Service sector also recognized as tertiary or residual sector is indispensable for economic development in any economy including India. It has developed as the main and fastest-growing sector in the global economy in the last three decades. The present study makes an analysis of service sector in Indian economy. The paper also makes an analysis of Indian services sector through examining its growth and contributions in the economy. The paper also highlights reform measures that will enable the services sector to not only to grow at a fast pace but also create quality employment and attract investment. The study confirms that services sector has grown at the significant rate in comparison to other sectors. Its growth rate is found to be higher than growth of overall GDP. Rising share of this sector in GDP over covers the poor performance of agriculture sector. As a service, sub-sector, trade is dominant all in terms of its contribution in Indian GDP. The employment percentage in service sector as well as in industry sector is rising while in agriculture, it is falling continuously. A large proportion of Indian population is still engaged in agriculture sector and the next largest employer is service sector where trade, hotels & restaurants and community, social & personal services are the significant generator of employment. Thus, service sector which is dominant in terms of its growth & shares serves as an engine of growth for Indian economy. It is important for a developing country like India with a large and young population to generate quality employment and move up the value chain. India needs private investments in key infrastructure services such as transport, energy and telecommunications.