Economic Survey 2025-26 Chapter 7 Summary for UPSC
Chapter 7 of the Economic Survey 2025-26, titled Services: From Stability to New Frontiers, explains how India’s services sector has become a major engine of growth, resilience, exports, employment and structural transformation.
The chapter places India within a global shift where services are becoming more important than goods trade in stabilising economies. Digitally deliverable, knowledge-intensive and experience-led services are expanding rapidly. India’s case is special because it has followed a service-led growth path at a lower level of per capita income than many manufacturing-led economies.
For UPSC, this chapter is important because services now connect with almost every major GS Paper 3 theme: growth, exports, employment, digital economy, logistics, tourism, urbanisation, innovation, AI, data centres, space economy and inclusive development.
Chapter Snapshot: Most Important Facts
The core message of the chapter is: services are India’s stabilising growth anchor, but future competitiveness will depend on moving from low-cost service delivery to high-value, innovation-led, AI-ready and globally competitive services.
Global Services Trends and India’s Experience
Globally, services have become a stabilising force amid weak industrial activity, supply-chain shifts and geopolitical uncertainty. While goods trade has stagnated, services trade has continued to expand. Digitally deliverable services such as IT, finance, professional services and cloud-based services can scale across borders without being limited by geography.
Services Share in GDP: India and the World
India’s services share in GDP rose to 49.9% in 2024-25, about 1.5 percentage points above its pre-pandemic average. This increase was larger than that of the world, the US and European Union, though China recorded a larger deviation from its pre-COVID level.
Global Services Trade and FDI
In 2024, services trade as a share of GDP rose compared to pre-pandemic levels. India recorded a stronger expansion than many advanced economies because of its comparative strength in digitally deliverable and globally tradable services.
| Global Trend | Key Fact | UPSC Meaning |
|---|---|---|
| Services trade | Continued expanding while goods trade faced stagnation. | Services act as shock absorber in external sector. |
| Services FDI | Services accounted for 53.5% of global FDI during 2022-2024. | Capital is moving towards services and infrastructure-linked sectors. |
| FDI concentration | Energy and gas, information and communication, construction and transportation absorbed over 88% of services FDI. | Investor preference is shifting towards strategic services. |
| India services FDI | Services accounted for 80.2% of total FDI during FY23-FY25. | India’s FDI profile is highly services-oriented. |
| India services FDI concentration | Information and communication, professional services, finance, energy and trading accounted for nearly 89% of services FDI. | Digital, skill-intensive and infrastructure-linked sectors dominate. |
India’s services-led growth provides resilience, but it also creates a policy challenge: skill adaptation and technology diffusion must keep pace with AI, data regulations, immigration restrictions and global competition.
Recent Trends in India’s Services Sector Performance
India’s services sector gained momentum in H1 FY26 despite global uncertainty. The services share in GDP rose to 53.6%, while services GVA grew by 9.3%, up from 7.0% in H1 FY25.
Which Sub-Sectors Drove Growth?
Financial, real estate and professional services remained the key driver. Growth was supported by credit demand, business services and real estate-linked activity. Public administration, defence and other services also expanded above pre-pandemic trends. Trade, hotels, transport, communication and broadcasting-related services normalised more gradually.
Main growth driver with both growth and GVA share above pre-pandemic levels.
Supported by public spending and service delivery.
Recovery is gradual because contact-intensive services still adjust after pandemic disruption.
Fastest structural opportunity due to global demand, AI and remote delivery.
Services and Employment
NITI Aayog’s 2025 analysis shows that services account for around 30% of total employment, more than manufacturing and construction separately. Between 2011 and 2024, employment elasticity in services stood at 0.43, compared to 0.22 in manufacturing, 0.41 in agriculture and 0.60 in construction.
High-Frequency Indicators
PMI Services averaged 58.9 in Q3 FY26, well above the expansion threshold of 50. New business and export business also remained above long-run averages. Credit to services strengthened from 9.9% growth during April-September 2025 to 12.4% during October-November 2025.
Services Exports, FDI and Artificial Intelligence
Services exports have become a central pillar of India’s external sector. Their share in GDP averaged 9.7% during FY23-FY25, up from 7.4% in the pre-pandemic period. In H1 FY26, the share rose further to 10.0%.
