Growth in services exports essential to reduce concentration risk

India must broaden its services export base beyond IT and consulting to reduce concentration risks, boost competitiveness, create jobs and sustain growth amid global protectionism, say economists

Global services exports grew at an average 6.1 per cent annually from 2014 to reach $8.6 trillion in 2024. In the same period, global goods exports rose at a more sedate 2.9 per cent to $24.5 trillion. The upshot of that acceleration? The proportion of services in total global exports climbed up a good 500 basis points to 27 per cent, spurring job creation, especially in developing economies.

 

According to a 2022 World Bank blog, services exports created 16 million new jobs across a sample of major developing economies between 2005 and 2018, while those supported by goods exports declined 31 million.The trend is expected to have continued in recent years, given the increasing reliance of modern manufacturing on capital-intensive production and highly skilled labour force.

 

In this milieu, India’s services export trajectory has been phenomenal. For instance, while India accounted for only 1.8 per cent of global goods exports over the past decade and ranked 18th globally (with China ranked first), its share of global services exports rose to 4.2 per cent in 2024, from 3 per cent in 2014. That translates into a services export growth rate of 9.1 per cent versus 6.1 per cent globally, positioning India as the eighth-largest services exporter in the world in 2024, with China being the only developing country ahead of India (more on this later).

 

Nearly half of our exports are in services, which have been less affected than goods trade by the new United States tariff regime that has kicked in, and that has helped navigate the ensuing turbulence. Services used to account for only around 30 per cent of our total exports a decade ago.

 

Additionally, the composition of services exports is undergoing a rapid transformation. In recent years, the other business services (OBS) segment has emerged as the biggest exporting sector globally, replacing travel services, which dominated before the pandemic.

 

OBS comprises three categories — research and development services, professional and management consulting (PMC) services, and technical, trade-related services. In 2024, OBS exports of $2.1 trillion accounted for almost a quarter of total global services exports.

 

India has been a major beneficiary of this trend. According to the World Trade Organization (WTO), in 2024, India was the second-largest exporter of PMC services, which also include information technology–enabled services (ITes) and business process outsourcing ( BPO) under the WTO classification, after the United States.

 

This coincides with the rapid establishment of global capability centres (GCCs) in India, currently estimated at over 1,700 — or more than half that exist globally. But there is a flip side to this is concentration risk. PMC and computer services account for over 65 per cent of India’s services exports. On the other hand, leading services exporters such as the US, United Kingdom, Germany and China offer a far more diverse palette of services. This means that the current tendency towards increased protectionism, if extended to services, could be disruptive for India.

 

And herein lies the nub — shorn of PMC and computer services, India does not even rank among the global top 10 exporters in any other large services categories such as travel, transport, and financial services. These three account for nearly half of the services exported worldwide.

 

Our share of the troika? A bare 1-2 per cent. That compares poorly with a roughly 13 per cent slice of PMC services. In addition, while our share in global services exports saw an uptick for most of the last decade, the pie stagnated at 4.2 per cent in 2022, 2023 and 2024.

 

Also, between 2014 and 2024, India has not been able to move up from the eighth position globally, with Singapore, Ireland, and China successfully and aggressively competing for services exports and raising their spoils faster than India.

 

To be sure, China is a bigger services exporter than India, but its offerings are different. The country dominates transport services exports (second only to Singapore) and is likely a big exporter of technical, trade-related, and research and development services.

 

What that means is any efforts at diversification of India’s services exports basket will run into stiff competition. In any case, we need a two-pronged, layered strategy premised on inherent strengths: Continue to maintain leadership in PMC, while simultaneously raise competitiveness in global exports of other services. For example, globally, travel services have grown the fastest since the pandemic and remain the second-largest services export segment. But for India, this segment is now a net negative for the balance of payments, unlike earlier.

 

Ergo, it’s time to step up and get the mojo back. India’s prowess in medical and wellness tourism is well known. Government initiatives such as the expansion of the e-visa scheme and the development of spiritual tourism circuits should provide further support. Medical and wellness tourism is crucial, as it has greater potential than PMC or computer services to create job opportunities beyond the metros. Other services also appear to be gaining traction. For instance, the maritime push for shipbuilding, ports and waterways could propel transport services exports.

 

Likewise, Gujarat International Finance Tec-City, or GIFT City, can become a hub for financial services exports. All said, given the global competition and early-mover advantage of other nations, focused efforts are needed for these initiatives to start contributing meaningfully to India’s services exports on the global stage.

 

Yet another flank is vocational professionals. Because of a faster-than-anticipated ageing population, particularly in advanced nations, global demand for plumbers, electricians, welders, machinists, and paramedics/elder care professionals is rising. We must step up to fill the widening skill gap in these services both domestically as well as for external markets. More importantly, these professions are relatively resilient to potential job disruptions from the advent of artificial intelligence.

 

India’s recent free trade agreements focused on reducing restrictions on services exports by allowing easier market access (physical/digital) and professional mobility (permits/visas), recognition of qualifications (mutual recognition agreements for chartered accountants/ nurses/ architects), and higher commitments for the education, IT and finance sectors should add to its competitiveness in high-value services globally, especially in the IT, business and creative fields.

 

Enhancing services exports across multiple flanks must become a cardinal priority, given their relatively fast pace of growth, demonstrated stability, and India’s inherent advantages, even as we continue to step up targeted efforts to boost manufacturing exports in pharmaceuticals, electronics, and defence. 

The authors are, respectively, chief economist, senior economist, and economic analyst at Crisil