Advantages of the rise in india’s services exports

Advantages of the rise in india’s services exports

An increase in India’s services exports, which reaches a record high in the October-December quarter, should protect the economy from external threats as a slowdown in the global economy is likely to hurt the country’s merchandise exports.

According to analysts and economists, IT services no longer solely drive service exports but rather more lucrative and profitable offerings such as consulting and R&D.

India’s service export grew by 24.5% between October and December 202, hitting a record of $83.4 billion in the quarter, according to data broadcast by The Reserve Bank of India (RBI) on Friday.

The surplus of services excluding imports in this category rose 39.21% to a record 38.7 billion. This surplus, combined with a lower goods trade deficit, led to a more than expected narrowing of the current account deficit to $18.2 billion, or 2.2% of GDP.

“Services exports should reach more than $375 billion by March 2024, compared to $320-350 billion a year to march 2023,” said Sunil Talati, the services Export Promotion Council chairman. He said that service exports should outpace exports of goods by March 2025.

Merchandise exports from October to December totaled $105.6 billion, according to the latest RBI data.

IT services still account for 45% of India’s total services exports from April to December.

Management and professional consulting grew the fastest: the compound annual growth rate over the past three years was 29%, according to estimates by economists at Capital Markets and HSBC Securities.

The recent growth in service exports has been largely driven by global capability centers, which have begun to offer a range of advanced and essential solutions to global clients, such as legal and accounting advice.

Sectors like education, finance, and healthcare have also contributed to the growth of India’s service exports.

Importance of the increase

Continued growth in services exports should help narrow India’s current account deficit.

According to Vivek Kumar, an Economist at QuantEco Research, they now reconsider the CAD valuation for 2022-2023 and 2023-2024 to 1.4% of GDP ($53 billion) and 2% ($68 billion), respectively, earlier from 2.6% and 2%.

However, sustaining service exports will depend partly on how well demand conditions hold up in developed markets, said Gaura Sen Gupta, an Indian economist at IDFC FIRST Bank.