Good day. Today, I would like to talk about India's impressive surge in services exports and how it is expected to shield the economy from external risks. Here are the key points:
India's services exports hit a record high of $83.4 billion in the October-December quarter of 2022, up 24.5% from the previous year.
This growth is not limited to IT services but also includes more lucrative offerings such as consulting and research and development.
The services surplus, which deducts any imports in the category, also rose 39.21% to a record $38.7 billion.
The current account deficit shrank more than expected to $18.2 billion, or 2.2% of GDP, due to a drop in merchandise trade deficit.
Services exports are expected to grow to over $375 billion by March 2024, compared to $320-350 billion for the year ending March 2023.
Sunil Talati, chairman of the Services Export Promotion Council, predicts that services exports will surpass goods exports by March 2025.
October-December merchandise exports stood at $105.6 billion.
IT services still account for 45% of India's total services exports in April-December.
Professional and management consulting grew the fastest, at a 29% compounded annual growth rate over the last three years.
The recent growth in services exports has been largely powered by global capability centres.
India is home to over 45% of global capability centres in the world.
These centres have started to offer global clients a range of high-end and critical solutions such as accounting and legal support.
Sectors such as tourism, education, financial services, and health also contributed to India's higher service exports.
The continued rise in services exports is likely to help rein in India's current account deficit.
Vivek Kumar, an economist at QuantEco Research, revised CAD estimates for 2022-23 and 2023-24 to 2% ($68 billion) and 1.4% of GDP ($53 billion) respectively.
However, sustaining services exports would partly depend on how demand conditions in developed markets hold up.
India has a comparative advantage in services exports, particularly in software services.
There is room for further growth with India's share in world commercial services exports currently just at around 4%.
The acceleration in digitalisation after the Covid crisis and a lack of adequate tech talent in some of these countries are key factors driving companies to explore stepping up their operations in India.
This impressive surge in services exports is a testament to India's growing expertise and competitiveness in the global market, and it bodes well for the country's economic growth in the years to come.
Thank you for listening.