Growth Behaviour of India’s Export of Services, 1975–2018

Publication Date01 August 2021
Date01 August 2021
AuthorAmiya Sarma,Sampriti Das
DOI10.1177/0015732520982187
SubjectArticles
Growth Behaviour of
India’s Export of
Services, 1975–2018
Sampriti Das1 and Amiya Sarma1
Abstract
Trade in services has made phenomenal strides in the globalisation era with the
advent of a technology revolution, fragmentation in production processes and
rapid digitisation. The case of India has been exemplary, as she bypasses her slug-
gish growth in goods exports to emerge as a world leader in commercial ser-
vices. By churning out positive net exports since 2003, this trade sector has
considerably eased the country’s unfavourable current-account position. Further,
the relatively robust performance of the country’s service exports in the face of
the Great Recession of 2008–2009 has ignited speculations over its suitability as
an instrument of sustainable economic growth. Though the stupendous growth of
India’s export of services is well documented, not much has been said regarding
consistency in this growth. Our study identifies that against the backdrop of key
macroeconomic developments, the growth performance of the country’s real
export of services has undergone vivid variations. The long-term trend of these
exports, though increasing, is choppy. We identify three structural regimes in the
course of these exports: 1975–1993, 1994–2004 and 2005–2018. We conscien-
tiously deduce that the phenomenal growth of real service exports that accrued
in the 1990s has been slowly wearing out post 2005. The slowdown has both
cyclical and structural elements to it and corresponds to the changing cyclical-
ity of service exports, subduing demand, slowing global value chains (GVCs) and
post-crisis mood of protectionism.
JEL Codes: F14, C32, E32
Keywords
Trade, slowdown, structural change, Beveridge–Nelson decomposition
Article
1 Gauhati University, Jalukbari, Guwahati, Assam, India.
Corresponding author:
Sampriti Das, Gauhati University, Jalukbari, Guwahati, Assam 781014, India.
E-mail: dassampriti25@gmail.com
Foreign Trade Review
56(3) 301–321, 2021
© 2021 Indian Institute of
Foreign Trade
Reprints and permissions:
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DOI: 10.1177/0015732520982187
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302 Foreign Trade Review 56(3)
Introduction
Service trade has made phenomenal strides in the globalisation era with the ad-
vent of a technology revolution, fragmentation in production processes and rapid
digitisation. The share of services in world trade has grown from 9% in 1970 to
almost 20% in 2019 and is expected to grow further by a wholesome 50% within
the next two decades (World Trade Organisation, 2019). As services continue to
dominate a signicant share of world trade, there has been increasing focus on
its development potential. Both the Asian crisis of 1998 and the global nan-
cial crisis of 2008–2009 have strengthened the case for world trade in services.
With its low reliance on external nance, non-discretionary use in production
and lack of vintage effect,1 service trade is often perceived as being less cyclical
and thus more resilient to output shocks (Ariu, 2016; Borchert & Mattoo, 2010;
Ceglowski, 2017). It is such robust performance of this trade sector that has raised
speculations over its suitability as an instrument of sustained economic growth
and development.
Incidentally, the story of India’s trade in services has been remarkable. Of the
successive transitions that the economy has undergone in the last three decades,
an enviable artefact is the abrupt rise of her export of services. By the 1990s, the
country’s service exports grew at a rate faster than the global average, unparal-
leled by those of her contemporaries from the developing world (Eichengreen &
Gupta, 2013). Soon enough, the country surpassed her sluggish growth of goods
exports to emerge as the eighth leading exporter of commercial services (World
Trade Organisation, 2019). The sector has also been churning out positive trade
surpluses, thus easing the country’s unfavourable current-account position due
to her goods trade. Furthermore, it was by riding on the wheels of these crisis-
resilient exports, on one side, and a sound financial command, on the other, that the
Indian economy could better insulate itself from the 2008–2009 crisis (Das et al.,
2011; Kumar & Pankaj, 2011). However, while the crisis in itself was evaded, it did
open up a can of worms in the form of decelerating world output, rising protect-
ionism and global rebalancing in the years beyond. Naturally then, we have reasons
to think through whether service exports of India have continued to maintain their
glory or if their growth performance has been challenged in recent years.
Figure 1 shows how growth has indeed not been smooth. The series, no doubt,
exhibits an upward drift, but this global trajectory conceals critical facts on the
shifts, variations and fluctuations that these exports might have endured over the
years.
We put together three compelling issues that merit deliberation here: (a) first,
it becomes imperative to understand what part of this overall growth may be seen
as permanent and what part as transitory. Where the permanent component, that
is, the trend, can offer a useful perspective on the long-run potential for growth,
the transitory growth cycles could trace deviations of actual growth rates from the
long-run potential. One may then map from such cycles the sources of transitory
shocks to growth (Zarnowitz & Ozyildirim, 2002); (b) the second issue surrounds
the very course of the long-term trend. It is observed that unlike the convention-
ally stable trends of advanced economies, emerging market economies exude

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