Is Budget 2026 putting services at the centre of India's growth strategy?

The debate about India’s economic future has often been framed as manufacturing versus services. But in reality, it is not one or the other. Budget 2026–27, in essence, quietly recognises that India’s economic growth and job creation are and will continue to be powered by services – both tradable and non-tradable, while maintaining the focus on infrastructure and manufacturing.

First, the budget includes a strategic announcement on the service sector: to make India a global leader in services, with a 10% global share by 2047. Towards this, a high-powered ‘Education for Employment and Enterprise’ Standing Committee will be set up, which will prioritise service areas to optimise for growth, employment and exports. It will also assess the impact of emerging technologies, including AI, on jobs and skills, and propose measures to address these changes.

Second, the budget announced a push towards tech-related services. Both IT and IT-enabled services are being combined into a single category called IT Services, with a safe-harbour margin of 15.5%. A safe harbour margin is a pre-determined minimum profit level, if declared by the company, that ensures the pricing is accepted without detailed scrutiny. The move reflects the standardisation and simplification aimed at reducing the compliance burden. The safe harbour threshold for IT services has been increased from Rs 300 crore to Rs 2,000 crore.

In a strategic move, the government has announced tax holidays until 2047 – a tax horizon extending to two decades – for foreign companies providing cloud services to global customers through India-based data centres. By offering this long-term stability, India is positioning itself as a host economy for digital infrastructure and cross-border service exports.

The budget announcements extend beyond higher-education workers to include IT services. These are not labour-intensive services, and the gains are skewed towards workers directly employed in those sectors. For example, in Karnataka, around 5% of the workforce works directly in business services, including IT/ITeS, and generates around a third of the state’s gross value added.

For job creation, it is important to focus on labour-intensive services such as tourism. Currently, India’s share of global tourists is less than 2%. International tourism brings foreign exchange, generates employment across regions, and creates multiplier effects in transport, retail, and hospitality services, among other sectors.

The announcement of the development of five hubs for Medical Value Tourism to integrate healthcare, diagnostics, and post-care services. Similarly, the temple and heritage tourism have received attention. Archaeological sites are to be developed into experiential cultural destinations.

The budget proposes a pilot scheme to upskill 10,000 guides at 20 iconic tourist sites through a standardised 12-week training course. Buddhist circuits in the Northeast are to be developed, along with ecologically sustainable mountain, turtle, and bird-watching trails in select states. A National Institute of Hospitality will be established to bridge academia, industry, and government, thereby strengthening professional standards in hotel and tourism management.

The budget proposes establishing content - creator labs in 15,000 secondary schools and 500 colleges. This is an investment in the future of the creative digital economy or the orange economy – animation, gaming, and visual effects. These are globally tradable services where scale depends on talent and skills.

Now, let us look at non-tradable services. Healthcare receives emphasis in the budget. The existing institutions for Allied Health Professionals (AHPs) will be upgraded, and new AHP institutions will be established. This will cover 10 selected disciplines, including optometry, radiology, anaesthesia, OT Technology, Applied Psychology and Behavioural Health and add 100,000 AHPs over the next 5 years.

The budget commits to training 1.5 lakh multiskilled caregivers. A robust care ecosystem, including geriatric and allied services, is required to address domestic needs while building capabilities to serve global demand. In the education sector, five University Townships are proposed in the vicinity of major industrial and logistic corridors.

A girls’ hostel in every district's higher-education STEM institution has been announced. Educational towns create service ecosystems – housing, retail, transport, and digital connectivity – that deepen local service economies. Within financial services, a high-level committee on banking will comprehensively review the sector and align it with India’s next phase of growth, while safeguarding financial stability, inclusion, and consumer protection.

While there were several announcements related to manufacturing, the budget implicitly recognises a bigger role for services. As education levels rise, it is inevitable that young people will want to work in the service sector rather than on the factory floor. Furthermore, production costs in India, including electricity, land, and logistics, remain high, and the sector cannot avoid automation.

If one reads between the lines, Budget 2026-27 is not just supporting the service sector. It places it at the heart of India’s growth strategy for the coming decade.

(Disclaimer: The article has been authored by Dr Vidya Mahambare, Prof, Great Lakes Chennai. Views expressed are personal.)