The Growing Service Sector’s Role in Sustainable Development

For most of its history, the Indian economy was defined by what came out of its fields and factories. Today, the picture has changed completely. The largest share of national output now comes from a category that produces no crops and assembles no goods: the service sector. From banking and logistics to telecom, healthcare, education, and the advisory networks that guide farmers, services have quietly become the backbone of modern economic life. Understanding how this sector grew, and why it matters so much for sustainable development, is essential for making sense of where the economy is headed.

How the service sector became the largest sector 🔗

The service sector did not grow in isolation. It expanded precisely because agriculture and industry became more productive. When farms began producing surpluses and factories started manufacturing at scale, a new set of needs emerged. Someone had to transport goods, store them, finance them, insure them, market them, and connect producers with distant buyers. These supporting activities are the heart of the tertiary sector.

The numbers show how dominant this shift has become. According to the Economic Survey 2024-25, the share of services in total Gross Value Added rose from around 50.6% in 2013-14 to roughly 55% by 2024-25. The same survey notes that services contribute to growth not only directly but also through the rising use of services within manufacturing itself, a trend often called the “servicification” of industry. In simple terms, even a factory today depends heavily on design, software, logistics, and after-sales support, all of which are services.

What the service sector actually includes 🔗

The service sector is far broader than most people assume. It covers a wide range of activities that can be grouped into a few categories:

Supply and distribution: Trade, transport, warehousing, and logistics that move raw materials to producers and finished goods to consumers. Without this layer, neither agriculture nor industry could reach its market.

Government participation: Public administration, defence, banking regulation, healthcare, and education. The state is itself a major service provider, and its role in setting rules and delivering public goods shapes how every other sector functions.

Market development: Financial services, insurance, advertising, retail, and professional consulting that help create, expand, and stabilise markets. These activities reduce risk and connect scattered buyers and sellers into functioning systems.

Each of these branches grew as the economy matured. A subsistence farmer selling within a village needs few services. A commercial producer selling across states needs credit, transport, cold storage, market information, and insurance, all of which are services.

Globalisation and the expansion of services 🔗

The pace of this growth accelerated sharply after the economic reforms of 1991. As markets opened, the service sector expanded to meet the demands of both producers and consumers on a much larger scale. Information technology and business process outsourcing turned the country into a global hub, with services exports steadily increasing their share of world trade. The Economic Survey points out that this rise in services exports has helped cushion the economy against fluctuations in global merchandise trade.

Globalisation also widened the range of services. Telecommunications, digital payments, e-commerce, financial technology, and professional consulting all expanded rapidly. A noteworthy recent shift is the emergence of green and sustainable services, such as environmental consulting, renewable energy management, and ESG reporting, which respond directly to the demands of a low-carbon economy. This shows that the service sector is not just growing in size but also evolving in its relationship with sustainability.

Why services matter for sustainable development 🔗

Sustainable development asks whether growth can be achieved without exhausting natural resources or deepening social inequality. The service sector is well placed to support this goal because many services are inherently less resource-intensive than mining, heavy industry, or extractive farming. A software firm or a financial advisory consumes far less land, water, and raw material per unit of output than a steel plant.

Services also enable sustainability across other sectors. Renewable energy management, waste recycling services, efficient logistics that cut fuel use, and digital platforms that reduce paperwork all lower the environmental footprint of the wider economy. At the same time, services like healthcare, education, and financial inclusion advance the social dimension of sustainable development, supporting several of the United Nations Sustainable Development Goals on health, education, decent work, and reduced inequality.

Extension services: a case study in responsive services 🔗

One of the clearest examples of how services drive sustainable development is found in agriculture, in the form of extension services. Extension services are the advisory and educational systems that carry new knowledge, technology, and best practices from researchers and the government to farmers in the field. They are a service in the truest sense, producing no physical good but adding enormous value to agricultural production.

