Services Sector

Context: India’s aspiration to become a $5-trillion economy is predicated on the growth of its international trade to $2 trillion by 2030, equally contributed to by merchandise and services. This translates into a three-fold growth or almost 20 per cent CAGR over this period.

• Expectation of services exports to overtake merchandise and manufacturing, or at least be on par.
• But possible only if services are viewed from the same prism as manufacturing in terms of fiscal encouragement and incentives.
• While around 50 per cent and more of services exports are contributed by IT-ITES, which continues to innovate its offerings and grow, the rest is the input from management, legal, accounting, logistics, travel and tourism, education, healthcare, etc.
• Services sectors beyond IT require careful nurturing, especially capex-intensive sectors like hospitality, healthcare and education.

Concerns in the Services Industry

Even though it comprises over 50 percent of the GDP, the services sector does not receive the recognition — and more importantly, the encouragement in the form of incentives — it deserves.

1. The perception at one level of the sector as comprising only IT: And the IT sector has flourished because of minimum government intervention. Ergo, the sector as a whole does not require any hand holding. This is a fallacious perspective.
2. Not Recognising and celebrating: In the year 2021-22, services exports had exceeded $254 billion, an increase of over 20 per cent year-on-year, even though contribution from three sectors — education, healthcare and especially travel and tourism — was overall reduced by over $20 billion because of travel restrictions during the pandemic.
   • Further, consider that merchandise and manufacturing exports are $200 billion-negative in that we imported $600 billion versus our exports of over $400 billion. Services exports, by contrast, were over $100 billion-positive, underlining the importance of ensuring that the growth trajectory in services exports is maintained.
3. Lack of Incentives:
   • During the reign of MEIS (Merchandise Exports Incentive Scheme), merchandise exporters benefited to the extent of over Rs 40,000 crore in 2018-19, whereas under the corresponding SEIS (Services Exports Incentive Scheme) exporters could avail of only a tenth of that amount.
   • Even though SEIS is committed under the Foreign Trade Policy, it was only through intense advocacy that a sum of Rs 2,000 crore was finally earmarked for services exports for 2019-20, largely on compassionate grounds as sectors like travel and tourism had suffered immensely due to Covid restrictions.
   • These incentives cannot be viewed as charitable handouts — they serve to make businesses internationally competitive as well as recognise contributions made by service providers. These incentives are clearly temporary impetus providers and there must be a slew of economic measures with both long-term effects and benefits for services.

The Way Forward

To quadruple services exports over the next 7-8 years is surely a herculean task and certainly not achievable unless there is a strategic road map with the right sort of government intervention.

• Focus to move beyond IT: The burden cannot be only on the IT sector, which at present contributes around 55 per cent of total services exports. Clearly, other sectors will have to bring exponential growth to the table.
• Triple International arrivals & make India ready to attend to them: Government needs to embark on a crash programme to enhance infrastructure.
  • While the government can work on physical connectivity through public-private partnerships by building more airports and highways, it will require individual entrepreneurship to increase the hospitality quotient by adding more hotel rooms.
  • The government provides attractive incentives, including direct taxation for green field projects in the manufacturing sector. The same blueprint must be initiated for the services sectors, especially in the building of hotels, hospitals and universities, with an emphasis on those that attract forex.
• Incentives Services Sector: With a similar scheme like Production Linked Incentives (PLI) scheme with a well-laid-out process that ensures capex investment, resulting in increased productivity and avenues for employment. It can be introduced for services with substantial scope for capex in areas like hospitality, education and health care.

Conclusion

In these adverse times, if economic momentum has to be sustained and every initiative and effort has to be made to yield the desired result, then the perception of services, especially their exports, must radically transform. This is also to ensure that as a major economy, India’s reliance should be on multiple horses in the race — manufacturing and services.

About the Service Exports from India Scheme (SEIS)

• Service Exports from India Scheme (SEIS) aims to promote export of services from India by providing duty scrip credit for eligible exports.
  • A Duty Credit Scrip is like a credit certificate issued by the Director General of Foreign Trade (DGFT) and can be used to pay various duties/taxes to the Central Govt.
• Service providers of eligible services shall be entitled to duty credit scrip at notified rates on the net foreign exchange earned.
• Duty credit scrips can be used for the payment of custom duties, excise duties, GST on procurement of services etc.
• Further, the SEIS scheme has given relaxation to the actual user condition and duty credit scrips and goods imported using duty credit scrips are freely transferable. Duty credit scrip would be valid for a period of 18 months from the date of issue.
• The scheme is implemented and administrated by the Government’s Ministry of Commerce and Industry, in association with the Directorate General of Foreign Trade (DGFT).

Source: The Indian Express