India's services exports growth enters slow lane in FY24: RBI data

Falls to 3-year low of 4.9%, but net services exports grow at 13.6%

After recording double-digit growth for two consecutive years, India’s services exports decelerated in FY24 to a three-year low, with a modest increase of 4.9 per cent to $341.1 billion, data released by the Reserve Bank of India showed. 

However, net services exports grew at a robust pace of 13.6 per cent to $162.8 billion as services imports contracted 2 per cent to $178.3 billion during the financial year ended March 31.
 

Madan Sabnavis, chief economist at Bank of Baroda, said slower services exports growth may be attributed to base effect as well as lower demand due to just about stable growth in developed economies.
 

“This situation will remain stable in FY25, too, as the global economy, especially America and Europe, will just about remain stable in growth as high interest rates curbs demand,” he said.

 

In FY24, merchandise exports had contracted 3.2 per cent to $437.1 billion, leading to a trade deficit of $240.2 billion, data released by the commerce ministry last month showed. However, a robust services trade surplus is expected to narrow down the current account deficit (CAD) in FY24 to around 1 per cent of GDP.

The latest round of RBI’s survey of Professional Forecasters on Macroeconomic Indicators projects the CAD to GDP ratio at 1.2 per cent and 1.1 per cent for FY25 and FY26.
 

Gaura Sengupta, economist at IDFC First Bank, said slowdown in services export growth was countered by decline in services imports. “Balance of payment details indicate that the slowdown in services export growth was led by a decline in transport services and fall in software services and professional services. Meanwhile, the decline in services imports was due to contraction in transport services,” she added.
 

For FY25, Dasgupta said services surplus was expected to remain on the stronger side with the rise of global capability centres (GCCs) supporting professional services exports. “However weakness in developed market growth, especially the US, is expected to weigh on software services exports. Overall we expect some moderation in services surplus in FY25,” she said.

GCCs are specialised facilities established by multinational companies in India, primarily to leverage local talent, optimise operational efficiency, and access new markets. These centres provide a wide range of functions and capabilities, including information technology (IT), research and development (R&D), finance, human resources, customer support, analytics, and business process operations. 
 

Goldman Sachs in a recent report said the revenues of GCCs in India have grown nearly four times, at a compound annual growth rate (CAGR) of 11.4 per cent over the past 13 years to $46 billion as of FY23. “The number of GCCs has more than doubled from 700 to 1580 over the same time period, with the sector adding around 1.3 million employees (11.6 per cent CAGR), taking the total employee headcount to 1.7 million in FY23,” it added. 
 

The report said services exports were correlated with global demand, competitive trade weighted exchange rates, the quality of infrastructure and human capital, among other factors. “For India, our baseline forecast is for services exports to reach around 11 per cent of GDP by 2030 (vs. 9.7 per cent of GDP in 2023). In this scenario, assuming no significant moves in commodity prices and goods trade balance beyond 2024, the current account deficit could likely stay around 1 per cent of GDP on average from 2024-2030,” it said.
 

While software exports dominate India’s services exports, “other business services” that includes exports by GCCs have seen a strong ramp-up recently, accounting for 25.4 per cent of the total services exports in the December quarter of FY24 from 24.1 per cent during the same period a year ago. During the same period, the share of software exports in overall services exports declined from 48.1 per cent to 46.2 per cent.

The government has set a target of $2 trillion combined exports of goods and services by 2030. According to the latest World Trade Organization data India’s rank among leading exporters of commercial services (excluding intra-EU trade) remained unchanged at 5 in 2023 from the preceding year, with its share remaining the same at 5.4 per cent. However, India’s rank dropped a notch to 6 among major importers of commercial services (excluding intra-EU trade). Its share declined to 4.2 per cent from 4.8 per cent in the preceding year.