NITI Aayog Papers Reveal Service Sector Myth
Arka Rajpandit
Two recent NITI Aayog reports —"India's Services Sector: Insights from GVA Trends and State-Level Dynamics" and "India's Services Sector: Insights from Employment Trends and State-Level Dynamics"— present a celebratory portrait of India's economic engine. They highlight the service sector's commanding contribution of nearly 55 per cent to national GVA (Gross Value Added) and its role in adding 4 crore jobs over the last six years (2017-18 to 2023-24), raising its employment share to 29.7 per cent.
However, this official narrative, which heralds an inclusive, services-led structural transformation, dissolves upon closer inspection. Instead, it reveals a deepening systemic crisis of contemporary capitalism and the increasing precarity of the working class. While the reports acknowledge "unevenness" and a "dual character, distinguishing between high-value/low-employment services like IT and low-productivity/high-employment services like retail trade and transport, they ultimately fail to grasp the fundamental contradictions underpinning the very structure of this service-led growth model.
The GVA Obsession and the Myth of Structural Transformation
The NITI Aayog uses the services sector's dominant share of GVA as the core measure of economic achievement. This foregrounding, however, compels us to challenge the metric itself: What kind of value is actually being produced, and for whose benefit?
While the services sector's employment elasticity—a measure of how growth translates into jobs—sharply rose to 0.63 post-COVID, this revival hides contrasting realities. High-value segments such as IT (elasticity 0.88), finance (0.95), healthcare (0.94), are thriving, buoyed by digitization, platform economies, and global demand. However, these booming subsectors employ only a fraction of the workforce. In contrast, trade, education, and personal services—the traditional pillars of employment—remain labor-intensive but show weakening job responsiveness. Furthermore, subsectors like telecommunications (0.79) and insurance (-1.31) report persistently negative elasticities, reflecting capital-intensive growth that displaces jobs rather than creating them.
The services sector is highly varied, making it difficult to maintain the crucial distinction between productive and unproductive labor. From a capital perspective, labor is considered productive only if it directly generates surplus-value—meaning the labor is exchanged against capital and results in a commodity (which may be a service) whose value exceeds the cost of the labor-power consumed.
The NITI Aayog reports implicitly conflate two radically different segments of the services sector. First, there are modern, high-productivity services like IT, finance and professional services. These segments, highly concentrated in states like Karnataka, Telangana and Maharashtra, have driven rapid Gross Value Added (GVA) growth, with computer and information services GVA nearly quadrupling between 2011-12 and 2023-24. Such services often qualify as productive labour. Yet, the NITI Aayog reports themselves admit that these segments are "limited in employment intensity," absorbing relatively little labor power for the immense capital invested. This reflects a core contradiction of contemporary capitalism: the organic composition of capital tends to rise, potentially leading to a falling rate of profit, which capital attempts to counter through technological intensification and labor displacement.
Second, there are traditional, low-productivity services, including retail trade, transport, and personal services. These are explicitly identified by the Aayog as the dominant segments for absorbing labor, engaging the overwhelming majority of the 18.8 crore service workers. Crucially, they are characterised as "predominantly informal and low-paying" and dominated by self-employment (accounting for 45 per cent of service workers). A significant portion of these activities, especially petty trade and subsistence transport, constitutes unproductive labor—they are exchanged against revenue (wages or profit from productive sectors) rather than against capital to produce surplus-value. Their expansion is less a sign of robust capitalist growth and more an indicator of the Indian economy's failure to generate sufficient high-value industrial employment. Consequently, the growth of these sectors represents the absorption of the relative surplus-population (the vast reserve army of labor) into precarious, low-wage survivalist activities, acting as a desperate last resort for workers expelled from agriculture.
The rapid growth in GVA is predominantly powered by a small, capital-intensive, high-technology fraction of the sector. Meanwhile, the vast majority of employment is concentrated in a low-productivity, precarious fraction whose expansion fundamentally reflects structural stagnation, not genuine economic progress.
The Deepening Divide
The NITI Aayog's reports, despite noting the creation of 4 crore jobs and a slight increase in regular wage/salaried roles (now accounting for over half of all service workers or 9.6 crore in 2023-24), ultimately overshadow a deeper truth: the increasing precariousness that has become the defining characteristic of the working class today.
