Context

• India’s foreign trade dynamics have shifted significantly over the past two decades, with “invisibles”—exports of services and remittances from Indians abroad—now playing a more crucial role than physical goods.

India’s Evolving Trade Landscape

• Surge and Stagnation in Goods Exports.
• India’s merchandise exports grew from $66.3 billion in 2003–04 to $318.6 billion by 2013–14, followed by a slowdown. 
• After a post-Covid recovery peak of $456.1 billion in 2022–23, they dipped again to $441.8 billion by 2024–25.
• Steady Rise of Invisible Receipts
• In contrast, receipts from invisibles—services and private remittances—rose consistently, from $53.5 billion in 2003–04 to $576.5 billion in 2024–25, showing long-term stability and resilience.
• Where goods exports once outpaced invisibles by $85 billion in 2013–14, the trend has reversed by 2024–25, with invisibles exceeding merchandise by $135 billion.

India’s Service Sector

• India’s services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction.
• The Economic Survey 2024-25, presented by Finance Minister Nirmala Sitharaman, highlights the service sector as the ‘Old War Horse’ of India’s economy, driving growth both domestically and globally. 

Present Status

• Services have consistently supported GDP growth, contributing around 55% to India’s Gross Value Added (GVA) in FY25, up from 50.6% in FY14. 
• The sector has maintained an average growth rate above 6% annually over the past decade, except during the pandemic, with post-pandemic growth accelerating to 8.3%. 
• It employs about 30% of the workforce and it  also boosts manufacturing through ‘servicification’—the increasing integration of services in industrial processes.
• India’s global share in services exports has risen steadily, now ranking seventh worldwide with 4.3% of the market. 
• India remained amongst the top five major countries in terms of growth in services exports in FY25 (April-September).
• India’s services export growth accelerated to 12.8% in April-November FY25 from 5.7% in FY24. Computer services and business services exports account for around 70% of India’s total services exports.

Potential of Service Sector

• India is a unique emerging market in the globe due to its unique skills and competitive advantage created by knowledge-based services. 
• The Indian services industry, which is supported by numerous government initiatives like smart Cities, clean India, and digital India is fostering an environment that is strengthening the services sector. 
• The sector has the potential to open up a multi-trillion-dollar opportunity that might stimulate symbiotic growth for all nations. 

Challenges and Issues

• India’s service sector faces key challenges including infrastructure gaps—especially in digital connectivity and logistics—that limit growth outside urban areas. 
• There is also a significant skill shortage, with many workers lacking specialized training for high-value services, impacting productivity and innovation. 
• Regulatory complexities and limited access to global markets further restrict export growth. 
• It also remains vulnerable to global economic fluctuations.

Government Efforts

• The Government of India actively promotes growth in the services sector through various incentives and focused initiatives across key areas like healthcare, tourism, education, IT, banking, and finance. 
• – It has launched an ‘Action Plan for Champion Sectors in Services’ targeting 12 priority sectors, with tourism expected to generate $50.9 billion by 2028. 
• – The country hosts over 1,000 universities, supporting education and skill development through programs like the Mahatma Gandhi National Fellowship.
• – Financial inclusion is strengthened by schemes such as Pradhan Mantri Jan Dhan Yojana, which has opened over 47 crore bank accounts. 
• – The government also supports manufacturing with production-linked incentives and healthcare infrastructure through missions like Ayushman Bharat and a planned credit incentive program. 
• – Foreign direct investment limits in insurance have been raised to encourage investment.

India as Office of World

• India’s strong services trade surplus of $188.8 billion, supported by remittances, helped stabilize its external balance.
• This proved that invisibles, not goods, are India’s true trade drivers.

Conclusion and Way forward

• India’s service sector remains strong and vital for growth and jobs. 
• India’s services-led surplus and remittances have kept its overall current account deficit manageable.
• This shift underscores India’s emergence as the “office of the world,” driven less by trade in tangible products and more by global flows of intangibles.
• Improving infrastructure, enhancing skills, easing regulations, and boosting global market access can help India realize its full potential and reinforce its role as a global services leader.