Software and Professional Services
Software services account for over 40% of India’s total services exports. Professional and management consulting services have emerged as the second-largest contributor, with their share rising from 10.5% in FY16-FY20 to 18.3% in FY23-FY25.
AI and Services Exports
The Survey’s analysis shows that AI-intensive services such as software, business and financial services grew faster than less AI-exposed services after AI diffusion. Overall, AI-exposed categories recorded an implied export increase of around 39.5% relative to control categories.
| AI-Exposed Services Category | Estimated Effect | Implied Export Increase | UPSC Interpretation |
|---|---|---|---|
| Overall AI-intensive services | Significant at 1% | ~39.5% | AI improves export competitiveness in digitally deliverable services. |
| Software services | Significant at 1% | ~44% | India’s core export strength benefits from AI adoption. |
| Business services | Significant at 1% | ~67% | Strong effect in consulting, analytics and business processes. |
| Financial services | Positive but insignificant | Not statistically significant | Impact may need longer observation period. |
Trade Agreements for Services
India is using FTAs, CEPAs and bilateral engagements to improve market access, professional mobility, regulatory cooperation and digital trade.
| Agreement | Major Services Gains | UPSC Relevance |
|---|---|---|
| India-UK CETA, July 2025 | UK granted access across 137 services sub-sectors; MRAs in nursing, accountancy and architecture; annual quota of 1,800 positions for chefs, yoga instructors and classical musicians. | Professional mobility and high-value services exports. |
| India-UK Double Contribution Convention | Eliminates dual social security payments for assignments up to 36 months; benefits over 75,000 professionals and 900 firms. | Improves cost competitiveness of Indian professionals. |
| India-Oman CEPA, Dec 2025 | Oman offered commitments in 127 services sub-sectors and improved Mode 4 access. | Gulf market access for Indian professionals. |
| India-EFTA TEPA, in force from Oct 2025 | Supports Mode 1, Mode 3 and Mode 4 services access; MRAs in nursing, CA and architecture. | Services exports to high-income markets. |
Services Exports, State Capacity and Servicification of Manufacturing
Can Services Exports Improve State Capacity?
The Survey makes a nuanced argument: services exports are extremely valuable for growth and foreign exchange, but they may not discipline and upgrade state capacity the same way goods exports do.
Services firms can succeed with human capital, bandwidth and contracts without depending deeply on domestic logistics or ports.
Productive services firms can relocate teams or invoice through offshore entities instead of forcing local institutional reform.
Services exports are less employment-intensive per dollar and geographically concentrated compared to goods exports.
Services competitiveness relies more on talent, firm culture and reputation than system-wide state performance.
Write carefully: the chapter does not say services exports are bad. It says services exports may not automatically force system-wide improvements in logistics, urban governance, courts, land administration and regulatory execution.
Servicification of Manufacturing
Manufacturing increasingly uses services such as design, R&D, software, logistics, finance, compliance and after-sales support. This is visible in smart devices, medical wearables, automobiles as “software on wheels” and AI-enabled industrial systems.
| Servicification Indicator | Finding | Meaning |
|---|---|---|
| Advanced economies | Services contribute nearly one-third of manufacturing export value. | Modern manufacturing is services-enabled. |
| Developing economies | Services contribute about one-quarter of manufacturing export value. | Scope for upgrading through service inputs. |
| India, 2020 | Domestic services value added was about 17.7% of manufacturing export value. | India can raise manufacturing value addition through efficient services ecosystem. |
| High-share sectors | Electronics, metals, textiles and electrical equipment had high service value addition. | Useful for export sophistication and jobs. |
Tourism Sector: Domestic Resilience and High-Value Segments
Domestic tourism remained the backbone of the tourism sector. Domestic tourist visits increased by about 17.5% in 2024 and by nearly 52.7% during January-September 2025 compared with the corresponding period last year.
Medical and Wellness Tourism
Medical and wellness tourism is a major comparative advantage for India because of cost competitiveness, skilled doctors and established healthcare infrastructure. Medical tourist arrivals increased from about 1.12 lakh in 2009 to over 6 lakh during 2022-2024.
