India consolidating role as global services exporter; EU, China lag: KKR

While Europe doesn't have a strong system for offering financial services, China needs a stronger domestic services industry to create jobs and help its economy move out of deflation

India is strengthening its position as a global exporter of services, supported by rising incomes among its top consumer groups, even as many countries worldwide struggle to expand their services sector, according to global investment firm KKR.

 

In its report titled 'High Grading-2026 Global Macro Outlook', KKR highlighted that the US and India show that a strong services base can support stable currencies and strong markets, while Europe and China still need major reforms to catch up.

 

Noting that the services sector has been a consistent driver of resilience for the US Economy, the report said, "India is another standout, not because of manufacturing strength, which remains somewhat constrained by regulation and execution risk, but because it emerged as a global services exporter."

 

The services sector contributes around 60 per cent of India's gross domestic product (GDP) growth. However, Union Finance Minister Nirmala Sitharaman on Wednesday said that services are not limited to information technology (IT) alone; sectors such as tourism and hospitality also need to contribute.

Europe and China lag behind

According to the report, while Europe doesn't have a strong system for offering financial services across borders, China needs a stronger domestic services industry to create jobs and help its economy move out of deflation.

 

Highlighting the issues faced by China, KKR said, "Although its services sector is large, weak consumer spending, youth unemployment and policy uncertainty have slowed growth. The result is that China's services exports have not emerged as a growth engine in the way India's have."

 

Meanwhile, Europe’s services sector is weaker than it should be. The report noted that financial services across countries remain fragmented, and Europe lacks a clear plan to scale service exports like the US and India. "This is a problem, especially as global trade in goods is becoming more political and manufacturing is expensive to expand," it said.

 

KKR noted that the services sector is crucial for global growth. "It has become a key area where countries compete on productivity, trade balance and market leadership," the investment firm said.

Upper-middle-income households to rise tenfold by 2028

The report also said that growth in India is increasingly led by middle-to-upper income segments, fuelling rising demand across financial services, healthcare, education, and leisure. "The income and wealth effects for India's top 200 million consumers are reinforcing growth, driving demand for education, healthcare, and discretionary services," it said.

 

According to the report, the number of affluent and upper-middle-income households is expected to expand nearly tenfold between 2010 and 2028. "The trend is already visible in domestic tourism, where higher disposable incomes are translating into a meaningful shift from basic consumption to aspirational spending," it said.