Don’t take India’s strong services exports story for granted: Goldman Sachs

While India’s services exports had grown sixfold between 2005 and 2023 to about $340 billion and were potentially poised to hit the $800-billion mark in 2030, Goldman Sachs cautioned against complacency citing challenges such as the lack of skilled talent and resource stress in key hubs like Bengaluru that could hurt growth.

In a report titled ‘India’s rise as the emerging services factory of the world’, Goldman forecast services exports would reach 11% of GDP by 2030, from 9.7% in 2023, and if commodity prices and goods trade balances did not move significantly, would help contain the current account deficit to an average of about 1% of GDP between 2024 and 2030.

Between 2005 and 2023, while global services exports grew threefold or 5.5% annually, India’s services exports rose 11% annually, the third fastest pace in the world, lifting its share in global services exports from under 2% to 4.6% over this period. In contrast, the country’s share of goods exports inched up to 1.8%, from 1%, in the same period.

Despite resilient growth in IT services and the opportunity from Global Capability Centres in the coming years, it would be prudent not to take services export growth for granted, Goldman noted. “In terms of domestic constraints, training technology graduates as fit for the job market has been cited as a challenge in some cases,” it pointed out.

“From an environmental perspective, the growth in these sectors is putting pressure on the natural resources of cities – the city of Bengaluru, which has the largest share of IT companies and GCCs in India, is facing a water crisis,” the U.S.-based securities and investment banking firm added, noting that diversification into other cities had begun, which may help reduce the pressure on natural resources.

“On global constraints, apart from the fact that services exports are dependent on global demand for Information and Communications Technology (ICT) spending, rising protectionism in destination countries could hurt export prospects,” Goldman’s researchers underscored.