Tourism Policy Priorities
The Survey highlights the need for state and local administrative capacity. Gujarat’s infrastructure-led and event-based tourism, Kerala’s responsible tourism model, Sikkim’s sustainability-focused regulation and Varanasi’s urban infrastructure investment show how implementation capacity shapes tourism outcomes.
| Tourism Frontier | What It Means | Policy Need |
|---|---|---|
| Long-distance hiking trails | Trail tourism comparable to Appalachian or Camino trails. | Eco-friendly lodges, GPS navigation, sanitation, rescue and community management. |
| Marina development | Harbours for yachts and recreational boats. | Transparent permit regime and private participation. |
| Medical tourism | High-value, non-seasonal tourism. | Direct flights, priority visas and global branding. |
| Tier 2 and Tier 3 tourism | Tourism beyond major destinations. | UDAN connectivity, visitor-centric infrastructure and digital tools. |
IT-ITeS, GCCs, Data Centres and Cybersecurity
IT-ITeS Sector
In FY25, the IT and IT-enabled services sector reinforced India’s position as a global technology and innovation hub. Nasscom estimates IT-ITeS industry revenue at USD 283 billion in FY25 including hardware, growing 5.1% year-on-year.
Global Capability Centres
Global Capability Centres are offshore units created by multinational companies for technology development, engineering, analytics, cybersecurity and business operations. India hosted over 1,700 GCCs in FY24, employing over 19 lakh professionals.
Data Centres and AI Infrastructure
India’s data centre capacity is projected to reach about 8 GW by 2030, up from about 1.4 GW as of Q2 2025. India generates nearly 20% of the world’s data but hosts only about 3% of global data centres, around 150 out of 11,000 worldwide.
AI, cloud adoption and data consumption create demand for high-performance data centres.
Data centres are energy-intensive and require reliable green power access.
Recognise data centres as a distinct category instead of treating them as ordinary commercial buildings.
Position India as a global AI data centre hub amid competition from Malaysia, Japan and Vietnam.
GenAI Startups and Cybersecurity
India’s technology startup ecosystem is the world’s third largest, with around 32,000-35,000 startups and over 2,000 added in CY25. Active GenAI startups increased from about 240 in H1 CY2024 to over 890 by H1 CY2025.
| Technology Indicator | Value | Meaning |
|---|---|---|
| Deep Tech funding | 78% rise in CY2024 | Shift towards advanced technology capabilities. |
| Technology startups | 32,000-35,000 | India is the third-largest tech startup ecosystem. |
| GenAI startups | Over 890 by H1 CY2025 | Rapid expansion in AI entrepreneurship. |
| Cybersecurity market | USD 6.0 billion in 2023 | Growing at about 30% as per Nasscom-DSCI. |
| Global Cybersecurity Index | Tier-1 ranking with score 98.49 in 2024 | India among cyber-resilient countries. |
| Frontier Technology Readiness Index | Rank improved from 48th in 2022 to 36th in 2024 | Progress, but ICT penetration and skills remain constraints. |
Transport and Telecommunication Services
Transport Services
Transport services directly contribute around 4.5% to GVA and enable manufacturing, trade, mobility and logistics. The chapter covers port cargo, aviation and railway freight performance.
| Transport Indicator | FY25 | FY26 Apr-Dec / Available Period | Meaning |
|---|---|---|---|
| Port cargo traffic at major ports | 854.8 MT | 672.9 MT, 8.2% YoY growth | Strong trade and port activity. |
| Air cargo traffic | 3.7 MT, 10.5% growth | 2.6 MT, 5.1% growth up to November | Moderation after strong FY25. |
| Air passengers handled | 411.8 million, 9.4% growth | 275.5 million, 3.5% growth up to November | Passenger mobility continues but momentum softened. |
| Railway freight | 1,614.9 MT | 1,215.0 MT, 3.3% growth | Supports core industrial activity. |
| Container vessel turnaround time | Nearly 30 hours in FY25 | Improved from 43 hours in FY15 | Shows port efficiency gains. |
| National waterways cargo | 145.5 MT in FY25 | Up from 18.1 MT in FY14 | Improved multimodal logistics. |
Railway Freight Services
Rail freight is about 50% more cost-effective than road transport for cargo movement. Freight loading exceeded 1.6 billion tonnes in FY25 and reached 1,215 MT during April-December FY26. Growth was supported by coal, iron ore, cement, container traffic, steel, fertilisers, mineral oil and foodgrains.
Telecommunication Services
Telecommunications contribute directly around 1.2% to India’s GVA, but their indirect role is much larger because they support digital payments, e-commerce, online education, healthcare delivery, governance and enterprise services.
