How India’s services economy became a world leader

As the world has grown more wired and interconnected, countries have been able to export more kinds of services. Globally, services exports have roughly tripled since 2005, making up 7% of the world’s GDP in 2023. And except for Singapore and Ireland, no country’s services exports grew as fast as India’s, according to Goldman Sachs Research.

India’s services exports grew from $53 billion to $338 billion between 2005 and 2023 — almost double the rate of the rest of the world — and have come to form nearly a tenth of the national GDP. Its growth has outstripped that of India’s exports of material goods. In their baseline forecast, our economists expect India’s services exports to touch 11% of GDP by 2030, and to be valued at around $800 billion. 

What is India’s main services export?

Through the last two decades, computer services formed the dominant category in India’s services exports — a dynamic that continues into the present day. In 2023, this category made up nearly 47% of all services exports.

The sector that grew fastest, though, was professional consulting, which grew at a 17% compound annual growth rate over the 18-year period. By contrast, “in line with world travel services exports, travel services exports in India grew at the slowest pace over the last 18 years,” Santanu Sengupta, Goldman Sachs Research’s India economist, writes in his team’s report. Sengupta also sees potential for India’s share of global insurance and financial services to rise. “Financial services is a category in which dominant developed market players are gradually losing shares to emerging markets,” he writes.

India’s specialized services hubs

When India’s services exports initially began to grow, it was on the back of “offshoring”: a cost-saving measure in which global companies outsourced their back-office operations to units in India. But these units have grown increasingly specialized and moved up the value chain over the past decade. Now called “global capability centres,” and based overwhelmingly in India’s major cities, they support a variety of business processes, such as IT, finance, human resources, and analytics.

The revenues of Indian GCCs have quadrupled over the last 13 years, to $46 billion in the 2023 fiscal year. The number of GCCs has more than doubled from 700 to 1,580 in that period, and the sector has added around 1.3 million employees, taking the total employee headcount to 1.7 million in the 2023 fiscal year.

The future of India’s services exports

Goldman Sachs Research’s most favorable scenario for the growth of India’s services exports assumes a higher real GDP as well as higher manufacturing exports over the middle term. In this scenario, services exports would form 12.4% of GDP by 2030, at a value of $900 billion. In a less optimistic scenario, Goldman Sachs Research expects services exports to form 9.8% of GDP.

In recent years, services exports have cushioned India’s external balances from supply-side shocks (such as a rise in the price of oil or volatile food prices). They’ve also boosted the consumption economy. “We expect the growth in high-value services to domestically drive top-end discretionary consumption, and commercial and residential real estate demand,” Sengupta writes.

But services exports face constraints as well. Training sufficient technology graduates to meet the demands of the job markets has often been cited as a challenge. “From an environmental perspective, the growth in these sectors is putting pressure on the natural resources of cities – the city of Bengaluru, which has the largest share of IT companies and GCCs in India, has seen water limitations,” Sengupta writes. “A diversification into other cities has started and this is likely to help reduce the pressure on natural resources.”

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