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Challenges and Opportunities in the Services Sector for India’s GDP

Challenges and Opportunities in the Services Sector

India’s large population and rapidly developing economy present considerable opportunities for economic expansion, but capitalising on them will require labour market reforms, increasing women’s workforce participation and improving productivity.

Attracting foreign investment remains challenging, and pent-up demand may ease slightly; however, services remain an integral component of economic activity and should remain resilient during FY 2023 and 2024.


Over the last two decades, India has made remarkable advances in Healthcare. Life expectancy now exceeds 67 years, infant mortality and under-five deaths have declined substantially, and access to affordable health services has improved substantially. India now boasts an expert medical workforce and affordable healthcare options. Yet, several challenges still persist: an increase in communicable disease incidence as well as lifestyle diseases like cardiovascular illness, diabetes and cancer continue to threaten its population’s well-being.

The second wave of the coronavirus pandemic saw healthcare demand skyrocket dramatically. This put immense strain on public healthcare systems around the world; India was no different; nearly to its collapse, it came close.

Government and private sectors both stepped in to ensure the proper functioning of the healthcare system; however, significant challenges still persist within it, from inadequate supply chains to a lack of digital health records and skilled personnel shortages. Furthermore, Malaysia had one of the lowest allocations relative to GDP for health-related expenditures, leading to high out-of-pocket expenditures on healthcare.

One key challenge lies in increasing healthcare investments; currently, 3.3% of GDP has been allocated, which falls far short of international standards. A greater commitment would result in improved access to affordable healthcare services as well as strengthening public health infrastructure and prioritizing disease prevention as a top priority for the government.

Additionally, the government should increase investment in education and training to improve healthcare quality while simultaneously creating a large pool of medical professionals for future needs.

Furthermore, the government should prioritize strengthening healthcare delivery by increasing funding for community-based health workers and creating an infrastructure of primary healthcare centres. Furthermore, the government should make sure health workers receive adequate training and work in a safe working environment; this will help lower transfer cases to urban hospitals.

Despite these challenges, healthcare has vast untapped potential. According to a 2021 report by NITI Aayog, there is a vast opportunity for investment in sectors like health insurance, pharmaceuticals and biotechnology, medical devices, healthcare travel and home healthcare – creating jobs while improving India’s global competitiveness by investing in these sectors.


Tourism is one of India’s fastest-growing sectors and an integral component of our economy, creating jobs and drawing foreign investment into India. However, tourism also faces many obstacles that need to be overcome for it to achieve its full potential – these include security concerns, increasing investments and building world-class infrastructure as well as providing better service quality in hotels and airports.

India is known for its cultural heritage, natural beauty and wildlife diversity – three attractions that draw millions of tourists every year. India boasts stunning beaches, mountain ranges and national parks that provide recreational activities. Furthermore, historical monuments from across the globe draw history buffs; spiritual pilgrimage sites also attract religious tourists who flock to this destination.

India needs to strengthen its tourism sector in order to thrive economically, which includes increasing infrastructure investments, encouraging domestic travel, stepping up marketing and promotion activities and offering incentives for companies investing in the tourism industry. Furthermore, encouraging local communities and entrepreneurs alike to participate in tourism-related activities should also help the government boost tourism growth across all states year-round.

Tourism remains an engine of economic development despite its challenges, creating employment and cultivating community among workers in this sector. Furthermore, tourism provides rural areas with income sources.

The Indian government must take measures to boost tourism’s image by prioritizing the safety of travellers and increasing efforts to promote the culture and traditions of the nation. Furthermore, the red tape should be reduced so as to enable travellers to visit India more easily.

FAITH has suggested that the government provide financial support for the tourism and hospitality sector by way of grants, interest-free loans and tax reductions to assist companies with working capital issues. They should also extend e-visa waivers for foreign tourists while setting standards requiring restaurants to install partitions at tables to provide visible cooking areas as well as digital menus with disposable crockery for their guests.

Information Technology

The information technology (IT) sector in India has long been recognized as an important contributor to GDP, earning foreign exchange that helps fund other sectors of its economy. Unfortunately, however, India’s IT industry faces many challenges from other developing nations like China and the Philippines; technological shifts may render some workers redundant; thus, the government must strive to invest more in R&D while streamlining core government processes for improved productivity and efficiency.

Indian economy is in transition towards manufacturing, yet services must still maintain growth momentum. A steady revival in the MSME sector is critical to achieve broad-based growth and meet domestic demand; to do this, higher skill levels among workers are necessary, as is improved access to finance. However, policy initiatives have helped this recovery, such as emergency credit line guarantee (ECLG) schemes during pandemic outbreaks as well as production-linked incentive schemes, to provide relief in this regard. Furthermore, emerging sectors like green energy, e-mobility, semiconductors and food processing present further growth opportunities both globally and domestically.

India can bolster the services sector’s contribution by prioritizing high-value-added services that attract foreign demand and improve earnings, such as tourism, healthcare and elderly care services. Furthermore, India should strive to become more competitive when it comes to higher education, an area often targeted by international students.

