The economy has a geography problem

India’s sprint toward Viksit Bharat @2047 increasingly runs through its services sector. The latest NITI Aayog report shows that services now account for 54.5% of India’s GVA, up from 48.9% in 2011-2012. But while the national story reads like a steady march toward modernisation, the state-level picture tells a far more uneven tale. And it is only by placing Karnataka at the centre of this map that India’s services-led trajectory can be properly understood. This is not to elevate it as a model, but because its economic structure reveals the deeper forces driving India’s accelerating, yet regionally unbalanced, transformation.

Karnataka today stands as one of India’s most services-driven economies. The share of services in its GSVA has jumped from 56.8% in 2011-2012 to 65.9% in 2023-2024. Its contribution of 10.47% to national services GVA makes it the second-largest player after Maharashtra. What distinguishes Karnataka is not merely the size of its services sector, but the kind of services it produces: technologically intensive, globally tradeable, and deeply integrated with fast-growing segments like computer and information services, which expanded nationally from Rs 2.38 trillion to Rs 10.77 trillion over the past decade. Bengaluru’s ecosystem is not the point here, it is the state’s structural tilt toward high-productivity modern services that shapes its economic trajectory.

Contrast this with other major states, and India’s uneven landscape becomes clearer. Tamil Nadu, despite being one of India’s most industrialised economies, has seen only a marginal rise in its services share from 50.5% to 51.7%.
Uttar Pradesh has moved from 45.5% to 47.9%. Gujarat, with its robust manufacturing base, remains at a relatively low 36.1%.

Meanwhile, Maharashtra remains the heavyweight of India’s services economy, contributing 15.52% of national services GVA, but it too contains districts where services growth has barely begun. Telangana, one of the few states that mirrors Karnataka’s pattern of modern service expansion, has sharply increased its services share from 52.8% to 62.4%.

Then, there are states moving in the reverse direction. Assam’s share has dropped dramatically from 46.5% to 34.3%, while Odisha has slipped from 38.5% to 34.9% over the same period. Jharkhand, despite moderate improvement, remains far below the national average, hitched to extractive sectors and slow-moving traditional services. These state trajectories reveal a fundamental fact: India’s services revolution is geographically concentrated, technologically skewed, and structurally incomplete.

The right kind of services

This is where the Karnataka contrast becomes analytically useful. A high services share is not synonymous with high income; a point starkly illustrated by Bihar. Despite a service share of around 58%, the highest among several large states, Bihar remains India’s lowest-per-capita-income state. Its services economy is dominated by low-value activities such as trade and repair (27.8%) and other informal services (20%). West Bengal, with services contributing 51% of its GSVA, faces a similar limitation. These economies have large service sectors, but not productive ones.

Karnataka’s trajectory, alongside that of Maharashtra and Telangana, shows the opposite pattern: prosperous states are not those with the largest services sectors, but those with the most modern and tradable services. India’s economic geography is no longer about whether states shift into services, but whether they shift into the right kinds of services.

Aligning state-level divergence

India cannot reach its 2047 goals without confronting this divergence. The country’s vision of becoming a developed economy depends on broadening access to high-value services beyond a handful of states. Karnataka’s success underscores what is possible when digital infrastructure, human capital, institutional depth, and urban agglomeration align, but it also exposes the gaps elsewhere. Uttar Pradesh, Bihar, Odisha, Assam, and Jharkhand require a fundamentally different pathway from the one that enabled Karnataka or Maharashtra to move ahead. They need the basic scaffolding for a modern services economy: formalisation, digital access, urbanisation, skill development, and infrastructure that can support an upgrade from traditional to modern services.

Even within advanced states, the disparities run deep. Karnataka’s services boom is overwhelmingly concentrated in a few districts, while much of the state resembles the national average at best. The same holds for Tamil Nadu, Maharashtra, and Telangana. The next phase of India’s services strategy must, therefore, occur at the district level with targeted interventions in tourism, logistics, health, education, financial access, and MSME-linked services. This is no longer a matter of macro policy, but of granular economic reconstruction.

(The writer is an assistant professor, Department of
Economics, St Xavier’s College (Autonomous), Ahmedabad).

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.