SERVICES EXPORTS FROM INDIA
CONTEXT
- Ministry of Commerce and Industry announced that it is working on a plan to reach a services export target of USD 1 trillion by 2030. This target is nearly five times of what India exported last fiscal (FY 2020).
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Services Sector in Indian Economy and Trade
- According to the Economic Survey (2019-20), the services sector’s significance in the Indian economy has increased over the years. It has accounted for around 55 per cent of total size of the economy and GVA growth, two-thirds of total FDI inflows into India and about 38 per cent of total exports.
- As far as international trade is concerned, services exports have outperformed goods exports in the recent years. As a result, India’s share in world’s commercial services exports has risen steadily over the past decade to reach 3.5 per cent in 2018, twice the share in world’s merchandise exports at 1.7 per cent.
- Services sector is also the largest foreign direct investment attracting sector.
UNDERSTANDING INDIA’S SERVICES EXPORTS
Services can be traded through four modes of services supply:
- Mode 1 – Cross-border trade in services
- Mode 2 – Consumption abroad
- Mode 3 – Commercial presence
- Mode 4 – Temporary movement of natural persons
STRATEGIES TO REVIVE INDIA’S TRADE POST-COVID-19
- The government needs to seriously investigate the subsidies and schemes and design WTO smart subsidies, which are difficult to challenge or countervail.
- The number of subsidies should be pruned down and only those that can provide maximum benefits to the exporters should be retained.
- Since there is no discipline on subsidies in services in the WTO, most countries are now subsidising the services used in manufacturing.
- India should also provide subsidies to services like logistics, which can reduce the cost for manufacturers/ exporters. Subsidies and incentives should also focus on retention of jobs as in the case of countries like Singapore.
- A number of countries are encouraging their firms to withdraw from China.
- However, many of them already have trade agreements and other engagements with China, and other countries in Southeast Asia, which may make it difficult for companies to change their supply chains unless India offers a more foreign investor friendly policy and reduces import duties on raw materials and intermediaries.
- It is important for India to ensure that its policies are supportive of investments from countries such as Japan, Taiwan, Korea, Germany and the UK.
- India may explore innovative methods to attract foreign investment and sourcing from India.
- For example, given that e-commerce is treated as an essential service across the world today, India may allow foreign investment in e-commerce inventory-based models subject to a minimum export obligation.
- This may enhance sourcing from India.
- At the same time, the policy should allow exports of perishables from India through e-commerce route subject to proper due diligence and clearances. This can be an effective route for increasing exports and linking to global supply chains.
- Incentives can be offered to Indian firms, especially small and medium enterprises, to adapt IT and go online.
- This will not only help them to access more global clients and diversify export markets but also improve their own productivity and efficiency.
- IT adaptation also needs supporting regulations so that sellers and buyers are protected from online fraud, etc. The exporters may need training to go online. Such training may be supported by the government.
- India also needs a strong data protection regulation like the General Data Protection Regulation (GDPR) of the EU, which gives global clients a level of confidence about sharing data.
- India needs to help companies to adopt technology and export services online. It is important to handhold Indian technology start-ups in sectors like online education and health to globalise.