Opinion | Bridging the gap: How India can unlock the potential of its services sector

The services sector has undeniably been the main driving force of India’s growth since 2000. The exceptional efficiency of some modern services has clearly contributed to the creation of more productive and decent employment. Basing economic growth on services clearly requires a fully developed labor market, enabling the free movement of labor. The lack of such mechanisms will undoubtedly lead to rigidity in the services sector, limiting development in the face of the increasingly important position of the services sector.

Key areas of focus include the key role of technology in shaping the services sector and driving job growth in other sectors through multiplier effects.

The momentous transformation of the Indian economy is undeniably driven by the services sector, which undoubtedly contributes over 50 percent of GDP. The sector’s expansion does not occur in isolation, but is deeply linked to global technological progress. Technological advancements have undeniably become a catalyst for efficiency, customer satisfaction, market expansion and data-driven decision-making in companies. It has also led to the emergence of new service categories such as e-commerce and other technology-based services such as artificial intelligence (AI) and the Internet of Things (IoT), revolutionizing the sector.

The relationship between service sector growth and technological innovation is mutually beneficial. The growth of the service sector is driving further innovation in technology-based solutions. New ventures and their technological needs undeniably require continuous technological progress in order to achieve the competitiveness necessary to maintain their position in a dynamic industry. This competition and need for differentiation leads to increased investment in research and development (R&D) and open innovation, benefiting both the companies involved and society.

The introduction of 5G and the continuous development of 6G technology have significantly improved connectivity, service speed and overall performance in India. Efforts to improve digital skills have further accelerated technology adoption, with 70 percent of businesses identifying as “digital enterprises” and the country recording the highest fintech adoption rate of 87 percent.

The application of AI in business operations has significantly improved operational efficiency, customer satisfaction and decision-making, positioning India as a global leader in AI implementation. However, rapid digital transformation requires a balance between job creation and ensuring the right skills for technology-intensive jobs. Equipping the new generation with these skills is a national need.

The service sector offers both numerous opportunities and enormous challenges. Meeting these challenges requires a decisive and comprehensive approach, characterized by thoughtful policy and consistent implementation. Public-private partnerships and targeted policies to address skills gaps must be implemented with unwavering effectiveness.

Technological progress, driving economic growth, requires continuous development of skills. To take full advantage of technological advancements, educational institutions must constantly ensure that their curricula are constantly updated and in sync with the latest innovations.

Skills gap

In India, the skills gap in the workforce is a major challenge, with only 51 percent of young people considered employable due to a lack of necessary skills. This problem is exacerbated by the diverse socio-economic conditions prevailing in the country, particularly affecting those living in rural areas and from economically disadvantaged backgrounds who lack access to high-quality education and training. This situation perpetuates cycles of poverty and deepens wage inequality.

Moreover, insufficient emphasis on developing non-technical skills such as communication, critical thinking and leadership, which are increasingly in demand, further compounds the problem. The lack of these skills in the curriculum of most educational institutes forces employers to select candidates only from a few leading institutes. Furthermore, there is a significant gap between the skills taught and the skills required by employers, leading to unemployment even among those with formal education.

Efforts to fill this gap must include public-private partnerships (PPPs) such as the Industrial Training Institutes (ITI) Modernization Initiative and the National Skill Development Corporation (NSDC), which aim to train 150 million people by 2024. The initiatives these aim to take key steps towards adapting educational outcomes to market needs, emphasizing the importance of developing technical and non-technical skills to increase employability.

Gender inequality

From 2020 to 2023, women’s employability in India consistently exceeded men’s employability, with the exception of a decline in 2024. Moreover, it was higher in seven of the eleven years covered by the Wheebiz India Skills Reports. However, the gap between women’s and men’s participation in the labor market persists, indicating a clear trend towards employing women rather than employing men. This bias has been decreasing as women’s participation in the labor market has increased over the years, but significant improvement is still needed.

The Government of India has implemented various initiatives to support gender-inclusive employment, with the aim of closing the gender gap in the workplace and making hiring of women workers more lucrative, while ensuring that this does not come at the expense of pay gaps.

One significant piece of legislation is the Equal Pay Act of 1976, intended to eliminate the gender pay gap by ensuring equal pay for equal work. However, the Act faces challenges, such as a narrow interpretation of the same or similar work and the burden on employees to prove discrimination, which is difficult due to power dynamics in the workplace and legal complexities.

Additionally, the government has launched programs such as Mission Shakti and Deendayal Antyodaya Yojna – National Rural Livelihoods Mission (DAY-NRLM) focusing on women’s skill development and their employability. These initiatives include exclusive training institutes for women, industry-focused courses and partnerships with private sector bodies and NGOs. To encourage women to participate in skill development, 30 percent seats in ITIs and ITCs have been reserved for them. These measures represent a comprehensive and assertive approach to promoting gender equality in employment, highlighting the key importance of legislative support, skills development and financial empowerment in achieving a more inclusive workforce.

These unwavering steps will ensure the full potential of the Indian economy is realized and the benefits of skill development are shared equitably.

The author is the co-founder and CEO of Orane International, a training partner of the National Skill Development Corporation (NSDC), a member of the India International Skill Centers network, an initiative of GoI. The views expressed in the article are those of the author and do not represent the position of this publication.