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.
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