India Bets On Services Exports As Global Risks Rise

The India is stepping up policy measures to further support services sector exports, with the US-Israel war on Iran hitting outbound shipment of merchandise goods.

Amid the uncertainties, India, the world’s seventh-largest exporter of services, is set to increase its thrust on digitally delivered services, including Business Process Outsourcing (BPO), Information Technology (IT), and IT Enabled Services (ITeS).

Troubled Times For Export Sector

Traditionally, the West Asian markets have been key for India, accounting for about 13% of India’s total merchandise trade - US$ 180 billion - annually.

India’s monthly exports, estimated at US$ 6 billion to the region in the pre-Iran war era, dropped to US$ 2.5 billion. Amid the uncertainty and disruption, the services exports can serve as a formidable pillar, government officials said.

According to the Niti Aayog, sustained resilience of India’s services sector can be “widely attributed to the sector’s increasing reliance on digitally enabled delivery models, low dependence on physical infrastructure, and its integration with global demand for remote and intangible services.”

The government think tank prescribed a “comprehensive, sector-specific deep dive” for “precise policy interventions and regulatory reforms.”

Indian policymakers are now looking at integrating AI into the services sector dynamics. Though AI threats could dent the services sector significantly, policy measures are being looked into to ensure that AI can be channelled constructively.

India’s total outbound shipments -- merchandise and services -- during FY 2025-26 grew 4.22% to reach about US$ 860 billion, of which services exports stood at roughly US$ 418.31 billion.

Software services exports, along with BPO, have witnessed a significant jump.

A study by Goldman Sachs noted that in recent years, services exports have cushioned India’s external balances from supply-side shocks while supporting 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,” Goldman Sachs Managing Director Santanu Sengupta wrote in a team report two years ago.

The expansion of global capacity centres (GCCs) within the country has further propelled services in the areas of IT, artificial intelligence (AI), research and development, and customer support, among others.

The US, UK, Japan, Singapore and the UAE are among the key export destinations for India.

The services sector will be key, and this can significantly offset the hit that the country’s export sector may face from the disruption of maritime trade routes and uncertainty in the traditional overseas markets. The Centre is expected to take necessary measures to boost this segment.

– A senior government official told The Secretariat on condition of anonymity

 

India’s Services Sector Resilience

The HSBC India Services Purchasing Managers' Index (PMI), a reflection of business activity in the sector, for March fell to 57.5 from 58.1 in February. Though this was the weakest reading in 14 months, the number was well above the long-run average of 54.4.

Mitali Nkore, Founder and Chief Economist, Nikore Associates, told The Secretariat that the export of goods fell 7.44% year-on-year, with April figures also expected to decline. “The West Asian crisis has simultaneously exposed the fragility of India’s export architecture,” Nikore said, adding that a switch in the policy framework is the need of the hour to reduce the risks emerging from global dynamics.

China’s Focus

China, which recently announced its aim to grow its services industry to US$ 14.58 trillion by 2030, has already started to carve out specific policies to support the sector while making it more competitive - something that can effectively help the country in mitigating risks arising from the West Asia crisis.

Beijing said it will roll out reform measures to remove barriers, provide fiscal support, and upgrade technologies to boost the services industry.

Union Budget’s Push For Services

India has already outlined the services sector as a key driver of growth and economic activities. Finance Minister Nirmala Sitharaman, while presenting the Union Budget this year, proposed tweaking the safe harbour margin to provide a fillip to the sector. This would mean clubbing services under a single category of IT services with a common safe harbour margin of 15.5%. That apart, the safe harbour threshold for IT services has been increased to ₹2,000 crore from ₹300 crore. 

Safe harbour is a provision that helps in dispute resolution by offering relief and uncertainty to a set of taxpayers.  

Since the COVID pandemic, the emphasis has been on the shock-absorbing services sector that accounts for nearly 30% of total employment. Repeated geopolitical shocks have further underscored the importance of the services sector in the overall economic basket.

The sector is clearly less exposed to shocks and volatility. Indian strategists and policymakers must be ready with a plan to ensure that services exports are not only protected but also expanded.