Business
Why India’s services sector needs special focus from the government
Services remain the country’s largest employer and contribute over 50% to the overall economy despite this the sector hasn’t been given the kind of attention accorded to merchandise and manufacturing, says outgoing Service Export Promotion Council chief Maneck Davar whose stint at the apex trade body ended on Wednesday. Mr Sunil H. Talati, who has served as council’s vice-chairman for two years, has taken over the top role.
Speaking with The Plunge Daily, Mr Davar noted that reaching the target of USD 1 trillion services export by 2030 is ambitious yet possible and requires concerted effort from the industry players as well as the government. Mr Davar shared insights about SEPC’s critical role in promoting exports and the future roadmap for the service industry.
Q: The government has set a target of USD 1 trillion services exports by 2030 but it seems to be a humongous task given we have to quadruple our service exports in 9 years. What, according to you, are the major bottlenecks in achieving this target?
A: It is indeed an ambitious target, but that is where the challenge lies. This cannot be achieved in any isolation, but there will have to be a concerted effort by both the industry as well as the government. The industry will have to map out its growth plans and the government has to ensure swift implementation of its policy decisions. We need to identify sectors beyond the IT/ITES, which can contribute substantially to this growth. It must be understood that growth could not happen in vacuum. So, rather than solely relying on policy decisions, we should also give some impetus to infrastructure development especially in areas like travel, tourism, healthcare and education. So, incentive support for entrepreneurs to help them develop the physical infrastructure becomes necessary. To give you an example, we had around 10 million tourists visiting the country every year before the pandemic. If we want these figures to jump four or five times in the next eight years, we need to develop sufficient infrastructure, both in terms of ingress and egress. And the growth does not necessarily have to come only from the government, if we have good policies, entrepreneurs will certainly make good investments. At every stage, this growth has to be mapped and monitored like merchandise exports where the government is mapping every export to ensure that they reach a target of about $400 billion for this year. There is nothing happening in services export at that level. SEPC has been pointing it out to the concerned ministry that while you are concentrating on merchandise exports, you are not focusing on the growth happening in the services sector, which will go from$206 billion to $240 billion despite the fact that sectors like travel and tourism have still not opened up.
Q: As you have earlier said that the services sector needs more attention from the government as it’s a major contributor to India’s growth story. Like tax benefits and PLI schemes for the manufacturing sector, SEPC has been seeking a level playing field for the services sector as well. So, how can we create this level playing field? Please tell us about it.
A: The quantum of service exports in India is about$100 billion more than the services import whereas in the case of merchandise exports, it is the other way around. So, it is in the interest of the economy that the services sector is given an impetus because the more services we export, the balance of payment will become healthier. Also, the government should look at the services sector with the same focus as it is looking at the manufacturing sector. To give you an example, there is a scheme which was announced by the government for greenfield projects in the manufacturing sector where the taxation would be around 15%. The same benefits could be accorded to sectors like travel tourism, hospitality and medical value tourism. As we all know, services is a major employer and contributes more than 50% to the overall economy, the rest being made by agriculture and manufacturing. So, the government must focus on the services sector
Q: Please share the key recommendations made by SEPC for the foreign trade policy and how it could help services export minimize the impact of pandemic.
A: The government has indicated that the old incentive schemes like MEIS and SEIS have to be done away with. MEIS will be replaced because of WTO commitments. Now, there is no such commitment as far as the services sector is concerned. But still, it has to migrate to a new kind of regime. The SEPC has suggested that the government should frame an incentive scheme called DRESS ( Duty Remission on Export of Services Scheme) for the services sector, which is similar to RoDTEP (Remission of Duties and Taxes on Exported Products). We have also suggested to the government that no sector should be excluded from the grant of these incentives. And as we know, the government has put a cap of Rs 5crore on entitlements for exporters and there are MSMEs in every sector that require this kind of support. More importantly, the government should look at every sector in isolation based on its individual problems. For example, in travel and tourism, GST has emerged as a major issue, it may render them uncompetitive especially in South-East Asia. We are competing with the likes of Thailand and Singapore and Malaysia for tourism. Unlike merchandise and manufacturing, the services sector has asked for very little. Even the commerce minister has acknowledged this. Having said that, it must not be taken for granted and I am glad to say that SEPC’s efforts have seen fruition. There has certainly been a recognition that the services sector also requires to be looked at to make it more competitive.
Q: Please share SEPC’s role in ensuring the release of SEIS 2019-20.
A:We repeatedly sensitised all the concerned ministries including Commerce, Industry and finance about the grievances of the services sector. Sectors like travel, tourism, education and health are suffering because of the pandemic, we had repeatedly pushed for the release of SEIS claims. There was some resistance to SEPC , the feeling was that large companies were benefiting, we pointed out that about 90% of the beneficiaries are MSMEs and they need this support. We suggested that if they don’t want large enterprises to benefit then they can put a cap of Rs 5 crores. And now, the government has released Rs 2,061 crore, the entire SEIS claim for FY 2019-20.
Q: What, according to you, are the most promising sectors in services exports that deserves additional focus from the government.
A: I think all the sectors under service export are equally important, but let us break it into two parts. There are sectors like tourism, hospitality, education and healthcare where physical infrastructure becomes very important and then there are sectors where intellectual capacity is required. And obviously, we have made a huge success in the IT/ ITES sector. Now we’ve got to look at the entertainment segment, which includes gaming, VFX, AI tech. Even education is increasingly becoming virtual, there are many platforms which have embraced the online mode of teaching. India has a single digit share in global exports. We have around 2% of the world’s merchandise exports while commercial service exports is around 3.5%. So, there is another way to look at it. If we incrementally increase our services exports to a level of about 8-10% over the next 7-8 years, we will reach the target of USD 1 trillion.
Q: SEPC was established in 2006 to cater to the interest of the service sector beyond IT/ITES. Please tell us about the role played by SEPC in boosting service exports?
A: While SEPC has been representing and working with service exporters, in the last few years, there has been an extended focus on improving this segment. Infrastructure has been created, both in terms of physical and the human resources. Unfortunately, the pandemic intervened, and severely impacted the interaction between clients and the supplier of services. That, of course, is changing now. We had recently concluded a Global Services Conclave in New Delhi for outlining a roadmap for future growth of the services sector. The event was attended by experts from the government, services industry, exporting community, academia, and policymakers. For the first time, we are securing insurance for service exporters through ECGC. We have also drawn up policies to protect service exporters including tourism.
Q: Please tell us about the initiatives undertaken by SEPC for exports promotion.
A: In September, we launched the SEPC masterclass series under which workshops, training sessions and focussed interactions on service-related issues were conducted for exporters. These are specifically designed modules delivered by industry and domain matter experts. The prime objective is to train service exporters to attain resilience and competitiveness in their export business. We had also held a lot of webinars during this period.
