The services industry in India is currently undergoing two significant shifts that could determine the course of the nation’s development. One has to do with quickly changing service exports to other countries. 
The other is how quickly domestic services are changing. As they modernize, they are both changing in appearance. And that’s not the end of it. Additionally, there are indications that these new services are moving up the value chain and into the industrial sector. We believe that at this point, things really pick up in excitement.
Let’s start with exports of services. They now generate $60 billion more in annual revenues than they did three years ago, on a net basis. IT services received a boost during the epidemic period. The demand for tech expertise surged as more people chose to work from home.
And the enthusiasm is growing, expanding both in terms of the services offered and the service suppliers. The call center of the 1990s is not present in India now. It’s not even the early 2000s’ software solution supplier.
It has advanced up the value chain and is now offering a wide range of professional services, including design, R&D, accounting, legal, and HR. And the list keeps growing.
The scene is ruled by at least four separate service providers. Large IT companies are not the sole sources of growth, even if they continue to expand. Mid-sized IT companies have been expanding their market share, while consulting companies are expanding the number of services they export.
Finally, India can now claim to have the greatest proportion of Global Capability Centers (GCCs) in the world.
GCCs are what? GCCs have historically supported their parent MNC firms’ IT and tech needs, but they have gradually climbed the value chain to offer higher-value services like legal, audit, design, and R&D. Around 1,600 GCCs represented a $46 billion market in 2022–2023 that employed 1.7 million people.
It is not surprising to see from India’s services export data that, despite making up only 25% of IT services exports, professional and consulting services have experienced the fastest growth over the past four years, growing at a CAGR of 31%. Computer services (16%) and R&D (13%) followed.
Will it endure? It’s probable that after a strong run, India’s exports of IT services could slow down during the next year or two. Because of the declining global economy, tech spending may become more limited. We do think that the growth has a structural component, though. India’s service exports can pick back up speed once global growth has peaked.
This is due to a number of factors. One is a change in mindset about doing more work from “home” that seems to be permanent. Two, India has a wide range of abilities that can generate services ranging from engineering to design. This has been made possible by impressive internet penetration, young, digitally savvy demographics, and rising educational attainment.
Three, cost competitiveness is offered by India. For instance, whereas Indian IT services exports account for 18% of world commerce in terms of value, they account for 36% in terms of volume. Last but not least, we think India is about to cross a threshold from which growth patterns in service exports will likely become even more robust. This is crucial; allow me to elaborate.