Telecom is a foundational service. Its direct GVA share is small, but it enables digital public infrastructure, fintech, education, healthcare, e-governance, e-commerce and AI services.
Real Estate, Media and Entertainment, and the Orange Economy
Real Estate and Housing Services
Real estate and ownership of dwellings contributed about 7% to annual GVA on average over the past decade. RERA, GST and Housing for All improved formalisation. PMAY Urban interest subvention, Affordable Housing Fund and easier credit supported housing finance.
Media and Entertainment Services
The media and entertainment sector includes audio-visual production, broadcasting, digital content, animation, gaming, advertising and live entertainment. Its size was estimated at around ₹2.5 trillion in 2024. Digital media contributed around one-third of revenues.
| M&E Segment | Key Fact | Economic Significance |
|---|---|---|
| Total M&E sector | Around ₹2.5 trillion in 2024 | Large domestic market and rising digital consumption. |
| Digital media | About one-third of total revenues | Main growth engine. |
| Video subscription | ₹9,200 crore in 2024 | OTT and mobile delivery reshaping content markets. |
| Animation and VFX | ₹103 billion in 2024 | Export-oriented and skill-intensive segment. |
| Gaming | ₹232 billion in 2024 | Driven by mobile platforms and digital payments. |
| Live entertainment | Crossed ₹100 billion in 2024 | Creates spillovers to tourism and urban services. |
Orange Economy
The Orange Economy refers to activities driven by creativity, culture and intellectual property. In this chapter, the concert economy is highlighted as a high-multiplier, services-intensive activity that supports tourism, hospitality, travel, logistics, media production, advertising and local services.
Live music contributes around one-third of global music revenues.
Live entertainment generated over USD 130 billion and supported more than 900,000 jobs in 2019.
Music tourism contributed USD 8.1 billion in 2022, about 0.3% of GDP.
Single-window permissions, live event venues, heritage venue access and easier participation for foreign artists.
Commercialising Space and Ocean Services
India’s space sector is a fast-growing, technology-intensive and commercial services segment. It is valued at about USD 8.4 billion, around 2% of the global space market, and is projected to expand to USD 44 billion over the next decade.
NSIL, IN-SPACe and Downstream Services
NewSpace India Limited has become the commercial interface for launch services, satellite operations and technology transfer. Its revenues rose from ₹322 crore in FY20 to ₹2,940 crore in FY23, with further expansion projected in FY25 to ₹3,246.1 crore.
Ocean Services
The chapter argues that ocean technology and ocean sciences can be scaled through public-private partnerships. Earth-system data products across atmosphere, oceans, cryosphere and geosphere can transform the economics of Earth-system science and applications.
Space and ocean services show that India’s services sector is no longer limited to IT and tourism. It is moving into deep technology, Earth observation, climate intelligence, maritime services and commercial scientific applications.
Conclusion and Way Forward
The chapter concludes that India’s services sector has shown strong momentum in output, employment and exports amid global volatility. It has diversified into high-value, technology-driven and experience-led segments, supported by digital infrastructure, connectivity, logistics, urban services, trade agreements, skill development and innovation ecosystems.
The biggest future challenge is that technology is moving faster than firm-level and worker-level adaptation. Demand is rising for data analytics, cybersecurity, cloud computing and AI skills, while routine service tasks face automation risks. Immigration restrictions and global competition for skilled talent add further challenges.
Reskilling and upskilling are essential for AI, cloud, cybersecurity and analytics-led services.
Mission-driven, industry-linked R&D and public-private collaboration can move services up the value chain.
Data centres, live events, tourism and digital services require simpler, predictable rules.
Hiking trails, marinas, Orange Economy, space and ocean services can expand employment-intensive services.
India’s services sector has moved from being a stability anchor to becoming a frontier sector. To sustain leadership, India must combine export competitiveness with domestic employment, digital capability, urban readiness, innovation and regulatory agility.
UPSC Prelims, Mains and Essay Takeaways
- India is the world’s seventh-largest exporter of services.
- India’s global services trade share rose from 2% in 2005 to 4.3% in 2024.
- Services share in GDP was 53.6% in H1 FY26.
- Services GVA grew 9.3% in H1 FY26.
- PMI Services averaged 58.9 in Q3 FY26.
- Services exports/GDP rose to 10.0% in H1 FY26.
