India's export cushion

Rising services surplus is likely to offset the goods trade deficit in the short and medium term 

- PRANJUL BHANDARI & AAYUSHI CHAUDHARY

Some meaningful shifts have happened in India's services economy. On a net basis, services exports are raking in $60 billion per year more in revenues than in the pre-pandemic period. This has provided much-needed relief on the balance of payments front.

And it's not just inflation bumping these numbers up. At 40 per cent higher than pre-pandemic levels, services exports adjusted for inflation have outpaced hightech, medium-tech and low-tech goods exports by a considerable margin.

In fact, India's services continue to gain global market share, even as the share of goods seems to have flat-lined.

So what's going on? We've always known about India's promising IT sector. But what's driving the recent exuberance? The rise in revenues of the top IT companies has definitely played a role. After all, it is well known that big shifts happened in the pandemic period that were particularly supportive of higher IT spend globally. Covid-19 has accelerated front-end digital investments and multi-channel commerce for most industries, and this further re-enforced companies' transformation of their back-end tech infrastructure to be more agile and adaptive. The cloud was core to this: Roughly every $1 spent with cloud companies led to a $3 spend on services with Indian IT companies.

But there seems to be something going on beyond the gains made by the large IT firms. "Other" IT services exports are rising faster than the revenues of the IT majors. Until about five years ago, the revenues of the major IT firms made up about 55 per cent of the overall services exports, but this has now fallen to about 45 per cent. Over the last two years, the revenues of the IT majors have grown by 12 per cent on average, while overall IT services exports have grown by 20 per cent.