The Ministry of Commerce and Industry recently revealed plans to reach a service export target of USD 1 trillion by 2030. This ambitious target is roughly five times the value of services India exported in the previous fiscal year (FY 2020). This plan indicates a significant shift in strategic focus towards enhancing the performance of the service sector.
Insights on the Services Sector in India
Currently, India is recognized as the seventh-largest global services exporter, signaling the potential strength of this sector. The service sector accounted for 54% of the total Gross Value Added (GVA) for FY21, highlighting its crucial role in the Indian economy.
Employing approximately 26 million people, this sector contributes about 40% to India’s total global exports. Furthermore, between 2000 and 2021, it received the most substantial portion of foreign direct investment (53%). It spans various activities like transport, storage, communication, trade, hotel and restaurants, finance, insurance, real estate, business services, community, social and personal services, and construction-associated services.
The Importance of the Services Sector
For a considerable amount of time, the surplus from services trade has played a crucial part in reducing the country’s merchandise shipment deficit. With further government intervention and targeted focus, the services trade surplus, which stood at $89 billion in FY21, could contribute even more significantly.
The Skill India program, aiming to equip over 40 crore youth with market-relevant skills by 2022, illustrates the critical role of services in transitioning India from an ‘assembly economy’ to a ‘knowledge-based economy’. The Purchasing Managers Index (PMI), which measures activity in both manufacturing and services sectors, underlines this strategic focus.
Plans to Boost Services Exports
To achieve the services export target, diversifying the sector is necessary. This includes going beyond the dominant IT and IT-enabled services (ITeS). The move to open domestic legal services will give Indian lawyers huge opportunities in regions such as Europe, Australia, and America. Similarly, sectors like higher education, hospitality, and medical tourism need greater attention.
The government is also actively seeking market access opportunities via Free-Trade Agreements (FTAs) with key economies including the UK, EU, Australia, and the UAE. Additionally, there are plans to fine-tune the Service Exports from India Scheme (SEIS) to allow firms to increase competitiveness.
Service Exports from India Scheme (SEIS)
Introduced in April 2015 for five years under the Foreign Trade Policy (FTP) of India 2015-2020, SEIS replaced the Served from India Scheme (SFIS) for FY 2009-2014. Under this scheme, the government provides a 3-5% incentive on the net foreign exchange earned in the form of duty-credit scrips. These scrips can be used for the payment of basic and additional customs duties on imported goods.
Looking Ahead: Strategies for the Success of the Services Sector
Similar to the production-linked incentive scheme, the government should consider developing a similar program for the services sector. Becoming part of global value chains is paramount for making India a significant exporter. This involves specializing in comparative advantage areas and achieving substantial quantity expansion.
A dynamic Business 2 Business (B2B) portal could also prove beneficial for service providers looking to reach international markets. Additionally, the forthcoming FTP needs to focus more on this sector. By announcing scheme-based export incentives, providing interim relief by continuing existing schemes in the short term, the momentum gained in the first five months of 2021-22 can be sustained.
