1 India’s Exports of Software Services: Role of External Demand and Productivity Rashmi Banga and Dinesh Kumar Abstract: Services sector in India showed a remarkable resilience to global economic crisis and grew at a rate of 9.3% explaining around 88% 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 to 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. JEL Classification: F14; L86 Key Words: India’s services exports; productivity in IT services; Income elasticity of demand for services; Economic crisis and India’s exports of software services. Senior Economist, UNCTAD-India (rashmibanga@unctadindia.org ) Consultant, UNCTAD-India