Services exports could beat recession woes and hit a record $300 billion: Goods sector set to slow

India’s services exports are likely to defy the impending recession in the biggest markets – the US and the EU – and grow at an impressive pace in FY23, although the goods sector is expected to experience a slowdown in its growth.

Services exports are expected to jump 18% year on year to a new high of $300 billion in the current fiscal year, Service Export Promotion Council (SEPC) chairman Sunil Talati said. to FE. Already, services exports soared 27% in the June quarter to $71 billion, he said.

On the contrary, a sharp slowdown in growth or recession in advanced economies could improve the outlook for Indian service exporters, as these countries tend to start diverting more orders to cheaper destinations to cut costs. , said Talati. This is especially true for segments such as accounting and legal services.

Senior executives at service sector companies FE spoke to said their order flow remained strong. Although a few segments may be affected, on a net basis export order flows are expected to remain robust in the coming months, some said. The United States (and Canada) and Europe (including the United Kingdom) accounted for 56.2% and 30.1% respectively of India’s software services exports worth $134 billion during FY21, according to the latest RBI data.

Amit Chadha, CEO and Managing Director of L&T Technology Services, said, “Despite currency fluctuations and supply chain shortages, we are seeing many promising opportunities in the engineering and technology services landscape. The good thing is that, overall, our global customers are continuing their transformation programs, with digital engineering being an area of ​​focus and spending. »

Chadha believes that L&T Technology Services’ Six Big Bets (EACV, 5G, Digital Products and AI, Digital Manufacturing Services, Medtech and Sustainability) focus and its strategic investments are aligned with the multi-year focus areas of global companies. engineering and R&D and will help his business continue to grow.

A Wipro spokesperson said, “Our customers continue to invest in the digital acceleration, cloud adoption, and technology and business transformation that are at the heart of their products and services. As we shared our earnings call, our pipeline, order bookings and ongoing discussions with our customers remain strong. »

Given that the United States and countries in Europe are experiencing rampant inflation, a substantial wage spiral in these markets would make local sourcing more expensive. Moreover, a weak rupee will also help the cause of India’s service exports, industry executives said. Despite the recent rally, the rupee is still down 6% against the greenback year-to-date.

In a July 24 earnings call, Infosys Chief Executive Officer and Managing Director Salil Parekh said “the overall pipeline is strong at this point, but of course we are watching what may happen as the environment evolves and changes”.

Parekh suggested that recession fears and interest rate hikes by the US Federal Reserve could impact “some pockets” like the mortgage (financial services) sector, “but the prevailing view of our pipeline today is that we have a good pipeline overall.” .

Venkatraman Narayanan, Managing Director and CFO of IT firm Happiest Minds, said: “A recession in other geographies would further bolster India’s offshoring story as there would be a sharp rise in wages in these countries, mainly due to inflation.

Inflation in several advanced economies, particularly in the United States and many European countries, has reached its highest level in several decades.

“With India’s offshoring capabilities and skills well accepted globally, the country is also accepted as a leading offshoring destination for the world. We don’t have to sell our abilities hard,” Narayanan said.

Last week, the International Monetary Fund cut its 2022 growth forecast for the United States to 2.3%, from 3.7% forecast in April. Similarly, he pegged US growth for 2023 at just 1%, down from the previous forecast of 2.3%. The euro area will grow by around 2.6% and 1.2% in 2022 and 2023, respectively, down from earlier IMF projections of 2.8% and 2.3%.

Downside risks from high inflation, tight monetary conditions and war in Ukraine add to an already “gloomy and more uncertain” global outlook, the IMF said, warning that surging inflationary pressures, if unchecked, could ultimately trigger a global recession.