India’s Service Sector Powers Ahead: Time to Tap ‘Other Business Services’ Potential

While policy discussions continue to favor manufacturing, it’s India’s services sector that’s leading on key metrics — from exports and employment to tax revenue generation. The sector's share in GDP has grown from 44% in 2004 to 55% in 2024, far outpacing manufacturing, which has remained stagnant at 14-17% of GDP.

Export Trends Highlight Sectoral Divide

India’s services exports rose by 23.6% year-on-year in February and 14.1% during April–February FY25, reaching $354.9 billion. In contrast, merchandise exports declined by 10.9% in February and recorded negligible growth for the fiscal year.

Dominance of IT Services and the Rise of GCCs

IT services, including software and IT-enabled services (ITeS), remain the backbone of India’s service exports. These contributed 48%, or $205 billion in FY24, reaffirming their dominance. Global Capability Centres (GCCs) have also become a major growth area in this segment.

‘Other Business Services’: The Undervalued Opportunity

A promising but underexplored segment is “other business services”, which includes:

Research and Development (R&D)

Professional and Management Consulting

Technical and Trade-Related Services

Exports from this category surged from $37.3 billion in FY18 to $80.35 billion in FY23. Yet, India holds only a 4.43% global market share in this segment, compared to 20% in IT & ITeS. Given the $1.8 trillion global market size, the scope for expansion is significant.

Empowering Small Firms and Professionals

Much of the growth in non-IT services is driven by smaller firms and solo professionals involved in:

Legal drafting and research

Market research and public relations

Writing, editing, and expert advisory

These businesses often operate with minimal staff and face barriers like excessive regulation and poor access to credit.

Policy Reforms Needed for Services Sector Growth

To fully unlock this sector’s potential, policy and regulatory improvements are essential:

1. GST Reform

Make GST optional for 100% export-oriented services firms up to ₹1 crore turnover (currently ₹20 lakh)

Ensure automatic refunds of input tax credit within 90 days

Allow quarterly GST payments and annual return filing

Enable one national registration, eliminating the need for multiple state-level GST registrations

2. Taxation Parity

Extend corporate tax benefits to LLPs, partnerships, and proprietorships, not just companies

3. Access to Finance

Encourage cash flow-based lending instead of asset-based credit for service firms

Regulate forex conversion charges by private banks and promote UPI-based cross-border payments

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