The reports correctly identify traditional segments as "hotspots of informal work" and the service sector as a whole as "overwhelmingly informal." However, this informality isn't simply a "policy gap" that can be fixed through "formalisation," as the Aayog suggests. Instead, it is a structural necessity for contemporary neo-liberal capital accumulation. Informality is how capital avoids the social costs of its own reproduction—namely social security, minimum wages, and safety standards—which, in turn, boosts surplus-value extraction. The huge number of self-employed and contract workers in fields like transport, gig services, and retail are the precariat—a highly fragmented, contingent part of the proletariat constantly threatened with falling back into the industrial reserve army of labour.
Rural-Urban Divide & Gender Disparity
The facts laid out in the Aayog's own reports paint a bleak picture of uneven distribution of this employment generation. There is a clear rural-urban divide, where over 60 per cent of urban workers are in services, compared to just 19 per cent in rural areas (2023-24). This disparity reflects the geographical concentration of capital-intensive services in metropolitan cities, reinforcing a core-periphery model of uneven development. In addition to that, the exploitation is deeply gendered: rural women’s participation in services is a meagre 10.5 per cent of the services workforce. Even in urban areas, where participation is higher, women are heavily concentrated in low-value, social services (like education and health) and informal retail, while men enjoy a "broader spread across diverse sub-sectors." This is compounded by the fact that rural women in services earn less than 50 per cent of men's wages, illustrating a severe intensification of patriarchal oppression interwoven with capitalist exploitation. Capital systematically uses gender and geography as axes of differentiation to reduce the value of labour power in specific segments. Finally, the reports point to youth exclusion, noting that the youth workforce (15-29 years) is "underrepresented," with "barriers to entry into regular wage work." This is a classic symptom of the reserve army of labour, where fresh labour-power is prevented from immediately entering high-value sectors, driving down the overall bargaining power of the proletariat.
The specific policy solutions repeatedly advanced by the NITI Aayog—such as advocating for the "formalisation and social protection for gig, self-employed, and MSME workers"—are little more than propagandistic reiterations and deceptive fraudulent claims. These promises stand in stark contrast to the government's growing efforts to undermine existing social security protections, particularly through the new Labour Codes, which often restructure benefits in a way that shifts responsibility and reduces coverage, resulting in zero meaningful implementation of the Aayog's professed goals.
The Crisis of ‘Structural Transformation’
The NITI Aayog's underlying ideological project is to frame India's development as a successful structural transformation led by the services sector, thus bypassing the need for a mass-employing industrial base. However, this narrative is challenged by the Aayog's own data: India's services employment share of 29.7 per cent significantly "lags the global average of 50 per cent," and the transition has been "slower" than global trends. Between 1992 and 2022, India saw only an 8.9 percentage point increase in services employment share, far less than the global rise of 14.3 percentage points. Furthermore, agriculture still remains the country's largest employer, engaging 292 million people in 2023-24.
This data is the quantitative proof of a historical failure. Historically, the capitalist mode of production necessitates a mass transfer of labor from low-productivity agriculture to high-productivity industry, and subsequently to services, driven by the continuous revolutionising of production methods. However, India represents a case of premature de-industrialization. Driven by global competition and the adoption of capital-intensive technology in industry facilitated by neo-liberal policies, the manufacturing sector has failed to sufficiently absorb the rural labor force. The outcome is the massive residualisation of the workforce, forcing it into the low-productivity service sector as a last resort.
The central paradox of the Indian growth model is the sharp contrast between the high and growing GVA share of the services sector and the low-quality, low-wage nature of the majority of service jobs.
NITI Aayog’s optimistic narrative functions as an ideological shield for the current structure of Indian capitalism. It attempts to downplay the clear symptoms of a deepening crisis—such as the insecurity of the gig economy, vast inequality across regions and genders, and a stagnant industrial base—by labeling them as simple "challenges" addressable through minor policy adjustments. However, these deep-seated issues cannot be resolved within the existing neoliberal framework. A true solution demands a fundamental shift away from this neoliberal model, a transformation that can only be driven by the collective struggles of the working class.
