Can India's Service Exports Achieve the $1 Trillion Goal?

Indian service sector is booming and how!  From getting vegetables delivered to your home within 10 minutes of ordering, to a New York resident getting their query resolved by support agents in India,  the service sector has played a key role in taking India where it is today.  

A Goldman Sachs report titled ‘India's rise as the emerging services factory of the world’, forecasts that Indian goods and services exports will reach a whopping  $1 trillion by the financial year 2030.  With a 17% year-on-year growth in digital services export from India in 2023, the Global Trade Outlook and Statistics highlights that India is among the top five 5 leading exporters of digital services.

Key Industries Fueling Service Export from India

As the tertiary sector in a threefold economy, the service sector is gradually becoming more and more important for development. However, some services may be less visible than others. The server at your local restaurant is as much part of the service sector as your neighbour working in the IT sector.  

In 2018, the government of India introduced 12 champion service sectors, and it doubled down on its intent by introducing a plan of action to focus on the growth of these champion industries.

#1: Information Technology & Information Technology enabled Services (IT &ITeS)

Outsourcing IT services to foreign companies has significantly propelled the growth of Indian service exports. These include software development services, web hosting, web designing, cloud services, and sometimes even data recovery. According to the ESC yearbook 2023, IT Software/Services exports grew by 8.77% from 2021-22 to 2022-23, while software product development exports grew by 13.33%.

European countries, the USA, and Canada are major markets, but New Zealand, Australia, and Switzerland have also started outsourcing IT work to India.  

Major multinational companies like Microsoft, Infosys, Wipro, CISCO, etc, outsource a lot of their IT requirements to India, creating competition for new ventures. However, strategic partnerships, such as Wipro's collaboration with Engineering and Construction (E&C) companies, can help mitigate these challenges.

#2: Tourism and Hospitality Services

As per IBEF 2023 reports, India saw 9,236,108 foreign tourists, a 321.54% increase from the previous year. The top source markets for these tourists include the USA, UK, Bangladesh, Japan and others, based on the India Tourism Reports 2023. The post-pandemic travelling boom contributed significantly to boosting the tourism industry in the country. 

#3: Accounting and Finance Services

Professionals like Chartered Accountants (CAs), Company Secretaries, etc, can also offer services from the comfort of their homes. These services can range from basic data entry and accounting to complex tax filing, financial analysis, and even management of back-office operations. 

Due to benefits like significant cost savings and access to highly skilled professionals, countries like the USA, UK, Canada, and Australia hire CAs and certified public accountants (CPAs) from India.

Another emerging sub-category in the financial services export from India is the fintech industry. Millions of foreign entrepreneurs and even private individuals use such software solutions and get financial advice from consultants based in India. In 2021, the financial service exports market in India amounted to over $5 billion. 

India's Path to $1 Trillion in Service Exports

As is evident, the service sector encompasses not only products or goods but also individuals- their expertise and skills. From the person who collects your trash to the person who develops groundbreaking applications from their home, individuals from various industries are contributing to the service sector. 

With a few strategic approaches, we can easily forge our way to achieving $1 trillion in service exports from India. Here’s how: 

Looking beyond the IT sector

The IT sector is one of the highest contributors to this rapid growth of export services, as it accounted for 7.5% of India’s GDP in FY23, and it is expected to contribute 10% to India’s GDP by 2025. However, relying solely on one sector, while others also have growth potential, can make the Indian economy vulnerable. Any unforeseen circumstances, such as technological shifts or policy changes in other countries, can significantly impact the IT sector.

By looking beyond this single sector, the focus can be shifted to creating job opportunities for those with lower skill sets. To reach the $1 trillion mark, there must be balanced growth in all sectors that contribute to export services from India. Thus, focusing on emerging sectors like fintech and tourism can fuel the growth. 

Diversifying markets

The USA has been one of India’s largest export partners, followed by China, Singapore, the United Arab Emirates (UAE), the UK, Germany, and Indonesia. However, expanding markets over time beyond these conventional regions will significantly boost the growth of service exports from India.

According to the Global Trade Research Initiative Report, the Netherlands and Brazil also joined this list between April and November 2022. With new markets come new opportunities. Exploring these markets can reveal new trends and customer needs, leading to improved services. Additionally, having a diverse range of export partners increases the stability of export incomes.

Government policies fostering India’s service exports 

In 2022, India exported around $254.4 billion worth of services, and this number continues to grow. The government is prioritizing support for service exporters alongside manufacturers and introducing new schemes to promote service exports, aiming for a balanced and resilient economy.

Service Exports from India Scheme (SEIS)

Implemented in 2015, SEIS scheme is one of the key players in encouraging service exports from India. Under this scheme, service exporters of certain eligible service industries get to benefit from transferable Duty Credit Scrips, which can be used for the payment of basic customs duty and other charges. 

Simply put, these are vouchers created from the total foreign exchange earned in a financial year. This helps in increasing the profit margin by cutting off some of the overall cost for exporters. Software development, tourism, financial/accounting, etc service exporters are eligible for this scheme.

Software Technology Parks (STP) Scheme 

STP is an export-oriented scheme that promotes the development and export of software from India. This also includes the export of professional services. Business units registered under this scheme get access  to various benefits such as:

What does India’s rising service export mean for you?

New markets, government support, and the gradual reopening of pandemic-impacted sectors like tourism and hospitality are driving the growth of the export services industry. This includes untapped regions with growing economies or specialized niches within existing markets. Companies with expertise in financial services, engineering, or education can meet these new demands, boosting overall export volume.

The Indian government is also streamlining regulations, providing tax breaks, and investing in infrastructure to facilitate digital service delivery. We can, for instance, expect the government to offer grants to companies developing new software solutions for the export market in the near future. 

Furthermore, software solutions like Skydo strengthen this trend by enabling efficient international payment processing. This makes it easier for companies to participate in the global marketplace and capitalize on growth opportunities.

Conclusion

In conclusion, the growth of Indian service exports is a lasting trend, suggesting the realistic possibility of India becoming a trillion-dollar economy by 2030. By focusing on upskilling, exploring new markets, and introducing new tech to simplify business operations, you can easily become a part of this booming industry.