How Budget 2026–27 is strengthening India’s services export engine
India’s services sector has steadily emerged as one of the strongest pillars of the economy, contributing significantly to growth, employment and global trade integration. The Union Budget 2026–27 seeks to build on this momentum through targeted tax reforms, digital infrastructure incentives and expanded global market access for Indian service providers. The government has also outlined a long-term ambition of increasing India’s share in global services exports to 10 per cent by 2047 as part of the broader Viksit Bharat vision.
India’s services exports have continued to show strong growth in FY2025–26, supported by sustained global demand for digital and knowledge-based services. Between April 2025 and January 2026, services exports are estimated at USD 348.4 billion. The growing importance of the sector is also reflected in its contribution to the economy. In the first half of FY26, services exports accounted for around 10 per cent of India’s GDP. Over the period FY23–FY25, the share of services exports in GDP averaged 9.7 per cent, rising significantly from 7.4 per cent in the pre-pandemic years. The services sector has also played a key role in employment generation, accounting for nearly 30 per cent of total jobs in the country. In the post-COVID recovery phase alone, the sector added close to 40 million jobs, making it an important stabiliser for the labour market.
Software services continue to dominate India’s services exports. They account for more than 40 per cent of total services exports and have grown rapidly in recent years, reflecting strong global demand for digital services. Computer services constitute over two-thirds of India’s software exports, while business process outsourcing remains a major component of IT-enabled services. Professional and management consulting services have also emerged as an important growth driver. Their share in services exports increased significantly from 10.5 per cent during FY16–FY20 to 18.3 per cent during FY23–FY25. Together, software services and business services account for more than 65 per cent of India’s services exports, highlighting the country’s growing specialisation in knowledge-intensive and digitally delivered services.
Recognising India’s strong position in global IT and IT-enabled services, the Union Budget 2026–27 introduced several reforms aimed at strengthening the sector. One of the key announcements is a tax holiday until 2047 for foreign companies providing cloud services to global clients using infrastructure located in India. This measure is expected to attract global cloud service providers to establish data centre infrastructure in the country, thereby strengthening India’s role in global digital service delivery. The Budget has also proposed safe harbour reforms for IT services to simplify tax compliance. Software development services, IT-enabled services, knowledge process outsourcing and contract research and development related to software will now be consolidated under a single category of Information Technology services. A common safe harbour margin of 15.5 per cent has been proposed, while the threshold has been increased significantly from ₹300 crore to ₹2,000 crore. The regime will be approved through an automated rule-driven process and companies opting for it will be able to continue under the same provisions for five consecutive years.
The government has also proposed reforms in Advance Pricing Agreements to provide greater certainty for IT services companies engaged in international transactions. The unilateral Advance Pricing Agreement process is expected to be fast-tracked, with a target of concluding agreements within two years. Taxpayers will also have the option to request a six-month extension if required. In addition, associated entities of companies entering into such agreements will be allowed to file modified tax returns, which is expected to further simplify compliance and reduce disputes.
India’s services export growth is also being supported by the rapid expansion of Global Capability Centres. These centres have become a key channel through which multinational corporations deliver services globally from India. The number of Global Capability Centres in the country has grown steadily, reaching more than 1,700 and employing over 1.9 million professionals. Over time, these centres have evolved from handling back-office operations to performing high-value functions such as product development, cybersecurity, artificial intelligence, analytics and engineering services. Their expansion reflects India’s strong talent pool, cost competitiveness, digital infrastructure and supportive policy environment.
The country’s growing capabilities in artificial intelligence and digital technologies are also strengthening services exports. India ranks among the leading countries in terms of AI skill penetration and has been steadily improving its technological readiness. Rapid growth in data consumption, cloud adoption and digital innovation is driving large investments in data centre infrastructure. India’s data centre capacity is projected to expand sharply in the coming years, enhancing the country’s ability to deliver digitally enabled services to global markets.
In addition to domestic reforms, India’s expanding network of trade agreements is also supporting the growth of services exports. Agreements with major partners such as the United Kingdom, the European Union, Australia, Oman, New Zealand and the European Free Trade Association provide wider market access for Indian service providers across a range of sectors including IT, professional services, financial services and education. These agreements also include provisions aimed at facilitating the mobility of skilled professionals, allowing Indian engineers, architects, consultants and other specialists to work more easily in global markets.
The Union Budget also focuses on strengthening the broader services ecosystem through initiatives in skill development and emerging sectors. The government plans to develop a strong care economy by training around 1.5 lakh caregivers through programmes aligned with the National Skills Qualification Framework. With global demand for healthcare and elder-care services rising rapidly, this initiative could create significant employment opportunities while expanding India’s service exports in healthcare-related fields. The Budget has also proposed measures to promote traditional medicine and AYUSH systems globally. These include the establishment of three new All India Institutes of Ayurveda, the upgradation of the WHO Global Traditional Medicine Centre in Jamnagar and improvements in certification infrastructure for AYUSH products.
Tourism and medical travel are also expected to play an important role in expanding services exports. The government plans to establish five regional medical tourism hubs in partnership with the private sector to position India as a global destination for affordable healthcare. Additional initiatives include training 10,000 tourist guides across major destinations and developing 15 archaeological sites into world-class tourism hubs. Improved connectivity through proposed high-speed rail corridors linking major cities and cultural centres is also expected to support tourism-driven services growth.
Rising foreign investment further highlights the strength of India’s services sector. Between FY23 and FY25, the services sector accounted for over 80 per cent of total foreign direct investment inflows, reflecting strong investor confidence in India’s digital and knowledge-based industries. Information and communication services and professional services have attracted a significant share of these investments, reinforcing the country’s role as a global hub for digitally delivered services.
Overall, India’s services sector has become one of the most resilient drivers of the country’s economic expansion. With supportive policy reforms, expanding digital infrastructure, a growing pool of skilled professionals and stronger global trade partnerships, the Union Budget 2026–27 aims to accelerate the growth of services exports and strengthen India’s position as a leading provider of knowledge-intensive and digitally delivered services worldwide.
