India's Exports of Software Services: Role of External Demand and Productivity

Services sector in India showed a remarkable resilience to global economic crisis and grew at a rate of 9.3 per cent explaining around 88 per cent of the growth rate in real GDP of India in 2008-09. Exports of software services helped considerably in providing the necessary resilience. The main objective of the paper is to examine the role of external demand and productivity growth in exports of software services. Global income elasticity of demand for export of software services is estimated for the period 1970-2008. Sources of total factor productivity growth in Indian IT services firms are identified using Data Envelopment Analysis for the period 1994-95 to 2007-08. It is found that high income demand elasticity for India's software services has contributed substantially to its growth. But more importantly, there has been a steep rise in productivity growth in the post-2000 period which is attributable mainly to technological innovation.