Economy
How India’s services sector made history as goods exports floundered
Summary
For the first time, India’s services exports have topped India’s goods exports. That shift has been almost three decades in the making.
Preliminary data indicates that India’s services exports exceeded its goods exports for November 2024. Services exports clocked in at $35.7 billion this month—about $3 billion more than goods exports. If confirmed by the final figures, and if this trend continues, it will mark a historic shift, one almost three decades in the making. At the global level, while India’s goods exports have been one of missed opportunities, services exports have an undertone of opportunity taken, driven by IT and software services.
India’s share in global services exports has consistently exceeded its share in global goods exports since at least 1998. While the latter flattened after the 2008 global financial crisis, ranging from 1.25-1.90%, the share in service exports continued its upward climb, to 4.2% by 2023.
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China is a study in contrast to India. Its share in global good exports took off around 2002, increasing to about 13.7% in 2023, according to World Bank data. Interestingly, China’s share in services exports peaked in 2002, which is also when its goods exports took off. Since then, it has declined, and last year, fell below India’s for the first time.
While China’s success in goods exports has generated millions of new jobs, the effect the services export boom has had on Indian employment has arguably been weaker in terms of numbers. Still, in post-1991 India, services exports have been a big success story, building businesses, fostering entrepreneurship, generating jobs and creating wealth.
Hard on software
India’s success is partly because of the second big shift that has occurred within services exports. By 2022-23, two sectors, software and business services, accounted for about three-fourths of India’s services exports. In fact, exports of so-called ‘business services’ (broadly, back-office services), global capability centres (GCCs) of multinationals and consulting services rose at a faster pace than software exports. These kinds of businesses seek highly skilled labour, which a relatively small proportion of the labour force has.
In contrast, China’s success in manufacturing exports has been more broad-based. It has ranged from relatively low-skilled textile manufacturing to high-skilled manufacturing of mobile phones and computing devices for companies like Apple. For India, in services exports, travel and transport services, the other traditional type of services exports, have steadily lost ground, with their combined share in India’s service exports falling from about 34% in 2000-01 to around 19% in 2022-23.
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IT services dominance
A break-up of the biggest exporters of services from India does not exist on its own in the public domain. However, companies report their foreign exchange income in their financial accounts. Using data from the ProwessIQ corporate database, it is thus possible to extract the forex income of all services-sector firms, though these figures may also include income from other sources such as overseas investments and even exports of goods in some cases.
As expected, for 2023-24, IT services majors like TCS, Infosys and Wipro—whose staff are mostly located in India, mostly servicing clients in foreign countries—dominate the list. But just outside the list are subsidiaries of multinationals that don’t have a diversified client base and, wholly or principally, service their parent. Data for 2023-24 was not available for some of these, but some are big—for example, Amazon Development Centre ( ₹21,000 crore in forex income in 2022-23), and JP Morgan Services ( ₹18,359 crore in 2022-23).
Nineties children
In the services sector, the top 10 Indian companies by forex income—all from the IT services and software sectors—accounted for about 43% of forex income of Indian services companies in 2022-23 (full data availability). In 2023-24, excluding IT and software, the list of top 10 services exporters from India comprises a mix of airlines, shipping companies and commodity traders. The total forex revenues of these 10 companies amounted to about ₹66,500 crore—less than 35% of the forex revenues of TCS, the top services sector forex earner.
This skew also underscores how the IT sector has shaped the Indian services export story, beginning around the turn of the century. Liberalisation opened many sectors. It lowered barriers to trade, business and movement. It unshackled entrepreneurship. It modernised capital markets and eased access to it. India Inc built on that, and the flip between Indian services and goods exports is one outcome of that.
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