- IT-ITeS revenue was USD 283 billion in FY25.
- India hosted over 1,700 GCCs in FY24.
- Services act as India’s high-growth, low-volatility anchor.
- Services exports buffer India against weak global goods trade.
- AI can improve services exports but also creates reskilling pressures.
- Services employment is significant but uneven across sub-sectors and regions.
- Servicification improves manufacturing value addition and export competitiveness.
- New frontiers like tourism, data centres, space and Orange Economy need regulatory agility.
- Services-led growth and India’s structural transformation.
- Digital economy as a new engine of exports.
- AI, skills and the future of work.
- Tourism, culture and the Orange Economy.
- From IT services to space and ocean services.
- Services as a bridge between growth, employment and innovation.
Key Terms Explained
| Term | Simple Meaning | UPSC Use |
|---|---|---|
| Services GVA | Value added by services such as trade, finance, IT, transport, tourism and public services. | Use in growth and structural transformation answers. |
| Digitally Deliverable Services | Services that can be exported or delivered remotely using digital networks. | Important for services exports and AI questions. |
| Global Capability Centre | Offshore unit of an MNC doing technology, analytics and business operations. | India’s role in global value chains. |
| Mode 1 Services | Cross-border supply of services without movement of people. | Digital trade and FTAs. |
| Mode 4 Services | Temporary movement of professionals to provide services abroad. | Professional mobility in trade agreements. |
| Servicification | Growing use of services in manufacturing value chains. | Manufacturing competitiveness. |
| Orange Economy | Economy driven by culture, creativity and intellectual property. | Media, entertainment and tourism value addition. |
| NewSpace | Private and commercial space ecosystem. | Space economy and innovation. |
| Data Centre | Specialised infrastructure for storing, processing and computing data. | AI, cloud and digital infrastructure. |
| PMI Services | Survey-based index showing expansion or contraction in services activity. | High-frequency economic indicator. |
Internal Links for UPSC Economy Preparation
Continue your preparation with the Economic Survey 2025-26 complete summary for UPSC. You can also use these related IASment study sections:
- Previous Chapter: Economic Survey 2025-26 Chapter 6 Agriculture and Food Management
- UPSC Economy Notes for concept clarity.
- UPSC Prelims Economy Strategy for MCQ-focused preparation.
- UPSC Mains GS Paper 3 Economy Notes for analytical answer writing.
FAQs on Economic Survey 2025-26 Chapter 7
What is Economic Survey 2025-26 Chapter 7 about?
It explains India’s services sector as a stabilising force and growth engine, covering global services trends, India’s services growth, exports, FDI, employment, tourism, IT-ITeS, transport, telecom, real estate, media and entertainment, space and ocean services.
Why is this chapter important for UPSC?
This chapter is important for GS Paper 3 because services contribute more than half of India’s GVA, drive exports, support employment and connect with digital economy, tourism, logistics, telecom, innovation, AI and space economy.
What are the most important facts from this chapter?
Important facts include: services share in GDP was 53.6% in H1 FY26, services GVA grew 9.3%, India is the seventh-largest services exporter, PMI Services averaged 58.9 in Q3 FY26, and IT-ITeS revenue reached USD 283 billion in FY25.
How do services exports support India’s economy?
Services exports provide foreign exchange, support external sector resilience and buffer India when global goods trade is weak. Software and professional services are the main contributors.
What is the role of AI in India’s services exports?
AI increases productivity and reduces trade costs in digitally deliverable services. The Survey finds that AI-intensive services exports grew faster than less AI-exposed services after AI diffusion.
What are Global Capability Centres?
Global Capability Centres are offshore units of multinational firms that perform technology development, engineering, analytics, cybersecurity and business operations. India hosted over 1,700 GCCs in FY24.
What is the Orange Economy?
The Orange Economy is driven by creativity, culture and intellectual property. It includes live concerts, digital content, entertainment, tourism, media production, advertising and local services.
What is the chapter’s final message?
The chapter concludes that India’s services sector has moved from stability to new frontiers. Its future depends on innovation, reskilling, digital infrastructure, regulatory simplification, tourism expansion, data centres, space services and public-private partnerships.
Official Source and Chapter Navigation
For the official document, refer to the Official Economic Survey 2025-26 source.
This IASment page is a UPSC-oriented educational summary prepared for revision, conceptual clarity and exam use.