Can India Services Exports Overtake Merchandise Exports?

Dr. Asoke K. Laha, Chairman- Emeritus and Founder- InterraIT

There is an interesting news published by an Economic Paper a few days ago that India’s services exports may overshoot that of the goods exports in the conceivable future. If that happens, India will be one of the leading countries to experience such a unique distinction. A country like India, considered to be one of the five largest economies, is a big news. My research indicates that the United Kingdom is the only country where services exports contributed more to overall exports than goods exports, at close to 55%. 

But the general trend is that services exports are increasing across the world. That is a good sign in many ways for countries like India. First, that leads to a greater number of employment generation, since certain segments of the services sector like tourism hold promise for multiplying jobs. Importantly, most of these jobs are created in the informal sector where people are mostly self-employed. The other advantage is that technology-driven services sectors can bring about a radical change in the mindset of the people.  In certain cities and towns, many virtual coaching centers have come up. What they do is to take tuition to children in various subjects over digital platforms. Some of the students they teach, live in very distant places.

Healthcare is another sector in the services sector that has the potential to create employment. One positive spin-off of the COVID-19 pandemic is virtual consulting, which was practically absent during the pre-Covid days. This has created mind-boggling opportunities for doctors to reach out to their patients and provide them with more options for consultation. However, there are complaints from organized healthcare providers like hospitals and clinics that it has adversely affected their consultations. 

Although there is only one large economy that so far registered more service exports than goods exports (Great Britain), it is quite likely in the coming years that number may go up. Some of the countries are showing an appreciable increase in services share to overall exports. They include the United States, which has close to a trillion exports from the services sector, followed by Singapore, India, China, Canada. But it is not clear when these countries’ services exports will surpass the goods exports. It depends on many factors. Foremost is how long the sluggishness of the goods exports will continue. With the present geopolitical tensions across the world especially after the Ukraine war and disturbances in the Middle East, merchandise exports, particularly commodity exports, have been hit very badly.

There is also another possibility for the services trade to peak. Because of the unprecedented focus on clean energy tapped from non-polluting sources like solar, wind, and hydro, the use of fossil fuels like petroleum and petroleum products will come down drastically.  Oil and oil products are the most traded goods in the world. That may not be the case in the future.  This can bring down the oil exports of the OPEC and OPEC + countries. Some of the oil-rich countries are presently focusing on tourism, healthcare, and education to make good the possible drop in oil exports. Middle Eastern countries like UAE, Saudi Arabia, Oman, Qatar, etc. are gearing up to become tourism hubs. They have invested and are investing billions of dollars to create tourism spots and build infrastructure around them such as hotels, recreation centers, roads and highways, amusement centers, etc. Many predict that in the future these countries’ services exports may overtake that of the oil.

Equally significant are investments by these countries in education and healthcare. A good number of countries around the world including Middle Eastern countries have set up knowledge and health hubs around their commercial centers to attract students desiring to have quality education from other countries. Hospitals that are coming up in these centers are highly specialized and designed to attract patients from other countries to treat secondary and tertiary ailments. 

If that is the case, what India is doing to catch up with the rest and shore up its services sector? India’s services sector is a success story mainly led by the IT sector, which contributes a significant share of the exports from the sector. To be precise, of the total US$330 billion exports from the services sector, close to 50% are from IT and IT-enabled services. Undoubtedly, our IT services sector is a success story often quoted by global business schools in their case studies. But that is not the case with healthcare, education, and legal outsourcing, which can act as strong pillars to boost our services sector and exports.

In the case of tourism and legal outsourcing, we have started well. But most of our wish list remained only on paper. Initially, some of our hospitals did well to attract patients from abroad leveraging the cost advantage. But that was short-lived since medical tourism soon caught up with the imagination of other countries. Middle Eastern countries realized the potential of the sector to attract patients from other countries. They have invested heavily and some of the hospitals that are coming up there are world-class and they could rope in the services of expatriate health professionals. Back in India, we could not build on the initial momentum in medical tourism, which needs heavy investments and strong policy interventions.

Our legal outsourcing sector had shown such promise initially. But that did not last. Foreign legal firms that had earlier outsourced the works to India are now demanding a greater degree of confidentiality and secrecy for the outsourced work. The other area is education. We have the potential, but there are innumerable challenges as well. We still must allow Foreign Universities to open their campuses in India with the result that a good number of our students are pursuing education in foreign universities.  The entry of the private sector into education has yet to make a dent in the overall quality of education.

It will be a piece of great news and a historic turn of events when our services exports breach the physical exports. We must look beyond IT and IT-enabled services to reach that stage. That is an arduous task but greatly rewarding.