Budget 2026: Will the focus on services sector help bridge the critical skill gap?

The Economic Survey 2025-26 acknowledged that amid the global uncertainty and subdued global industrial activity, the services sector in India has been a stabilising force, contributing more than half of India’s Gross Value Added (GVA) and being a major driver of exports and employment.

According to the data the sector has recorded average annual growth of around 7-8% year after year, in sharp contrast to the cyclical fluctuations in agriculture and industry and its share in global services trade more than doubling from 2% in 2005 to 4.3% in 2024.

“The services sector in India gained momentum in H1 FY26, with its share in GDP rising to 53.6%, higher than that in H1 FY25 and the pre-pandemic period. Underlying this acceleration is the growth in services GVA by 9.3% in H1 FY26, up from 7.0% in the corresponding period of FY25,” the survey document noted. India is currently the world’s seventh-largest exporter of services and has the largest share in the foreign direct investment inflows.

As an important growth driver of the economy, the Economic survey also noted that the pace of technology advancement aimed at enhancing productivity and the emerging new service models is currently outpacing the rate of adaptation by companies. It also cautioned that many economies are facing widening skills gaps, with rising demand for specialised capabilities in areas such as data analytics, cybersecurity, cloud computing, and AI, alongside greater automation of routine service tasks.

“Tighter immigration regimes in several advanced economies and intensifying global competition for skilled talent are further influencing the cross-border delivery of services. Against this global backdrop, going forward, sustaining India’s position in the global services market will depend on productivity gains, continued innovation, ongoing investment in skills aligned with emerging technologies, and further simplification of regulatory processes. How effectively the sector responds to these factors will shape its contribution to India’s growth trajectory in the years ahead,” the survey document further noted.

Given that services sector accounts for around 30% of total employment, the recent union budget has proposed to set up a High-Powered ‘Education to Employment and Enterprise’ Standing Committee to recommend measures to lead the country to become a global leader in services, with a 10% global share by 2047.

“The committee will prioritise areas to optimise the potential for growth, employment and exports. They will also assess the impact of emerging technologies, including AI, on jobs and skill requirements and propose measures thereof,” said Union Finance Minister Nirmala Sitharaman in her speech during the budget presentation.

This announcement comes at a time where core challenge is the widening skill mismatch at the intersection of technology and employability. In high-growth areas such as AI, GenAI and machine learning, the current skill gap is already 48–50% and is projected to widen to over 53% by 2026, with just one qualified engineer available for every 10 GenAI roles points Kapil Joshi, CEO of IT Staffing, Quess Corp.
 
According to industry estimates, there will be a shortage of over 1.1 million AI professionals by 2027, even as demand rises to 2.3 million roles against a projected supply of 1.2 million.

“Cloud computing faces a 55–60% skills mismatch, with nearly 2.2 million professionals needed immediately and over 14 million cloud-related jobs expected by 2026, while cybersecurity gaps—currently 30–50%, are expected to rise to 50%, amid 25,000–30,000 open roles and an existing shortfall of over 800,000 professionals. These numbers underscore the urgent need for tighter alignment between education, skilling and real-world service delivery,” he said.  
 
According to the budget document, the indicative terms of reference for the proposed committee includes identifying sub-sectors with potential for growth, employment and exports and sector-specific gaps and measures to unlock employment potential along with cross-sectoral policy and regulatory issues, including standards-setting and accreditation.  The committee will also assess the impact of emerging technologies, including AI, on jobs and skill requirements, and propose specific measures for embedding AI in the education curriculum from school level onwards.

The services industry sees the focus on the sector and acknowledgment of criticality of skilled talent as the right policy direction. However, cautioning that success hinges on bridging the gaps between academic training and the skills needed to develop, deploy, and manage AI-driven and cloud-based systems at scale that need to be bridged.

“Addressing these gaps through closer industry-education collaboration, applied learning programmes, and continuous reskilling will be key to improving workforce readiness. Securing a 10% share of the global services market by 2047 will depend on how effectively education systems, industry needs, and export priorities are aligned. A coordinated approach to skill development that meets global standards can enhance employability, strengthen competitiveness, and deepen India’s role in global services value chains,” says Sanket Atal, Senior Vice President, Engineering and Country Head, India, OpenText.

The proposed high-level committee also tasked to suggest steps that can be taken to attract skilled diaspora along with proposing measures for upskilling and re-skilling of technology professionals/engineers in AI and emerging technologies; and AI enabled matching of workers, jobs and training opportunities.

“If implemented effectively, the Education-to-Employment and Enterprise Standing Committee could significantly boost high-value services employment across IT services, digital engineering, global capability centres, fintech, health-tech and AI-led business services—supporting India’s ambition to scale its global services share from about 4.3% today towards 10% over time” Joshi added .  

At a time when the global capabilities centres have overtaken the traditional IT/ITES sector in hiring numbers, the budget clarity on transfer pricing, a 15.5% safe harbour and thrust to improve the advanced pricing mechanisms is being  seen as an enabler to further accelerate the number of GCCs being set up in India.