07 Apr

Services exports strengthen India’s external sector performance

Introduction

India’s services sector continues to emerge as a key driver of economic growth and external stability, with strong performance reflected in rising exports and increasing contribution to GDP. According to recent government data, services exports have shown sustained momentum, supported by digitalisation, global demand, and policy push in the Union Budget 2026–27 .

ANALYSIS

India’s services exports have demonstrated robust growth and resilience, acting as a buffer against global economic uncertainties and trade disruptions. The sector recorded exports worth USD 348.4 billion during April–January FY2025-26, highlighting its growing importance in India’s external sector. Notably, the share of services exports in GDP reached 10% in H1 FY26, indicating a structural shift towards a services-led growth model.The growth is primarily driven by software services, business services, and consulting segments, with software alone accounting for over 40% of total services exports. Additionally, professional and management consulting services have witnessed rapid expansion, increasing their share significantly in recent years. This reflects India’s increasing specialization in knowledge-intensive and digitally delivered services.A key factor supporting this growth is the expansion of Global Capability Centres (GCCs), with over 1,700 GCCs employing around 1.9 million professionals, making India the global hub for such operations. These centres are evolving from back-office functions to high-value activities such as AI, cybersecurity, analytics, and product development, thereby enhancing export competitiveness.Further, India’s digital and AI ecosystem is strengthening its global position. India ranks second globally in AI skill penetration, and its improving ranking in UNCTAD’s Frontier Technologies Readiness Index reflects enhanced technological capabilities. The rapid growth in data centres, cloud infrastructure, and AI startups is expected to further boost exports of digitally delivered services.Policy measures in the Union Budget 2026–27 have reinforced this trajectory. Key initiatives include:

Tax holidays until 2047 for foreign companies providing cloud services from India
Safe Harbour reforms simplifying compliance for IT services
Fast-tracking Advance Pricing Agreements (APA)
Incentives for data centres and digital infrastructure

Additionally, India’s expanding network of Free Trade Agreements (FTAs) such as with the UK, EU, Australia, Oman, and EFTA countries is improving market access, mobility of professionals, and social security arrangements, thereby boosting services exports.The sector also plays a crucial role in employment, contributing nearly 30% of total employment and generating around 40 million jobs in recent years, highlighting its importance as a labour market stabiliser.Overall, the services sector reflects a high-growth, high-value, and globally integrated segment of the economy, supported by technology, policy reforms, and global demand, making it central to India’s long-term growth strategy.