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India’s economic narrative is undergoing a structural pivot—and at the heart of this transformation lies a potent yet quiet force: the services sector. Services have become the central pillar of modern life, constantly evolving to offer unparalleled convenience and accessibility. From the revolutionary impact of UPI on digital payments to the availability of affordable data, our daily lives are deeply intertwined with service advancements.
The twin engines of structural change
The rise of the services sector is not just cyclical—it’s structural. Two mega value creators are fuelling its ascent: formalisation and technology.
GST implementation is driving share gain for organised players. Along with revenue share shift, organised players are gaining market share through scale advantages. Take hospitality, for example: branded hotel chains are fast expanding to meet demand from both leisure and spiritual tourism. In healthcare, the formal diagnostics and hospital chains are moving into tier-2 and tier-3 cities, offering both reach and reliability.
Technology, meanwhile, is turbocharging productivity and reach. Services are natural adopters and beneficiaries of digital disruption. Whether it is OTT platforms redefining media, fintech firms driving loan accessibility, or logistics companies optimising delivery through AI, tech is no longer an enabler—it is the business model. This extends to the burgeoning trends of dining out and food delivery, expanded flight connectivity to Tier 2 cities in India, and the seamless convenience of home deliveries. Even in healthcare, heightened awareness is driving improvements in hospital services, doctor accessibility, and diagnostic capabilities, all contributing to a more serviced and efficient way of living.
The growth in the services sector can be seen through its contribution of 55% to India’s GDP in FY24. The services sector now accounts for 53% of the Nifty 500 Index profit after tax (PAT) pool—an inversion from pre-COVID levels. Sectors like telecom, quick commerce, logistics, healthcare, hospitals, and banking are increasingly becoming engines of earnings, with robust return on equity (ROE) and return on capital employed (ROCE) that make them compelling from a long-term investment standpoint.
And crucially, services valuations—unlike many overheated industrial names—remain relatively comfortable. For investors, this is an opportunity not just to chase growth, but to own resilient, high-quality businesses.
India is at an inflection point
The services boom is also powered by a macroeconomic tailwind: India’s rising per capita income. As we cross the $2,000 threshold, consumption patterns begin to mirror those of more developed economies. As income grows, so does demand for aspirational, tech-led, and convenience-driven services. This is no longer an urban elite phenomenon. The shift is well-documented in countries like China and South Korea, where the services share of GDP surged post this milestone. The rising middle class across Bharat is actively participating in—and shaping—the next phase of services consumption..
It is the services story that is quietly scripting the next chapter of India’s growth—and this time, with sharper profitability, shift towards formalisation, and far-reaching impact on the everyday life of Indians. India’s economic resilience and innovation are increasingly being driven by services. Even if we look at the government policies, they directly or indirectly benefit the services, be it financing, make-in-India, healthcare for all (Ayushman Bharat Pradhan Mantri Jan Arogya Yojana).
India is experiencing a significant surge in digitalisation, laying a robust foundation for future economic expansion. Projections indicate a substantial increase in digital penetration, with internet access reaching 1,040-1,080 million users by 2028 (70-73% of the population) and smartphone users growing to 950-990 million. This benefits service segments such as telecom, e-commerce, fintech, Take the quick commerce (QC) industry, for instance. QC boasted a staggering 115% revenue CAGR, while for food delivery and quick service restaurant (QSR) it was 21% over the last three years, significantly outpacing traditional sectors like FMCG, which saw a revenue CAGR of 6% in the same period. This unparalleled expansion positions service sectors as a key engine of revenue growth and a strong investment theme within India’s broader digital transformation.
Even if we look at tourism in India which is back to its pre-covid levels, and we can see the boost not just in leisure travels, but spiritual tourism is also picking up. This will create a chain of impact on organised hotels and airlines. Additionally, many new-age service businesses are not just growing topline—they now have started focusing on profitability and efficiency. And thanks to a tech-savvy, young population, adoption curves are steep.
The road ahead
India is no longer just a back-office to the world. It is becoming a service-led consumption powerhouse. And the leaders of this transformation are not just the traditional names, but new-age, tech-forward, formalised businesses that understand Indian consumers at their core. The services sector is not merely an economic contributor—it is the pulse of a new India. Investors, policymakers, and business leaders must recognise this silent revolution for what it is: the next frontier of value creation.
The question is no longer “why services?” Instead, it is: “how much of your future is invested in them?”
(The writer is Senior Equity Fund Manager, Axis Mutual Fund)