Don’t ignore the services sector 

News: India aspires to become a $5-trillion economy. It is predicated on the growth of its international trade to $2 trillion by 2030 which is equally contributed by the merchandise and services sector.  

About the Status of services and manufacturing sector

It comprises over 50% of the GDP, overriding the contribution of both agriculture and manufacturing.

The year 2021-22 was an astounding success as the manufacturing and merchandise exports had crossed the $400 billion rubicon. The services exports had exceeded $254 billion, which was an increase of over 20% year-on-year.  

India’s merchandise and manufacturing import were $600 billion versus our exports of over $400 billion. In contrast, India Services exports were over $100 billion more than its service imports. 

Further, around 50% and more of services exports are contributed by IT-ITES. The rest is contributed from management, legal, accounting, logistics, travel and tourism, education, healthcare, etc. 

What are the issues with the services sector?  

The services sector does not receive the recognition and encouragement in the form of incentives, just like the manufacturing and the merchandise sector.  

There is a perception that the service sector including IT sector has flourished due to minimum government intervention.  

Further, the service sector as a whole does not require any hand holding support of the government. 

Why does India need to focus on service exports?

This year, the deficit in merchandise exports-imports is widening with the impact of rising crude prices. 

There is a huge imbalance in the incentives offered between the merchandise export segment vs service export. For example, the MEIS (Merchandise Exports Incentive Scheme) provided more incentives than the SEIS (Services Exports Incentive Scheme), even during the Covid restrictions. 

These incentives serve to make businesses internationally competitive as well as recognise contributions made by service providers.  

What should be done to improve the service sector?

Services sectors beyond IT require careful nurturing, especially capex-intensive sectors like hospitality, healthcare and education. 

The government should aim to quadruple services exports over the next 7-8 years. There should be a strategic road map with the right sort of government intervention to achieve the goals.  

The government should focus on all other sectors (other than IT) to bring exponential growth to the table. For example, consider international tourism. 

In addition, the government should embark on a crash programme to enhance infrastructure. For example, PPP Models can be to build more airports and highways, to improve physical connectivity. 

It requires individual entrepreneurship to increase the hospitality quotient by adding more hotel rooms.  

The government should provide attractive incentives like direct taxation for green field projects in the services sectors, especially in the building of hotels, hospitals and universities. 

The government can bring the scheme for the services sector on lines of the Production Linked Incentives (PLI) scheme, in areas like hospitality, education and health care. It will ensure capex investment. It will result in increased productivity and avenues for employment.  

India as a major economy, India’s reliance should be on multiple sectors including, manufacturing and services. 

Source: The post is based on the article “Don’t ignore the services sector” published in the Indian Express on 1st July 2022.