Non-IT service exports can wipe out current account deficit in 2-3 years: Neelkanth Mishra

The trend is not new and data in the past has shown the booming trade in the services sector.

The composition of export basket for services is evolving and growth in the non-IT segment is likely to erase India’s current account deficit, said Neelkanth Mishra, Chief Economist at Axis Bank.

India's current account deficit (CAD) fell to just $1.3 billion in the January-March period, data released by the Reserve Bank of India (RBI) in June showed, helped by cooling oil prices and a booming services sector. The $1.3-billion deficit for the last quarter means India recorded a current account deficit of $67 billion in the financial year 2022-23 (2 percent of GDP) against a deficit of $38.7 billion in 2021-22.

“Over a 2-3-year period, this (modern services) can wipe out our current account deficit and we believe it can create 2 million high-quality jobs; and if you include things like in-bound travel, it will be 3 million jobs,” said Mishra.

Modern services are non-IT services, basically consulting jobs that are being done out of India or parts of consulting jobs being done out of India or engineering or high-end technical services.

“Semiconductor fabs being done out of India, procurement for large US retailers being now done out of India. There is a whole range of services which are now shifting back to India. Engineering services are a very, very large move now,” Mishra explained in a conversation with CNBC TV-18.

The trend is not new and data in the past has shown the booming trade in the services sector. As per the data, India had a services trade surplus of $39.1 billion in January-March 2023, an all-time high.

However, in the last couple of months, services export growth has stagnated. It was at $27.17 billion for July - a similar level to June. In May, services exports were $25.30 billion. Mishra, though, said it was not a sign of worry as the consolidation is happening on a high growth in base.

Axis Capital in a report released earlier this month, points out that three-fourths of India’s exports are ‘modern services’ that are growing faster than the overall services trade globally. India’s global share of modern services trade – already at 8 percent (versus 6 percent in 2018, and 2.4 times India’s global share of GDP) – is also rising, it said.