What drives India’s robust services exports? RBI explains

The Reserve Bank of India (RBI), in its latest bulletin for April 2024, analyses India's major services export drivers and how they impact the economy. The report, written by the central bank economists, says India is the 7th largest services exporting country in the world, which is a "phenomenal rise" from the 24th position in 2001.

The growth in services exports has been immense in the past three decades, with the services exports in the US dollar terms growing at a CAGR of more than 14% between 1993 and 2022. Compared to the merchandise exports growth of 10.7% and the world service growth of 6.8%, the growth is way higher in the services exports category.

"As a result, the share of India’s services exports in world services exports rose more than 8 times from 0.5 per cent in 1993 to 4.3 per cent in 2022," says the RBI economists.

Among the main drivers, the RBI says India ranks 2nd globally in telecommunication, computer and information services exports; 6th in personal, cultural and recreational services exports, 8th in other business services exports, 10th in transport services exports, and 14th in travel services exports.

Even though Covid in 2020 “severely impacted” services activities and their delivery both at the domestic and global fronts, India’s services exports stood resilient, says the RBI. This was mainly due to the larger share of “telecommunication, computer and information services exports”, which gained from digitalisation and the government’s ‘Digital India’ initiative.

India’s telecommunication, computer and information services export, with a share of around 47% in total services exports during 2022-23, is the major contributor to India’s services export growth, says the report.

Around one-fourth of India's services exports are contributed by other business services, which exhibited a robust average growth of around 28% in the recent two years. In 2022-23, India's other business service exports rose to $80.4 billion from $59 billion in 2021-22.

More than three-fourths of this growth is driven by five major categories -- business and management consultancy and public relations service; engineering services; advertising, and trade fair services; R&D services; and other tech services including scientific or space services.

How have India’s services exports exhibited resilience over the past decade? The RBI attributes “volume effects” to it, saying it drives services exports relative to price effects. “There has been a visible rise in the trend component of India’s services exports, benefitting from infrastructural developments (transport/logistics/IT) and technological advancements.”

India also has a comparative advantage in telecommunication, computer and information services, says the RBI, adding that it has the potential to diversify its export basket towards other business services.

The RBI economists suggest harnessing the benefits of digitalisation and generative AI, a supportive policy environment would be critical for the country. “Additionally, policies to attract FDI in the services sector could provide a further boost to India’s exports of services in the medium to long run.”