India’s overall exports (merchandise plus services) grew 14.3% yoy in FY23. While merchandise exports touched USD456.1 billion in FY23 (FY22: USD429.2 billion), services exports reached USD325.3 billion (USD254.5 billion). Both merchandise and services exports registered the highest-ever annual exports. However, external demand in FY24 would remain uncertain due to global headwinds. Monthly export data suggest that indeed the yoy growth of both merchandise and services exports has declined lately.
As global headwinds, high interest rates, and low consumer spending in advanced economies affect the budgets of businesses, spending on IT/ITES is likely to slow down and affect India’s software exports in FY24. However, Ind-Ra believes the fast-growing category of business services, despite global headwinds, holds immense export opportunities for India. In FY23, business services exports grew 36.3% yoy compared to software exports of 20.2% yoy.
Business services is the second-largest category accounting for 23.2% of India’s services exports in FY23 after software exports (45.1%). Business services include services such as accounting, audit, R&D, legal, business/management consultancy, quality assurance, after-sales service centres, advertising, trade fair, architecture, engineering, tax consulting, market research, public opinion polling, and wholesale and retail trade. Even education, health, audio-visual and museums, library and archival services which belong to the personal, cultural & recreational services category hold huge export potential for India.
India exported USD1.75 billion worth of accounting, auditing, book keeping services in FY21. Research and Markets.com has estimated the global accounting services market to grow to USD1738.7 billion by 2031 form USD587.94 billion in 2021. Similarly, the global legal process outsourcing market size is expected to reach USD120 billion by 2030 from USD10.77 billion in FY21. India exported legal services worth USD1.05 billion in FY21. Healthcare and education services are also a big opportunity.
The global medical tourism market is expected to grow to USD59.67 billion in 2027 from USD35.77 billion in FY22. India is ranked 10th in the Medical Tourism Index for FY21 out of 46 destinations globally. Although India has one of the largest higher education systems in the world which is only behind the US and China, it will have to bring together several enablers to emerge as a low-cost and high standard education destination.Realising services exports potential will not be possible without active government support. Tariff/tax barriers over the years though have become non-discriminatory because countries across the globe have become World Trade Organisation compliant, non-tariff barriers still exist and do hinder the cross-border delivery of services. Therefore, government support would be critical to ensure that non-tariff barriers in digital delivery of services (Mode 1 under the GATS) are eliminated/reduced. Government support will also be required in terms of – (i) developing network infrastructure (ii) digitisation and (iii) issues involved around data privacy/protection across different geographies. The government can also facilitate the services sector exports by investing in education to cater to the demand of digital skills enabled workforce.
