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The services exports, which have been the strongest part of the country's growth story for more than two decades, have seen a sharp slowdown in recent years, even though long-term growth remains among the best globally, highlighted a report by DSP Asset Managers.
According to the data in the report, services exports have been the brightest spot in India's economic growth over the last two and a half decades. Over the full period from FY01 to FY25, net services exports recorded a strong compound annual growth rate (CAGR) of 22 per cent. This is considered one of the highest growth rates in the world. This strong growth in services exports, led mainly by the IT and IT-enabled services (IT&ES) sector. The large inflow of US dollars helped boost consumption demand, supported housing demand, and strengthened India's external sector. The impact of services exports on the economy has been unmatched by any other sector. However, recent trends show a worrying slowdown. If the growth period is divided into two parts using FY13 as the dividing line, the slowdown becomes very clear. FY13 marked the twin balance sheet shock, after which services export growth began to weaken. For net services exports, growth was much stronger between FY01 and FY13, when services recorded a CAGR of 35 per cent. In comparison, growth slowed sharply to 9.3 per cent between FY13 and FY25. Software services also saw a similar trend, with growth falling from 22 per cent during FY01-FY13 to just 8.0 per cent in FY13-FY25. Private transfers growth declined from 14 per cent to 5.7 per cent during the same periods. A similar slowdown is visible in gross inflows as well. Services inflows grew at 20 per cent between FY01 and FY13 but slowed to 8.5 per cent in FY13-FY25. Software services inflows declined from 22 per cent to 8.8 per cent, while private transfers fell from 15 per cent to 6.0 per cent. Overall, from FY01 to FY25, services inflows grew at a CAGR of 14 per cent, software services at 15 per cent, and private transfers at 10 per cent. While these numbers remain healthy, the pace is clearly much slower compared to the earlier years. However, the report noted that even after this slowdown, an annual US dollar growth rate of 8 to 9 per cent in services exports is still very strong by global standards. However, for India, this slower pace is a concern because services exports do a lot of heavy lifting for the economy. The report added that they support foreign exchange earnings, help manage the external balance, and create domestic demand. In simple terms, service exports are still growing and remain strong, but they are no longer growing as fast as they used to. So, this slowdown reduces their ability to drive the economy in the same powerful way as seen in the early 2000s, making it an important trend to watch in the coming years. (ANI)
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