Artificial intelligence and trade liberalization are poised to be India's next major growth catalysts, significantly boosting services exports, according to Franziska Ohnsorge, the World Bank's South Asia Chief Economist. Ohnsorge suggests that a combination of deregulation, trade reforms, and AI could spark a resurgence in manufacturing.
India's proactive adoption of AI is already yielding economic benefits, positioning it as a potential global hub for AI-driven growth. Since the launch of ChatGPT, there has been a notable 30% surge in computer services exports, contrasting with the plateauing of overall service exports. This momentum is attracting investors and fostering confidence in the country's economic prospects. The Business Process Outsourcing (BPO) sector is rapidly integrating AI, with a doubling of job postings requiring AI skills since ChatGPT's release, now accounting for approximately 12% of all listings. This is three times higher than in other sectors.
Ohnsorge highlighted two significant investment opportunities for foreign investors: service exports and goods exports, emphasizing the appeal of export industries. She noted that India's government's readiness for AI further strengthens this potential. Speaking at the Kautilya Economic Forum, she pointed out that computer services exports have increased significantly, growing by 30% since ChatGPT's introduction in November 2022, compared to a 10% increase in overall service exports.
However, Ohnsorge also cautioned that India's manufacturing sector is being held back by a limited number of trade agreements and high tariffs on intermediate goods. She emphasized that successful trade negotiations could substantially improve market access for Indian manufacturers.
India is actively engaged in Free Trade Agreement (FTA) negotiations with several countries and blocs, including the UK, EU, Oman, Canada, and various Indo-Pacific Economic Framework (IPEF) partners, as well as bilateral trade negotiations with the US. The recent trade agreement with the UK is considered the most ambitious in a decade, extending beyond tariffs to encompass services exports and labor mobility provisions.
According to Ohnsorge, sustained growth at a moderate pace of 6%-7.5% annually, without macroeconomic instability, could transform India and lift many people out of poverty. She noted that India has achieved this level of consistent growth since 2000. Merchandise and service exports offer significant investment potential and opportunities to increase their share in India's GDP, driven by trade deals and AI-led productivity gains in the service sector.
The World Bank's upcoming South Asia update, scheduled for release on October 7, projects India's growth at 6.5% for fiscal year 2026 and 6.7% for the following year. India's economy grew by 6.5% in fiscal year 2025 and expanded by 7.8% in the April-June period of the current fiscal year.
In the April-August 2024 period, India's goods trade deficit stood at $121 billion, while the services trade surplus was lower at $68 billion. According to data from the Reserve Bank of India (RBI), India's export of software services in the April-June quarter was $47.32 billion, a 13% year-on-year increase. In the quarter before ChatGPT was released (July-September 2022), India's software services exports were $36.23 billion. India ranks 46th in Oxford Insights' Government AI Readiness Index, a better position than other emerging markets and developing economies and almost on par with advanced nations.