Historically, extension in India followed a top-down model. Programmes such as the Training and Visit system delivered standardised advice from officials to farmers. While this approach achieved some success, it struggled to respond to the varied needs of different regions, crops, and farming communities. The advice often did not match what farmers on the ground actually required.

Institutional reforms and demand-driven design 🔗

To fix this, the system was redesigned around the idea of being farmer-driven and farmer-accountable. The key institutional innovation was the Agricultural Technology Management Agency (ATMA), a district-level autonomous body set up under the scheme “Support to State Extension Programmes for Extension Reforms.” Piloted in 28 districts across seven states through the World Bank-funded National Agricultural Technology Project and later expanded, the ATMA model now operates in hundreds of districts across the country.

What makes this reform significant is its bottom-up approach. Instead of pushing uniform advice downward, ATMA prepares Strategic Research and Extension Plans based on local agro-climatic conditions and the actual needs of farmers. The National Institute of Agricultural Extension Management notes that the reformed structure links farmers’ advisory committees, block-level teams, and state training institutes, ensuring that feedback from the field shapes what research and extension actually deliver. This is what demand-driven research means in practice: research priorities respond to farmers rather than the other way around.

Studies of these reforms confirm the direction. An analysis by the International Food Policy Research Institute describes how India moved toward a demand-driven, broad-based, and pluralistic extension system involving both public and private providers. The shift to multiple agencies, group-based approaches, and participatory planning made services far more responsive to those who use them.

The role of information and communication technologies 🔗

The other major lever for making extension services responsive is the use of information and communication technologies. Mobile phones, helplines, advisory apps, and even private platforms like e-Choupal have transformed how farmers access information. A farmer can now check weather forecasts, market prices, pest alerts, and soil advice directly, without waiting for a periodic visit from an official.

Research published in Frontiers in Sustainable Food Systems highlights that ICT-based extension plays a crucial role in bridging the digital divide and giving farmers more equitable access to knowledge that improves productivity and sustainability. The same body of work shows that India is among the global leaders in research on ICT-based agricultural advisory services. These tools also improve transparency and accountability, since digital records make it easier to track what advice reaches whom.

The broader principle extends well beyond agriculture. The Food and Agriculture Organization emphasises that institutional reform, decentralisation, and pluralistic service delivery are key to making advisory systems effective worldwide. Whether the service is agricultural advice, healthcare, or financial guidance, the same lessons apply: services work best when they are decentralised, responsive to demand, and powered by appropriate technology.

Challenges that remain 🔗

The service sector’s growth is not without problems. A large share of service jobs remain informal and insecure, offering little social protection. Growth has also been uneven, concentrating in a few metros and leaving smaller towns and rural areas behind. The sector demands skills that many workers do not yet have, and the digital divide means that the poorest, including small and marginal farmers, can be left out of digitally delivered services.

For services to truly support sustainable development, these gaps must close. This means investing in skills, extending digital infrastructure to rural areas, formalising more service employment, and ensuring that reforms like demand-driven extension genuinely reach the smallest producers rather than only the well-connected. A service sector that grows while excluding large sections of society would fail the basic test of sustainability.

What do you think? If a service such as agricultural extension only becomes effective once it is decentralised, demand-driven, and digitally enabled, what does this tell us about how other public services should be designed? And as the economy becomes more service-led, how can growth be steered so that it advances environmental and social sustainability rather than simply expanding output?

References

1. https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=2098048
2. https://www.pib.gov.in/PressReleasePage.aspx?PRID=1778910
3. https://www.manage.gov.in/extnReforms/extnReforms.asp
4. https://naarm.org.in/focarsrepository/files/10.%20extension%20reforms%20india.pdf
5. https://www.frontiersin.org/journals/sustainable-food-systems/articles/10.3389/fsufs.2025.1430336/full
6. https://openknowledge.fao.org/server/api/core/bitstreams/25eec204-2938-4f19-8908-04878c9f8720/content