India’s services sector continues to strengthen its role as a major driver of economic growth, with exports reaching US$348.4 billion during April to January of the financial year 2025-26. The sector’s rising importance is reflected in its growing contribution to the economy, with services exports accounting for around 10 percent of India’s gross domestic product in the first half of FY 2026.
The Union Budget 2026-27 has introduced a series of reforms aimed at reinforcing this momentum and positioning India as a global leader in services trade. These measures include tax incentives for cloud service providers, safe harbour reforms for IT companies, support for digital infrastructure and efforts to expand international market access through trade agreements.
India’s services sector has become one of the strongest pillars of productivity, employment and global integration. According to projections by the World Bank, services are expected to account for 49.9 percent of India’s GDP in 2024, about 1.5 percentage points higher than the pre-pandemic average.
Services exports have also helped stabilise the external sector during global uncertainty. Between FY 2023 and FY 2025, services exports averaged 9.7 percent of GDP, compared with 7.4 percent before the pandemic. The sector contributes nearly 30 percent of total employment and generates around 40 million jobs during the post-COVID economic recovery.
Digital and knowledge-based sectors continue to dominate export growth. According to a survey by the Reserve Bank of India on computer software and IT-enabled services, software services exports grew by 7.3 percent year on year in FY 2025. Software services account for more than 40 percent of total services exports and are projected to expand at an average rate of 13.5 percent during FY 2023-2025, compared with 4.7 percent between FY 2016 and FY 2020.
Computer services represent more than two-thirds of software services exports, while business process outsourcing remains a major component of IT-enabled services. Professional services are also expanding rapidly, with business and management consultancy services growing by 25.9 percent during FY 2023-2025 and accounting for 18.3 percent of services exports. Together, software services, business process management, consulting and fintech account for more than 65 percent of India’s services exports.
The Budget proposes tax exemptions until 2047 for foreign companies providing cloud services to global customers using infrastructure located in India. Entities offering data centre services from India will also benefit from a protected profit margin of 15 percent on cost.
Safe harbour reforms under Rule 10TA of the Income Tax Rules will consolidate software development services, IT-enabled services, knowledge process outsourcing and related research activities into a single category of information technology services with a uniform safe harbour margin of 15.5 percent. The safe harbour threshold has been increased from ₹300 crore to ₹2,000 crore and approvals will be processed through an automated rule-based system for five consecutive years.
The government also plans to accelerate unilateral advance pricing agreements under the Income Tax Act, 1961, between taxpayers and the Central Board of Direct Taxes to determine the pricing of specified international or domestic transactions in advance.
The Budget also aims to strengthen the wider services ecosystem through skill development, healthcare and tourism initiatives. Around 150,000 multi-skilled caregivers will be trained in the coming year to meet rising global demand for care services linked to ageing populations and increasing life expectancy. The initiative draws on recommendations of the Parliamentary Standing Committee report titled “Education to Empowerment and Entrepreneurship for a Developed India”.
To promote traditional Indian medicine globally, three new All India Institutes of Ayurveda will be established, while the World Health Organization’s Global Centre for Traditional Medicine in Jamnagar will be upgraded. Certification systems for AYUSH pharmacies and drug testing laboratories will also be strengthened.
Tourism initiatives include the establishment of five medical tourism hubs through public-private partnerships, training of 10,000 tourist guides across 20 locations in collaboration with the Indian Institutes of Management and development of 15 archaeological sites, including Lothal, Sarnath and Hastinapur as world-class heritage centres. A Buddhist tourism circuit in the North East and proposed high-speed rail routes linking cities such as Mumbai, Pune, Hyderabad, Bengaluru, Chennai, Varanasi and Siliguri are expected to improve tourism connectivity.
India’s expanding digital ecosystem is further strengthening services exports. The Stanford AI Index Report 2025 ranks India second globally in AI skills penetration, while the country improved from 48th position in 2022 to 36th in 2024 in the UNCTAD Frontier Technologies Readiness Index. Data centre capacity is projected to grow from about 1.4 gigawatts in 2025 to nearly 8 gigawatts by 2030.
India has also emerged as a global hub for Global Capability Centres, which have evolved from back-office operations into centres for high-value innovation, analytics and product development. More than 1,700 such centres employ over 1.9 million professionals in the country by FY 2024.
Trade agreements with partners, including the United Kingdom, the European Union, Oman, New Zealand, Australia, members of the European Free Trade Association and Mauritius, are expanding global market access for Indian service providers.
Foreign investment is reinforcing the sector’s expansion, with services accounting for an average of 80.2 percent of total foreign direct investment during FY 2023-FY 2025, compared with 77.7 percent before the pandemic.
With sustained export growth, expanding digital capabilities and deeper international partnerships, India’s services sector is expected to remain a central pillar of the country’s economic and trade strategy.
