Mumbai

India’s services exports, long regarded as the backbone of the country’s growth story, have witnessed a marked slowdown in recent years, even though their long-term performance continues to rank among the strongest globally, according to a report by DSP Asset Managers.

The report noted that services exports have been the most consistent contributor to India’s economic expansion over the past 25 years. Between FY01 and FY25, net services exports posted a robust compound annual growth rate (CAGR) of 22 per cent, placing India among the fastest-growing services exporters in the world.

Growth during this period was largely driven by the IT and IT-enabled services (IT&ES) sector, with sustained inflows of foreign currency supporting domestic consumption, boosting housing demand and strengthening the country’s external balance. The report said the economic impact of services exports has been unmatched by any other sector.

However, a closer look at recent trends highlights a significant deceleration. When the period is split at FY13, which coincided with the twin balance sheet shock, the slowdown becomes evident. Services export growth weakened noticeably after this point.

Between FY01 and FY13, net services exports grew at an impressive CAGR of 35 per cent. This pace slowed sharply to 9.3 per cent between FY13 and FY25. A similar trend was observed in software services, where growth fell from 22 per cent in FY01–FY13 to 8.0 per cent in FY13–FY25. Growth in private transfers also moderated, declining from 14 per cent to 5.7 per cent over the same periods.

The slowdown is also reflected in gross inflows. Services inflows expanded at 20 per cent annually between FY01 and FY13, but growth eased to 8.5 per cent from FY13 to FY25. Software services inflows dropped from 22 per cent to 8.8 per cent, while private transfers slowed from 15 per cent to 6.0 per cent.

Overall, during FY01–FY25, services inflows grew at a 14 per cent CAGR, software services at 15 per cent, and private transfers at 10 per cent. While these growth rates remain healthy, the report noted they are significantly lower than in the earlier high-growth phase.

DSP Asset Managers pointed out that even with the slowdown, an annual US dollar growth rate of 8–9 per cent in services exports remains strong by global standards. However, for India, the moderation is a concern because services exports play a crucial role in earning foreign exchange, managing external balances and supporting domestic demand.

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In essence, the report concluded that while services exports continue to expand and remain resilient, their reduced growth momentum limits their ability to drive the economy as powerfully as they did in the early 2000s, making this an important trend to monitor in the years ahead.