Service sector now employs nearly half of Kerala's total workforce, and the state has emerged as one of the major service-intensive economies in the country, along with Karnataka, Tamil Nadu, and Telangana, according to the latest NITI Aayog reports analysing state-level growth and employment trends. The sector contributes over 64 per cent of Kerala’s Gross State Value Added (GSVA), a measure of the total value of goods and services produced within the state.

While high-value services like IT in Karnataka power the service-level dominance, Kerala has evolved into a service-dominated economy anchored in trade, tourism, real estate and financial intermediation, the reports show.

In 2023-24, 48.5 per cent of Kerala’s workforce (about 75 lakh people) were employed in the services sector, up from 42.6 per cent in 2011–12. This is far above the national average of 29.7 per cent and comparable to global figures hovering around 50 per cent.

IT concerns
While the service sector has boosted employment, Kerala has reasons to worry in the IT sector. From 2011–12 to 2023–24, the IT sector showed only marginal employment growth of 0.3 percentage points. However, IT, real estate, and other professional services together account for 27.7 per cent of the state’s GSVA, while trade and repair activities contribute 28.6 per cent and other services 16.4 per cent.

The low employment growth doesn't augur well for the state government, which, according to the Economic Review Report, envisages expansion of the IT industry in a manner that benefits all districts. The state government provided an amount of ₹559 crore in the budget (2023-24) for the development of core IT infrastructure, ITeS, e-governance activities and incentivising investment in the sector. The expenditure incurred was ₹172.59 crore (30.9 per cent). In 2024-25, the outlay earmarked for the sector was ₹ 507.14 crore, the report showed.

G Vijayaraghavan, former CEO of Technopark, says the shift is evident in the technology space.  “Employment generation has come down, but productivity has increased due to the availability of AI tools. However, even with this rise in productivity, we may still see a further fall in employment numbers.”

He adds, “Several large companies that initially planned to reduce their workforce by 2–3 per cent ended up cutting around 10 per cent. Fresh recruitment has also fallen. The productivity gap between experienced professionals and younger employees is also narrowing.”

Companies are becoming leaner, with fewer layers and managers, focusing on output rather than hierarchy. Firms are no longer willing to pay for large, managerial-heavy teams because younger professionals are more adaptable and cost-effective.

K Ravi Raman, member of the Kerala State Planning Board, is, however, optimistic about the labour absorption in the IT sector. “Labour absorption in IT is happening in the state, but slowly — the multiplier effect takes time. Any investment, especially in infrastructure like IT parks, shows results gradually,” he says.

Drop in transport & storage, real estate
The report notes that employment in transport and storage fell sharply during this period, from 18.8 per cent to just 8.3 per cent. Kerala, once the seventh-largest real estate employer, has also dropped out of the top 10. On the other hand, segments such as accommodation and food, finance and insurance, professional and technical services, public administration, education, and health saw a rise in the share of employment.

Kerala’s “other services” category — covering education, healthcare, and community institutions — accounts for 18.6 per cent of total service employment, reflecting the state’s long-standing focus on human capital.

On the drop in real estate employment, SN Raghuchandran Nair, Convenor General and former Chairman of CREDAI Kerala, says, “The low employment ratio may be attributed to the low status associated with construction workers. These are well-paying jobs, mostly taken up by migrant labourers. But Malayalis are looking for the higher status linked to white-collar jobs.”

Dr Raman points out that the lack of formal job security in real estate also pushes Malayalis towards more stable professions. “Kerala continues to attract migrant workers because the average wage rate here is double the national average,” says Dr Raman. “At the same time, many Malayalis wait for better jobs as they often have a fallback income through remittances or family wealth. This ‘default income economy’ makes people selective, but it’s also one of Kerala’s strengths.”

The transport and storage sector once accounted for nearly one-fifth of Kerala’s service employment in 2011–12, but by 2023–24, it had dropped to just 8.3 per cent.
“A possible reason could be the sharp rise in private vehicle ownership, which naturally reduces employment in public transport,” says Dr Raman.

Women power
Kerala’s services sector stands out for its high level of inclusivity and formalisation, as per the report. Women make up 37 per cent of the sector’s workers, far ahead of the national average of 21 per cent. The structure of employment is also distinctive — only 44 per cent of Kerala’s service workers are self-employed, compared with 51 per cent nationally, pointing to the predominance of salaried jobs in education, healthcare, and public administration.

According to the NITI Aayog report, Kerala must now focus on high-growth, high-GVA segments such as Computer & Information Services, Trade & Repair, Professional, Scientific, and Educational Services — categories dubbed as ‘engines of growth’. Incentivising frontier technologies like AI, fintech, and R&D, along with expanding global digital exports, could strengthen Kerala’s service base.