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The services sector employs 188 million people but remains highly informal, trapping most workers in low-wage jobs without social protection.
Kindly note the image has been published only for representational purposes. Photograph: Francis Mascarenhas/Reuters
Notwithstanding the centrality of the services sector in the Indian economy, jobs in the sector remain “overwhelmingly informal”, with most workers lacking job security or social protection — creating a “low-wage trap” even as it remains the fastest-growing part of the economy, NITI Aayog observed in its latest report released on Tuesday.
“Despite the centrality of services in India’s economic structure, the sector continues to be marked by high levels of informality, as the majority of workers lack access to job security or social protection.
“Services risk becoming a low-wage trap despite being the fastest-growing part of the economy,” said the report titled India’s Services Sector: Insights from Employment Trends.
In 2023-24, the services sector employed nearly 188 million workers, adding close to 40 million jobs over the past six years.
The sector has absorbed labour at scale and shown resilience in the face of the Covid-19 pandemic.
As a share of total employment, it rose to 29.7 per cent in 2023-24 from 26.9 per cent in 2011-12.
However, this strength is marked by a “paradox”: although the sector contributes over half of national output, it provides less than one-third of all jobs — most of which are informal and low-paying.
A sectoral analysis revealed a “deep structural divide”: high-value segments such as information technology, finance, healthcare, and professional services are globally competitive and productivity-rich but employ relatively few people.
In contrast, traditional services like trade and transport continue to dominate the workforce but remain plagued by high informality and limited wage growth, making them “hotspots of informal work”.
Within the services sector, self-employed own-account workers make up the largest share (55.7 per cent) of informal workers, followed by regular wage or salaried workers without social protection (29 per cent), helpers in household enterprises (9.2 per cent), and casual labour (6.1 per cent).
Hence, even among salaried workers, nearly two in five regular service employees lack basic social security coverage, highlighting the extent of “hidden informality” within the sector.
The report defines informal employment as including casual labour, self-employed own-account workers, helpers in household enterprises, and regular wage workers without any form of social security benefits.
Among salaried workers, nearly two in five regular service employees lack basic social security coverage, highlighting the extent of “hidden informality” within the sector.
“This structure fails to meet the aspirations of India’s increasingly educated youth. More broadly, the persistence of informality constrains household consumption, dampens aggregate demand, and limits the services sector’s ability to drive inclusive economic transformation,” the report noted.
On the impact of the services sector on female employment and wages, the report found that services are increasingly central to women’s employment in India, particularly in urban areas.
However, wage gaps persist across most sub-sectors, shaped by occupational segregation, limited access to high-paying roles, and skill mismatches.
The report highlighted that rural services show the widest gender gap, with women earning less than 50 per cent of men’s wages — the lowest parity across sectors.
While urban services employ 60 per cent of women, they still earn only 84 per cent of male wages.
Sectors such as information and communications technology, healthcare, and education are exceptions, with women’s earnings matching or exceeding men’s.
“Participation without pay equity risks entrenching inequality in India’s fastest-growing sector,” it said.
This report is among the first comprehensive assessments of employment in the services sector, moving beyond aggregate trends to present a disaggregated and multi-dimensional profile of the services workforce.
It was released by Aayog Chief Executive Officer B V R Subrahmanyam, along with Professor Arvind Virmani and Chief Economic Advisor V Anantha Nageswaran.
“The report outlines a four-part policy roadmap focusing on formalisation and social protection for gig, self-employed, and micro, small and medium enterprise workers; targeted skilling and digital access to expand opportunities for women and rural youth; investment in emerging and green economy skills; and balanced regional development through service hubs in Tier-II and Tier-III cities,” Aayog said in a statement.
Feature Presentation: Aslam Hunani/Rediff
