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India’s growth story over the past two decades has been significantly fueled by its thriving services sector. From IT exports and business process outsourcing (BPO) to consulting and financial services, this segment has not only contributed nearly 55% of India’s GDP but has also become the country’s most visible export success. However, this success story comes with a growing vulnerability: its dependence on global demand.

The Fragile Backbone of Growth

India’s services exports were valued at USD 341 billion in FY 2022–23, showing an impressive rise from the pandemic years. Information technology (IT) and IT-enabled services (ITeS) make up a large portion of this export base, followed by financial services, consulting, and travel & tourism. These exports are largely dependent on demand from advanced economies such as the United States, the European Union, and the UK, which together account for more than 60% of India’s total services exports.

But herein lies the risk: the fortunes of India’s services sector are closely tied to the health of the global economy—an economy that has shown increasing signs of volatility and slowdown due to geopolitical tensions, inflationary pressures, tightening monetary policies, and supply chain disruptions.

The Global Slowdown Domino Effect

In recent quarters, many developed economies have either flirted with or entered periods of low growth and near-recession conditions. For instance, the U.S. economy slowed to 2.5% growth in Q4 2024, and the Eurozone barely grew at 0.6% in the same period, largely due to energy shocks and weakening consumer demand.

This directly translates into lower demand for outsourced services, fewer contracts for Indian IT majors, and a cutback on discretionary spending by global firms, including consulting and support services. In fact, top Indian IT companies like TCS, Infosys, and Wipro have already issued cautious revenue forecasts for 2025, citing client delays and deal restructuring in North America and Europe.

A Double-Edged Sword

While India’s services sector has helped reduce dependence on merchandise exports, which are often affected by tariff barriers and logistics issues, this new dependence on intangibles brings its own set of fragilities. The sector’s labor-intensive model also means any slowdown affects employment and wage growth, especially among white-collar workers in urban centers.

In 2023–24, employment generation in the IT and ITeS segments dropped by over 40% compared to pre-pandemic years, according to NASSCOM data. Moreover, rising concerns about AI-led job redundancies in basic services like customer support only add to the uncertainty.

The China+1 Opportunity and India’s Strategic Dilemma

Interestingly, India has benefitted from the China+1 strategy adopted by global firms trying to diversify their service operations. However, this opportunity is tempered by heightened global scrutiny on data protection, compliance standards, and political stability. As the global economic order shifts, India must be cautious not to become merely a fallback option rather than a core player.

What Can Be Done?

1. Diversify Export Destinations: India must expand its service export base beyond the traditional markets of the U.S. and EU. Emerging markets in Southeast Asia, Africa, and the Middle East offer underexplored potential.


2. Strengthen Domestic Demand: The Indian government must invest in boosting domestic demand for services through digital inclusion, local capacity-building, and SME support. This would create a buffer against global shocks.


3. Innovation and Value-Addition: Moving up the value chain—toward high-end consulting, AI/ML services, fintech, and data analytics—can reduce vulnerability to low-end service offshoring declines.


4. Resilience and Re-skilling: A massive workforce re-skilling initiative must be launched to prepare service sector workers for future job disruptions due to automation and global downturns.

Walking the Tightrope

India’s services sector has long been the jewel in its economic crown, but its overdependence on volatile global demand is becoming a critical concern. As the world economy enters uncertain waters, India must rethink its services export strategy. Resilience, diversification, and domestic capacity-building will be the key pillars to sustain growth and safeguard millions of jobs from the next global demand shock.