India’s economic trajectory does not follow the traditional playbook. Most nations transition from agriculture to manufacturing to services, but India has largely skipped the manufacturing phase. Services now account for over 50% of the GDP despite the country’s relatively low per capita income of under $3,000. This places India in rare company—other economies with a dominant services sector include Singapore, the UAE, and Hong Kong. However, unlike India, these nations have high per capita incomes, small populations, or serve as global financial hubs. India is the first major developing economy to take this path, raising critical questions about whether it can sustain high growth without a strong industrial base.

Why India Took the Services Route

India’s shift toward a services-led economy was not entirely by design. Several factors shaped this trajectory. The IT and outsourcing boom leveraged India’s English proficiency and low labor costs, allowing it to become a global leader in software services and business process outsourcing. Meanwhile, red tape and regulatory hurdles prevented manufacturing from taking off in the way it did in China or South Korea. Land acquisition challenges, complex labor laws, and bureaucratic inefficiencies made large-scale industrialization difficult. The country also embraced digital transformation early, fueling rapid growth in fintech, software-as-a-service (SaaS), and consumer technology startups.

The result is a highly digital, service-oriented economy, but one that lacks the manufacturing backbone traditionally associated with large-scale job creation.

Is This a Strength or a Weakness?

India’s services dominance has clear advantages. High-value sectors such as IT, fintech, and SaaS create well-paying jobs, particularly in urban centers. Unlike manufacturing, which requires massive infrastructure investment, digital industries can scale quickly with fewer physical constraints. India has successfully positioned itself as a global services hub, attracting foreign investment and expanding its influence in international markets.

But there are structural concerns. The absence of a strong manufacturing base limits blue-collar job creation, leaving millions of workers in low-paying or informal employment. The heavy reliance on global demand means that India’s economy is vulnerable to external shocks—if the world slows down, so does India. Countries that industrialized before shifting to services—such as China, South Korea, and the United States—created millions of jobs in factories before transitioning to high-income economies. India risks missing this crucial step.

What History Tells Us

Economic history suggests that manufacturing has been a crucial stage in every major nation’s rise to prosperity. China and South Korea used export-led industrialization to create employment before moving into advanced services. The United States and Europe saw manufacturing peak before services took over. Singapore and the UAE, which successfully built service-driven economies, benefited from their small populations and strategic financial positioning—factors that do not apply to India.

India’s challenge is unique. It is trying to reach high-income status without first achieving industrial dominance. Whether this experiment succeeds will depend on whether the services sector can continue to absorb India’s growing workforce or whether a manufacturing correction becomes inevitable.

Can India Keep Growing This Way?

India’s rise as a services powerhouse is undeniable. But whether it can sustain long-term economic momentum without a manufacturing base remains uncertain. If the global demand for IT and digital services remains strong, India could redefine traditional economic models. If not, the absence of large-scale industrial jobs could slow down economic mobility, keeping per capita income lower than it should be for a nation of its size.

The next phase of India’s economic strategy will determine whether it can be the first major economy to reach high-income status without manufacturing dominance—or whether industrial growth will eventually have to catch up.