagued by a crisis of job quality, risking a “low-wage trap.”

The sector is deeply divided, with a small, highly productive segment (IT, finance) driving economic output and a vast, informal traditional segment (trade, transport) acting as a major but poor-quality employer, where 87% of workers lack social security, and significant spatial and gender disparities persist—evident in the fact that only 10.5% of rural women are in services compared to 60% of urban women. The reports call for a transformative roadmap centered on formalization, social protection, and inclusive skilling to transition the sector from being a mere labor shock absorber into a genuine engine of high-quality, equitable growth.

India’s Services Sector at a Crossroads: High Growth Masks a Looming Low-Wage Job Trap, Warns NITI Aayog 

India’s economic narrative has long been powered by its dynamic services sector. From the gleaming IT parks of Bengaluru to the bustling trade hubs of Delhi, this sector has been the undisputed champion of the nation’s Gross Value Added (GVA), contributing a staggering 55% in 2024-25. However, a groundbreaking pair of reports from NITI Aayog, released in October 2025, pierces this veneer of success to reveal a more complex and concerning reality. Titled “Insights from GVA trends and State-level dynamics” and “Insights from Employment trends and State-level dynamics,” these documents present a compelling case: while services are the core of India’s economy, they risk becoming a trap of informal, low-paying, and inequitable employment, failing to fully harness their potential as a vehicle for high-quality growth. 

The Great Indian Dichotomy: Productivity vs. Employment 

The most striking finding from the NITI Aayog analysis is the stark disconnect between the sector’s economic output and its employment quality. 

• The GVA Powerhouse: The services sector’s 55% contribution to GVA dwarfs the primary (16%) and secondary (29%) sectors. This underscores a fundamental shift in the Indian economy, positioning it as a modern, services-driven powerhouse on the global stage. 

• The Reluctant Employer: Despite this dominance, services employ only about one-third of India’s workforce. With 188 million workers in 2023-24, it is the second-largest employer, but it lags far behind its economic weight. This indicates exceptionally high productivity in certain segments, but a failure to create a proportional number of stable, well-paying jobs. 

This divergence points to a deeply segmented sector, split into two distinct worlds. 

The Two Faces of India’s Services Economy 

1. High-Value Services: The Productivity Vanguard This segment includes IT/ITES, finance, insurance, professional services, and healthcare. These are the poster children of “Shining India.” They are highly productive, globally competitive, and contribute disproportionately to GVA. However, they are capital-intensive and skill-specific, inherently limiting their capacity for mass employment. They absorb a small, highly educated fraction of the workforce.
2. Traditional Services: The Informal Backbone This includes trade, repair, hospitality, transport, and personal services. This segment is the true “labour shock absorber” of the Indian economy, having added a massive 40 million jobs in just six years, second only to construction. It provides livelihoods to millions of migrants, semi-skilled, and unskilled workers. The dark side? It is characterized by high informality, low productivity, and pervasive job insecurity. A staggering 87% of workers in the sector lack any form of social security, living one crisis away from penury.

The Deep-Seated Divides: A Geographic and Sociographic Profile 

The NITI Aayog reports meticulously map the fractures within the services workforce, revealing inequalities that threaten inclusive growth. 

The Urban-Rural Chasm 

The services sector is overwhelmingly urban. A full 60% of urban workers find employment in services, compared to less than 20% of their rural counterparts. This highlights a critical barrier: the inability of high-value services to penetrate rural areas, leaving a vast pool of the rural workforce dependent on agriculture and low-productivity non-farm work. 

The Persistent Gender Gap 

The gender disparity is even more alarming. While 60% of urban women workers are in services—a sign of urban opportunity—this plummets to a mere 10.5% for rural women. This points to a combination of societal barriers, lack of accessible opportunities, and security concerns. The report further highlights a persistent and brutal wage gap: rural women in services earn less than half of what men do, a stark indicator of systemic discrimination and the undervaluation of women’s labour. 

The Age and Education Conundrum 

The sector is dominated by prime-age workers, suggesting that entry for youth is fraught with instability, often beginning with informal, temporary roles. While higher education undoubtedly improves access to the high-value segment, the report crucially notes that informality persists even for the educated. A commerce graduate might be working as an unsecured gig economy delivery executive, or a graduate in arts might be in an informal retail job without a contract or benefits. This “educated informal” class is a ticking time bomb for social discontent. 

The Roadmap for Transformation: From Shock Absorber to Growth Engine 

Recognizing these challenges, NITI Aayog doesn’t just diagnose the ailment; it prescribes a comprehensive treatment plan. The roadmap focuses on formalization, inclusion, and future-proofing. 

1. Formalization and Social Protection: This is the most critical step. The focus must be on extending social security benefits—pension, health insurance, accident coverage—to the 87% of informal workers. This involves innovative policy frameworks for the gig and platform economy, and simplifying compliance for Micro, Small, and Medium Enterprises (MSMEs) to bring them into the formal fold.
2. Driving Inclusive Access: Bridging the gender and rural divide requires targeted intervention. This means creating safe and accessible workspaces for women, promoting entrepreneurship through tailored schemes, and using digital tools to deliver skilling programs to rural youth, enabling them to access remote service sector jobs.
3. Tech-Led Skilling for the Future: The sector cannot thrive by focusing only on its current form. A massive push towards skilling in digital technologies, AI-augmented roles, and the emerging green economy (e.g., sustainability consulting, carbon accounting, renewable energy services) is essential. This will prepare the workforce for high-value jobs of the future, not just the low-skill jobs of the past.
4. Balanced Regional Growth: To dismantle the urban-rural divide, the report advocates for the development of service hubs in Tier-2 and Tier-3 cities and promoting state-specific clusters. For instance, a state like MP could focus on agro-processing and logistics services, while Himachal could build a hub for wellness and tourism-related services.

Conclusion: A Pivotal Moment for Indian Political Economy 

The NITI Aayog reports serve as a crucial reality check. The story of India’s services sector is no longer a simple tale of triumphant growth. It is a more nuanced narrative of a dual economy within a single sector. 

The nation stands at a pivotal juncture. One path continues the current trajectory—a small, highly productive formal sector coexisting with a vast, informal, low-wage informal sector, leading to entrenched inequality and social friction. The other path, charted by the NITI Aayog roadmap, involves a concerted effort to formalize, include, and upgrade. It aims to transform the services sector from being merely a “shock absorber” for labour fleeing agriculture into a genuine engine of high-quality, high-productivity, and high-wage employment. 

The success of this transformation will not only determine the livelihood security of millions of Indians but will ultimately define the quality and inclusivity of India’s ascent as an economic superpower. The time to act on this insightful diagnosis is now.