A deep-dive research report from global investment banking major Goldman Sachs, evocatively titled ‘India’s rise as the emerging services factory of the world’, has captured India’s recent success in providing global services and sought to forecast growth prospects and risks in the medium term. The take-off trajectory of the country’s IT services sector, unleashed after critical economic reforms in 1991, is well known. The firm takes a broader view of India’s services exports over the last 18 years, including professional consulting, that have grown the fastest, travel services which have grown the slowest, and financial services that could gain if initiatives such as the GIFT City click. While global services exports tripled over 18 years, such intangible exports from India grew at twice the pace to reach nearly $340 billion last year. In fact, its exports growth has been the third fastest globally since 2005, behind Singapore and Ireland. The country’s share in global services outflows has risen from under 2% in 2005 to 4.6% in 2023. India’s share in goods exports increased from 1% to 1.8% during this period.
The services trade boom has also served as an invaluable cushion for India’s external account balances against shocks such as pricey oil imports. Goldman Sachs expects that buffer to remain in play with services exports projected to rise to $800 billion by 2030. While this is slightly lower than the government’s target of $1 trillion by 2030 for both services and merchandise exports, a continuing uptick in high-value services would also drive top-end discretionary consumption and real estate demand, the firm reckoned. In the immediate term, the outlook is tentative as top firms in IT services, still India’s most dominant export segment, have shed employees over the past year and their growth guidance for this year is far from bullish. Infosys, for instance, expects revenues to rise 1% to 3% this year in constant currency terms. The rise of global capability centres offers some comfort. However, the firm’s analysts stress it would be imprudent to take India’s services growth for granted. Constraints that need attention include training graduates to be job ready, and the stress on natural resources in regions where growth is concentrated, as reflected in the water crisis at Bengaluru. A protectionist tendency in destination countries could hurt exports, just as irrational domestic policy interventions such as attempts to “manage” IT hardware imports. India needs a calibrated approach to sustain the services success story. That should include a hard push for global market access and opportunities for all professional services, as well as a light-touch regulatory approach to let new ideas and enterprises bloom across areas such as artificial intelligence, manufacturing-linked services, and blockchain applications.
