India’s services exports are likely to account for more than 30% of total exports by 2030. But gains could be stronger than expected if trade barriers are lowered.



India’s goods exports are picking up gradually in line with the global trade recovery. Given that much of the recent slowdown can be attributed to cyclical factors rather than loss of competitiveness, we think that the medium-term outlook for India’s exports is positive. Within goods exports, raising the share of manufactured exports and accelerating India’s move up the value chain for goods is reliant on structural reforms that invigorate the manufacturing sector. Services exports should continue to benefit from favourable global trends. But greater investment in human capital and trade liberalisation could lead to another phase of more rapid growth.



The dissonance between India’s headline growth statistics and bottom-up economic indicators continues to puzzle investors and analysts alike. But whatever the debate on the “true” pace of India’s growth, an uneven recovery does appear to be underway, primarily supported by consumption and improving net exports.

In the short-term, a normal monsoon, the impending increase in public sector salaries and the accommodative monetary policy stance should continue to support consumption. But this is unlikely to lead to a strong recovery in imports. Outside of oil, India imports largely industrial goods, the demand for which is expected to stay muted in an environment of sluggish investment. Thus, the recovery in imports is likely to lag exports, leading to greater contribution from net exports to growth. Exports are also likely to benefit from resilient services exports, which account for 36% of India’s total exports.

Over the long-term, however, a revival of the investment cycle would be key to pushing India’s growth back above potential and leading to substantially higher export growth. While favourable demographics, a rising middle class and improved competitiveness are likely to seal India’s position as one of the fastest-growing emerging economies and support export growth, weak infrastructure may keep the economy from returning to pre-financial crisis growth levels and impedes moving up the manufacturing value chain. Meaningful progress on structural reforms remains key to invigorating the manufacturing sector, raising exports of manufactured goods and achieving high and sustained growth in the long-run.


The composition of India’s exports is forecast to remain broadly unchanged over the next couple of decades, with mineral manufactures, transport equipment and petroleum products contributing around one-third to the increase in exports in 2021-30. However, within these categories, the contribution of petroleum production falls slightly over the forecast period. This is partly because of reforms like deregulation of domestic diesel prices that increase the attractiveness of the domestic fuel market. But it is also due to India moving up the manufacturing value chain, as reflected in a rising contribution of transport equipment to exports, as well as industrial machinery replacing clothing and apparel in the top five export sectors. By country, China, Vietnam, Malaysia, Bangladesh and Indonesia are projected to be India’s fastest-growing export partners between 2021 and 2030, with China replacing Hong Kong as India’s third largest export destination in 2030. This is hardly surprising given the potential growth rates of these economies and India’s focus on South-South trade.

However, in absolute size, the US and the UAE are likely to remain the dominant export destinations, with the UAE overtaking the US as India’s largest export partner by 2030. This is primarily because the UAE is the largest consumer of India’s petroleum product exports, but also due to its role as a regional trading hub. That said, opportunities for collaboration in other areas like R&D and technology transfer are also expected to emerge, given the UAE’s focus on knowledge-based industries and India’s rising bio-technology and pharmaceutical sectors.


Petroleum products fall from India’s second largest import to third largest over the forecast period, behind industrial machinery and mineral manufactures. This is in line with the government’s focus to raise the share of manufacturing in GDP to 25% from 14% currently. However, petroleum products remain important and, along with industrial machinery and mineral manufactures, they will contribute around a third of India’s total import growth between 2015 and 2030.

Another sector which is expected to experience rapid growth is ICT equipment, including mobile phones and computers, reflecting the rising demand of the rapidly expanding middle class. The OECD estimates that India’s middle class is likely to rise from 5-10% of the population today to 90% by 2039, unleashing a new wave of demand for consumer durable goods in the sub-continent.

Given geographical proximity to India and technological expertise, China remains well-positioned to fulfil India’s rising import needs for industrial machinery and other manufactured goods. Thus, we expect China to remain the top origin of India’s imports until 2030, although it will not be the fastest-growing supplier in 2015-20. That aside, the composition of India’s trading partners will largely reflect reliance on imported crude for domestic energy requirements. Thus, oil exporting countries such as UAE and Saudi Arabia will consolidate their position in the top five import origin rankings, while Indonesia will appear as the new entry by 2030.


As the importance of global trade in goods as a driver of growth is beginning to wane, India appears particularly well-placed with a rising share of global trade in services. Over the long run, India’s services exports are expected to continue to benefit from technology advances, continued outsourcing and recovering goods trade. And gains could multiply if adequate investment is made in human capital and trade liberalisation picks pace.


The share of services trade in India’s GDP has increased at a rapid pace in the past 15 years, with the country achieving exceptional success in developing exports of modern tradable services. While India runs a trade deficit in goods, it is a net exporter of services. India’s services export growth has outpaced not only goods export growth but also global services export growth. In 2000-15, global services exports grew at an average annual rate of 8%, while India’s services exports grew at 16% a year. As a result, services now account for 36% of India’s total exports, up from 28% in 2000. And the country’s share in world services exports has increased from 1% in 2000 to above 3% in 2015. Over the same period, India’s share in global goods exports has risen from 0.7% to 1.7%.