India can still benefit greatly from the services sector’s strengths despite these difficulties. Skilled labour, fast infrastructure development and an established industrial ecosystem can all help a country compete on the global stage while tapping into foreign companies’ desire to diversify their supply chains. Furthermore, India boasts an enormous population with ample potential to work and earn. The task at hand is harnessing this potential so as to ensure benefits are distributed equally across society. At its heart, sustainable economic progress lies in increasing productivity and increasing wages for working-class individuals. To do this, an integrated approach must be taken towards development that addresses service sector challenges head-on.


India’s service sector serves as its economic foundation, comprising industries such as trade, hotels, transportation and communications, banking, insurance, real estate community services, information technology services and personal services. India’s manufacturing sector accounts for more than 60% of GDP. It employs about 25% of the workforce but is facing several obstacles: global economic slowdown and pandemic have dampened growth while high input prices are undermining profit margins. India remains plagued by low-productivity informal sector jobs that don’t pay well, and women remain underrepresented in its labour force. To promote growth, India must improve health care, education and employment as well as remove obstacles to doing business.

The government has already begun taking steps to address some of these challenges. For instance, reforms were introduced to enhance the investment climate and make hiring and expanding easier for businesses. Red tape reduction and streamlining regulations are other priorities of the government, an example being Aadhaar, which has registered more than one billion citizens of India so far.

India is making efforts to increase infrastructure development and promote innovation, which are vital in expanding service-sector growth. But finding new sources of growth is equally essential; India should seek opportunities in markets where its strengths can be leveraged – including alternative energy production, manufacturing and agriculture development.

India’s future service sector depends on its ability to grow rapidly, increase productivity, and create jobs. It must also harness India’s demographic dividend by empowering young people and raising female labour force participation rates. But these changes require significant effort from both private and public sectors – for instance; governments must invest in revamping education systems to provide quality skills and promote the creation of innovative businesses that take advantage of emerging technologies – in order for this sector to strengthen India’s economy as a leading global player.

Boosting Services Sector for India’s GDP

India’s dominant services sector has gained steam recently despite higher interest rates and subdued manufacturing growth, according to S&P Global India services purchasing managers’ index readings that peaked in July at its highest point since 13 years prior.

India must not only focus on manufacturing; the service sector must also be considered. Increased comfort with remote work arrangements and expanding global capability centres will bolster exports in this sector.


Healthcare can be an immensely valuable service sector that contributes significantly to India’s GDP. Healthcare in India presents the opportunity to deliver world-class care at a fraction of the costs charged in developed nations while producing comparable results; yet it faces unique challenges related to soft skill usage and tech implementation.

India must enhance its domestic healthcare system by training more medical professionals and increasing supply. Hospital beds and physician-to-population ratios fall below international standards by 35% and 48%, respectively.

Australia is well known for its clinical research capabilities; however, to deepen engagement with India’s healthcare sector, it needs to forge stronger partnerships in areas like telehealth and eHealth as well as exploit the lower manufacturing costs and tax holidays available in India to Australian pharmaceutical and medical device companies that want access to its market through licenced manufacturing or special healthcare zones. Australia can leverage smartphone users within India to develop applications to streamline patient data flow while working alongside Indian firms on nutraceuticals, vaccines and clinical trials.


Tourism has an enormous economic benefit by increasing foreign exchange earnings and creating employment opportunities. Tourism is one of the fastest-growing sectors that will increase India’s GDP by drawing tourists from around the globe to India’s shores. International tourism growth will only accelerate further as disposable incomes rise and more Indians can afford trips abroad. Domestic travel should follow suit quickly, too.

Dekho Apna Desh is also designed to promote tourism, providing financial assistance for domestic tourism destinations and encouraging middle-class citizens to spend more on leisure travel.

India is an attractive travel destination, boasting an expansive coastline ideal for cruise tourism. Tourism infrastructure must keep up with demand while improving accessibility for local residents to ensure more people experience India’s rich culture and natural splendour.

Information Technology

India has established itself as a hub for technology services like BPO and software development, making India an indispensable back-office centre. Tighter global labour markets and increasing acceptance of distributed work models should further propel this sector, one of the fastest-growing segments of India’s services economy.

High-value services like retail, higher education and healthcare have also seen steady growth due to increasing household spending in these areas as disposable income increases. To capitalize on these drivers of growth in India, talent should be developed further while proactive enterprises with market aggressiveness and inventive resilience need to be established and nurtured.

India has already started to lay the groundwork for a digital economy through initiatives such as Aadhaar and IndiaStack, an identity, payment and data-management system with low costs for public use that offers comprehensive decentralized identity services with payment and data storage functions. If implemented well, these initiatives will have profound effects on how citizens spend and borrow, increasing credit availability dramatically.


Since the dawn of the Internet age, companies around the globe have turned to India for outsourcing work such as software development and customer service. Global trends such as digitization and automation, supply chain changes, urbanization, income increases and demographic shifts could spur expansion in India-based services.

India’s large firms are failing to reach their productivity and profitability potential. Their productivity is only one-tenth to one-quarter of peers from peer emerging economies, while profits are concentrated amongst only 20 firms in this space.

India can use this trend to develop high-value service sectors like higher education, medical tourism and elderly care that leverage India’s demographic advantages for capital investment. Improving India’s financial sector quality will also increase household savings while driving productivity; this includes creating deeper capital markets and ensuring savings flow directly into productive firms through an efficient banking system.

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Challenges and Opportunities in the Services Sector for India’s GDP


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