The evolution and growth of services exports during the pandemic

The COVID-19 pandemic has altered the way businesses and consumers live, interact and co-exist. With lockdowns being imposed across the world, economies suffered deeply last year. Despite the challenges businesses showed a certain resilience to adapt and grow.  According to UNCTAD’s Global Trade Update, in the backdrop of economic disruptions, global trade fared relatively well in 2020 and is expected to further increase.

Cross-border trade has proven to be one of the stimulating drivers in enabling economic recovery. PayPal’s Cross Border Trade (CBT) 2021 Report values India’s total export market at US $526B with nearly US $213B (40%) of exports in services thereby highlighting the vast untapped opportunity.

Services exports are India’s strength

The services sector has been a key growth driver for both the global and Indian economy. India’s services sector covers a wide variety of activities with software services, travel, business services & consulting, engineering services and advertising being the top export verticals and forming close to 68% of the total services exports. These exports help the economy by reducing trade deficit and generating employment.

Role of MSMEs in driving cross-border services trade

Piyush Goyal, Commerce & Industry Minister, recently announced the government’s mission to reach an export target of $1 trillion by 2025 in order to make India a $5 trillion economy. Keeping this target in mind, numerous schemes and policies have been announced aimed at incentivizing the services sector, particularly the MSMEs, and making India an export hub.

The foreign exchange earned by these small businesses directly contributes to generating demand and revenue and enabling GDP growth. The significance of the MSME sector as a key revenue generator has also led the government to announce welfare packages during the pandemic to help them effectively navigate through the crisis.

Software Services exports remain resilient

While the COVID-19 pandemic severely affected some services, like travel and tourism, others like software services, business services & consulting, and engineering services, witnessed a steady demand.

According to PayPal’s CBT report, India exports around US $93B worth of software services which makes up 18% of the total exports market, with IT services forming the key export segment. The demand for IT and BPO services globally has triggered the establishment of home-grown tech hubs, similar to the Silicon Valley in USA, mainly in Bengaluru and Hyderabad, leading to huge job opportunities.

The Indian IT sector remained resilient even during the pandemic and quickly adapted to the challenges by adopting digital.  NASSCOM recently acknowledged that the demand environment for information technology (IT) segment appeared very healthy for FY22.

Pandemic induced transformation

Restrictions on travel throughout last year paved the way for a ‘work from home’ model with even education and entertainment shifting to online platforms. This brought about a surge in freelancing.

India is one of the largest freelancer markets in the world. The growth in digitalization, coupled with demand for digital services in the areas of software, education, wellness, market research, etc. has enabled freelancers to use their expertise across domains and grow their revenues.

The pandemic has witnessed a spurt in the number of people catering to a global audience using their specialized skills online. A teacher, with the knowledge of Sanskrit and passion for teaching, can now reach out to students across borders, from the comfort of his/her home.

With small business owners adapting to the digital world and aiming to widen their customer base, there are challenges that need to be addressed. Digitalization calls for a transformation in the business functions and processes. The availability of cost-efficient and skilled talent to manage websites, track potential business leads, procurement, supply chain, marketing, etc. is a major hurdle as majority of MSMEs have simple business models and work on strict budget constraints.

Despite facing such hindrances there has been a growth in the number of small business owners adopting digital to reach customers globally. Faster recovery in some economies will also spur global demand in the coming months, thereby supporting India’s exports. The sector’s significance in the economy continues to grow with its share amounting to two-thirds of total FDI inflows into the country. This will build India into a major quality service exporting nation.

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