Looking at the breakdown, India largely exports services to developed countries. The US is the largest destination accounting for 13% of India’s services exports in 2015. This is slightly down from 18% in 2000. The UAE is the next largest destination, closely followed by the UK, China, Germany and other European countries. For services imports, the US, China and the UAE take the top spots. Typically, developing economies tend to have a relatively higher share of exports that depend on natural resource endowments (e.g. tourism, transport) or are labour-intensive (e.g. construction). However, India has capitalised on its large, tertiary-educated workforce and widespread use of English to conduct business with foreign companies from English-speaking economies. India is now a highly successful exporter of business process outsourcing and support services for finance, medicine and engineering.

In terms of sectors, information, communication and technology (ICT) services have led the boom in India’s services export growth. From 2000 to 2015, ICT services exports grewat about 20% a year, accounting for almost 50% of total services exports by 2015. Financial services grew very strongly until 2008, averaging 35% annual growth, but the performance has been mixed since then. Tourism has been the other important driver of India’s services exports, registering 13% annual growth in 2000-15. India has clearly benefited from the international trend of outsourcing intermediate business services to specialized suppliers, which has aided the expansion of ICT services exports. Meanwhile, low airfares and rising incomes have supported the rise of tourism exports.

However, performance of other services exports has not been as impressive. Financial services export growth has been hampered by the regulatory changes after the 2008/09 financial crisis. Indeed, financial services exports have contracted for two consecutive years now. And weak goods trade has weighed on transport services in recent years, while construction services are beginning to lose steam as foreign investment has dwindled.



Looking ahead, India’s services exports are expected to more than triple by 2030, raising India’s share in global services exports to 4%. Though the rapid double digit growth rates of 2001-08 are not likely to resume, services exports are forecast to grow at a healthy pace of 8-9% annually over the next 15 years.

While the US and China will remain India’s dominant export partners, we anticipate a shift in favour of emerging markets. In the near term, exports to Turkey are likely to rise at a strong pace, driven by rising demand for financial and transport services exports. But over a longer horizon,services exports to East Asia are expected to gather pace, with Indonesia and China leading the way.

ICT services are likely to remain the mainstay of India’s services exports and their share in global ICT services exports is forecast to rise slightly to 18% by 2030 from 17% currently. Other business services, including finance, as well as transport services exports are other sectors where growth is expected to be resilient, with growth in construction services also picking up gradually in the long term. Although the share of tourism falls over the forecast period, India will still benefit from the rising global travelling class and new trends like medical tourism. As such, continued outsourcing of support services to low-cost providers, technological advances and recovering goods trade are the key drivers that would support these trends in India’s services export growth.

Lastly, trade barriers are as much applicable to services exports as to goods exports. In fact, trade barriers to services are often costlier than those for goods. Despite India’s impressive performance in exports of services, the OECD estimates that it has one of the highest barriers to trade in the world. Thus, India would clearly stand to gain from trade liberalisation over the coming years.

While India is party to many bilateral trade agreements, it has steered clear of the Trade in Services Agreement and the Trans-Pacific Partnership. But it is party to the Regional Comprehensive Economic Partnership, which is under negotiation between the ASEAN countries and the six economies with which ASEAN has existing trade agreements. As such, the accord has the potential to liberalise trade in services across much of the Asian continent and could bring significant benefits for Indian services exports.


In light of the growing political risks to globalisation, HSBC and Oxford Economics have collaborated to model the impact on trade flows and economic activity of a potential ‘alternative scenario’ for world trade. This scenario is based on (1) the UK enduring a ‘hard’ exit from the EU involving loss of access to the common market, and (2) the new US President implementing a variety of protectionist policies that trigger retaliatory measures from emerging markets. A detailed description of the scenario assumptions and methodology are provided in the main Global Report.

Because the US is India’s biggest market for goods and services exports, the imposition of new US trade tariffs in our alternative scenario weighs heavy on India. In 2019 Indian exports to the US are 12% (USD6.3bn) below our baseline forecast, and by 2030 the value of exports is 30% (USD45.6bn) below India’s potential in the more benign baseline scenario.

With export opportunities in the US limited by the tariffs, Indian companies turn their attention to other markets, particularly in East Asia. Japan, China, Korea, Indonesia, and Malaysia would all see goods exports rise above baseline levels over the medium and long term. However, overall exports are slightly below baseline in the long run due to a slowdown in the global economy.

As in other East Asian economies, the imposition of tariffs by the US would trigger a structural adjustment in the Indian economy, with resources shifting into the less-affected services industries. In value terms services exports are broadly unchanged relative to the baseline forecast in 2030, increasing their share of total exports to 32%.