Two recent studies on India’s services exports, by Reserve Bank of India and Goldman Sachs, have taken a sanguine view of India’s exports, and for pretty good reasons. Goldman Sachs has observed in a report that goes into more granular details, that India has done well to diversify away from IT services exports to expand its global footprint in professional services, thanks to the evolution of Global Capability Centres over the last decade.

However, the factors at work in keeping the services export story going are, besides pricing and global demand, the development of infrastructure, manufacturing through its ‘network effects’ and human capability. The Goldman report notes that India’s services exports have grown at a CAGR of 11 per cent between 2005 and 2023, or double the global rate of growth of services trade. A global tide has lifted digitally delivered services trade vis-a-vis that of goods, with the services intensity in manufacturing also increasing. During this period, India’s share in global services trade rose from under 2 per cent in 2005 to 4.6 per cent in 2023 (11.4 per cent growth in 2023 alone to $345 billion). While labour arbitrage played a big role in India’s services boom over the last two decades, it is being replaced by a qualitative shift towards professional services.

As for the composition of India’s services exports, computer services accounts for just under 50 per cent, without having changed significantly over the last decade. But in professional consulting services, led by Global Capability Centres (GCC), the share has increased by 11 percentage points since 2005 to about 18 per cent now. While travel, transport and insurance have remained growth laggards, the Goldman Sachs report refers to the potential of the Gujarat International Finance-tech City to transform India’s global footprint in the financial services space. GCC revenues have quadrupled over 13 years from $12 billion to $46 billion, and their numbers more than doubled from 700 to 1,580, with engineering research and development accounting for half this revenue. IT and business process management account for the rest, without having grown much. The impact of this transition on the existing workforce remains a grey area. There could be an emerging skills mismatch which needs to be addressed for India to move higher up the value chain.

As a paradigm shift unfolds in services trade, synergies with manufacturing matter more than ever. India’s tech push in logistics could help. The RBI study says that a one per cent rise in global GDP leads to a 2.5 per cent rise in India’s real services exports, while a one per cent rise in India’s real effective exchange rate can result in a 0.8 per cent fall in India’s real services exports. However, both studies contend that demand outweighs the price factor — a point that has important policy implications for those who worry about the role of exchange rate in service exports. India’s inherent competitiveness ought to be the driving force.