SDG 8: Decent Work and Economic Growth | SDG 9: Industry, Innovation and Infrastructure | SDG 10: Reduced Inequalities | SDG 17: Partnerships for the Goals
Ministry of Commerce and Industry | Department of Economic Affairs (DEA)
UNCTAD finds that although services have become a primary source of growth in Least Developed Countries (LDCs), this growth is concentrated in low-productivity activities that do not generate broad-based prosperity. The Least Developed Countries Report 2025 finds that service-sector employment remains dominated by informal retail and personal services, leaving working poverty widespread despite increased job counts. To bridge the productivity gap—where LDC labour productivity is 11 times lower than the median developed economy—the report advocates for “hub” strategies in logistics, transport, and technology that are deeply integrated with manufacturing and industrial sectors.
Strategic Pillars for High-Productivity Service Growth The UNCTAD report identifies several foundational pillars required to turn service-led growth into structural transformation:
Productive Sector Linkages: Services must be embedded in coherent national strategies that build strong links with manufacturing and agriculture to support overall industrial competitiveness.
Closing the Digital and Skills Divide: Targeted initiatives, such as Rwanda’s Digital Ambassadors Programme, demonstrate that digital literacy and high-quality digital infrastructure are essential for competing in modern services.
Reforming Tourism for Value Addition: Although tourism accounts for one-third of LDC services exports, it often fails to create substantial local value due to high import dependence and infrastructure constraints.
Expanding Digitally Deliverable Services: LDCs currently account for just 0.16% of global exports in digitally deliverable services; scaling this requires closing the 42% gender gap in mobile internet usage and the 50% rural-urban divide.
Data-Driven Policymaking: Persistent gaps in the quality of services-sector statistics limit the ability of policymakers to assess whether growth is delivering actual productivity gains and decent jobs.
What is the “hub” strategy in the context of LDC development? A “hub” strategy involves a country positioning itself as a regional center for high-value services such as logistics, transport, technology, or tourism to attract investment and boost exports. While these strategies can raise competitiveness and fiscal revenues, UNCTAD cautions that they can generate fewer direct jobs than expected and increase economic risks related to debt and overcapacity if not matched by domestic capacity building. For a hub to be effective, it must raise the productivity of the local workforce and foster backward linkages to the rest of the domestic economy.
Policy Relevance
The UNCTAD findings represent a transition from informal service growth to a “Service-Manufacturing Convergence” model. By highlighting the risks of “low-productivity services growth,” the report provides a strategic warning for the Ministry of Commerce and Ministry of Electronics and Information Technology (MeitY) to ensure that India’s service success—specifically in IT and SaaS—is leveraged to digitize and automate the domestic manufacturing sector.
Scaling Digitally Deliverable Exports: With LDCs accounting for only 0.16% of global digital exports, India can utilize its Sovereign AI framework and Digital Public Infrastructure (DPI) to act as a “technology provider” for LDCs, exporting low-cost digital governance solutions.
Bridging the Internal Digital Divide: The 42% gender gap and 50% rural divide noted in LDCs are also present in varying degrees within India; addressing these through the Digital India mission is critical for inclusive growth.
Enhancing Industrial Competitiveness: India can model its “service-hub” strategies on the UNCTAD recommendation to build deeper linkages between high-tech services (like logistics automation) and traditional manufacturing clusters to raise overall TFP.
Data-First Governance: Addressing the “persistent data gaps” in services can be a priority for MoSPI, allowing for a more accurate assessment of how PLI-led manufacturing growth is being supported by a modernizing service backbone.
Relevant Question for Policy Stakeholders: How can MeitY and the Ministry of Commerce leverage India’s ‘National Reference Architecture’ for Sovereign AI to provide ‘Service-as-a-Product’ solutions to Least Developed Countries, effectively raising their digital export share beyond the current 0.16%?
Follow the full update here: UNCTAD: Services are transforming least developed economies